The Heck About Trading for a Living

[Do Or Die 10]

Foremost, apologies to the author of the very popular book “Trading for a Living”. I skimmed it very long back and felt most things talked in the book are just basics. This article has nothing has nothing to do with the book.

 

“Trading for a Living” is an over-hyped and abused phrase on internet forums. What this article talks about is its plain meaning and few thoughts of achieving the same. This is absolutely no technical, scholarly, high-tech or expert talk; just something which a beginner (total noob) can understand.

Meaning of Trading for a Living

 

There seems to be a LOT written about “trading for a living”; however, it literally implies making enough money from the ‘trading the markets’ to substitute a regular 9-5 job or a traditional business. As a practical consideration, trading should be reported a primary source of income to IRS. In reality, trading profits should be sufficient to take care of lifestyle expenses.

 

How much profits are sufficient? This will vary depending on where you live, but for someone in 20’s looking to start a family it can be minimum 5K per month. It can be minimum 20K for someone supporting a family with nice lifestyle in metro city.

 

Achieving the Goal of Trading for a Living

 

So what do you need to make a minimum of 5K$/month? Well, keep aside technical strategies and stuff; you need a risk capital (trading capital) in the first place to generate such returns.

 

Elementary math suggests for someone who wants to make 50% a year will need starting capital of more 500K to support withdrawals of just 5K/month. To support a family you will need sufficient capital to support monthly withdrawals of 10K+. The capital should grow at some rate too or else you end up withdrawing each month everything that you make.

 

People aged under 25 are not likely to have saved that much money to bet on the table from their regular job/business. So for the young it seems Trading for a Living is a pipedream, unless he/she is willing to work at a proprietary trading firm.

 

People aged 30-35 are likely to have saved 500K. But will it be prudent to buy own house/luxury or risk the money in trading? Trading is risky, everybody knows.

 

People aged over 40 should be able to afford a trading venture. BUT will they be willing to get out of the habitual financial comfort of 9-5 job or regular business to start something formidably new?

A Practical Solution:

 

• Do not shoot for ‘trading for a living’ unless you are financially strong
  
• Do not fall for cumulative equity, compounding formula, and similar stuff. It all looks good on paper, but if you refuse to withdraw and allow returns to compound, you cannot pay for your expenses. ‘Trading for a living’ is a totally different ball game than just 'profitable trading'.
  
• You do not really need 500K to start trading. Use part of your savings to grow them fast by careful investing; it requires less time than trading short-term and allowing to grind at regular job. This also helps in building experience in the markets. Investing here refers to medium to long term trading- trades initiated with an expected holding time of 3 weeks plus.
  

[nakachalet 10]

Foremost, apologies to the author of the very popular book “Trading for a Living”. I skimmed it very long back and felt most things talked in the book are just basics. This article has nothing has nothing to do with the book.

 

“Trading for a Living” is an over-hyped and abused phrase on internet forums. What this article talks about is its plain meaning and few thoughts of achieving the same. This is absolutely no technical, scholarly, high-tech or expert talk; just something which a beginner (total noob) can understand.

Meaning of Trading for a Living

 

There seems to be a LOT written about “trading for a living”; however, it literally implies making enough money from the ‘trading the markets’ to substitute a regular 9-5 job or a traditional business. As a practical consideration, trading should be reported a primary source of income to IRS. In reality, trading profits should be sufficient to take care of lifestyle expenses.

 

How much profits are sufficient? This will vary depending on where you live, but for someone in 20’s looking to start a family it can be minimum 5K per month. It can be minimum 20K for someone supporting a family with nice lifestyle in metro city.

 

Achieving the Goal of Trading for a Living

 

So what do you need to make a minimum of 5K$/month? Well, keep aside technical strategies and stuff; you need a risk capital (trading capital) in the first place to generate such returns.

 

Elementary math suggests for someone who wants to make 50% a year will need starting capital of more 500K to support withdrawals of just 5K/month. To support a family you will need sufficient capital to support monthly withdrawals of 10K+. The capital should grow at some rate too or else you end up withdrawing each month everything that you make.

 

People aged under 25 are not likely to have saved that much money to bet on the table from their regular job/business. So for the young it seems Trading for a Living is a pipedream, unless he/she is willing to work at a proprietary trading firm.

 

People aged 30-35 are likely to have saved 500K. But will it be prudent to buy own house/luxury or risk the money in trading? Trading is risky, everybody knows.

 

People aged over 40 should be able to afford a trading venture. BUT will they be willing to get out of the habitual financial comfort of 9-5 job or regular business to start something formidably new?

A Practical Solution:

 

• Do not shoot for ‘trading for a living’ unless you are financially strong
  
• Do not fall for cumulative equity, compounding formula, and similar stuff. It all looks good on paper, but if you refuse to withdraw and allow returns to compound, you cannot pay for your expenses. ‘Trading for a living’ is a totally different ball game than just 'profitable trading'.
  
• You do not really need 500K to start trading. Use part of your savings to grow them fast by careful investing; it requires less time than trading short-term and allowing to grind at regular job. This also helps in building experience in the markets. Investing here refers to medium to long term trading- trades initiated with an expected holding time of 3 weeks plus.
  

 

:applaud: :applaud: :applaud:

[Wen 10]

I usually only read Trader's laboratory post on a daily basis and I enjoy the contribution of each trader and their experiences.

 

I would just like to point out major math flaw here. You said you need 500k starting capital to make 5k a month or 60k a year. That is 12% gain instead of 50%. If that is the case, you only need 120k starting capital for a withdraw of 5k a month. I think for people who are young with a little bit of leverage 2 or 3:1 is entirely doable.

 

Lets be real though, if you are an amateur trader in ur 20s, your yearly expense won't be 60k. 30-40k top in metro areas.

[Gabe2004 10]

Median household income in the USA for 2009 was about 50K.

Assuming 250 trading days in a year this translates into 200$ per day or 4K per month.

How much money do you need to make 200$ ???

 

Just a thought.

 

Gabe

[MightyMouse 12]

Median household income in the USA for 2009 was about 50K.

Assuming 250 trading days in a year this translates into 200$ per day or 4K per month.

How much money do you need to make 200$ ???

 

Just a thought.

 

Gabe

 

Unfortunately, trading, like any other business is difficult to project exactly how much you will make because the projection is based on market events that have not happened and may not happen.

 

A sudden lack of or lull in volatility will create a problem with projected cash flows from trading and require you to use other funds that you had not planned on using to supplement your living expenses.

 

So, the amount that you are going to need to generate 200 a day is not very easy to determine. You also have to consider the possibility of losing money for the year in which case you need a minimum of the 50k plus the loss pluse the capital needed to continue trading.

 

Yes, traders do have bad years.

[Do Or Die 10]

You also have to consider the possibility of losing money for the year in which case you need a minimum of the 50k plus the loss pluse the capital needed to continue trading.

 

Not to talk about the costs involved in "learning to trade"

[Do Or Die 10]

I usually only read Trader's laboratory post on a daily basis and I enjoy the contribution of each trader and their experiences.

 

I would just like to point out major math flaw here. You said you need 500k starting capital to make 5k a month or 60k a year. That is 12% gain instead of 50%. If that is the case, you only need 120k starting capital for a withdraw of 5k a month. I think for people who are young with a little bit of leverage 2 or 3:1 is entirely doable.

 

Lets be real though, if you are an amateur trader in ur 20s, your yearly expense won't be 60k. 30-40k top in metro areas.

 

Not any major flaw, maybe a typing error. I said:

someone who wants to make 50% a year will need starting capital of more 500K to support withdrawals of just 5K/month... The capital should grow at some rate too or else you end up withdrawing each month everything that you make.

I meant a 50 % gain in capital after monthly withdrawals of 5K. I did not use a calculator (wanted to think like a noob myself) but I'm sure it will not be a major flaw.

EDIT: more specifically if you have a strategy which makes 50% a year, while in reality you need to withdraw 5K/month; the initial capital requirement will be around 500K.

 

And regards to being real, someone in mid-20s who wants to start a family will need monthly withdrawals of 5K+. Marriage could be a big commitment if your spouse is not working (or she prefers to be a full time mom).

Edited August 20, 2011 by Do Or Die

[Fudomyo 10]

Not any major flaw, maybe a typing error. I said:

 

I meant a 50 % gain in capital after monthly withdrawals of 5K. I did not use a calculator (wanted to think like a noob myself) but I'm sure it will not be a major flaw.

EDIT: more specifically if you have a strategy which makes 50% a year, while in reality you need to withdraw 5K/month; the initial capital requirement will be around 500K.

 

And regards to being real, someone in mid-20s who wants to start a family will need monthly withdrawals of 5K+. Marriage could be a big commitment if your spouse is not working (or she prefers to be a full time mom).

 

this job requires math skills.

 

back to the broom closet with you.

[dudleymuggins 10]

Sorry son, your maths is totally out. What if I only needed to make $100 a day (i.e one point on the Russell), on a $25000 account, to make a living. Stop telling everyone thay can't make a living from trading just because you can't.

[Do Or Die 10]

Sorry son, your maths is totally out. What if I only needed to make $100 a day (i.e one point on the Russell), on a $25000 account, to make a living. Stop telling everyone thay can't make a living from trading just because you can't.

 

I can understand that. You can live on 100x22= 2200$ a month. But I cannot. And all this trouble so that the seed capital does not even grows.

 

Good luck to those who can.

[bzlehman 10]

It seems to me that succesfull trading is not about "investing" a relative large capital but about having a good performing system. There are systems out there that produce a net of more than $10,000 US per month (after paying their high fees) with less than half of that to begin with. If the trader does not net at least $10K/month they kick you out. And they don't require money in advance. They collect their money from the trader's profits.

[electroniclocal 10]

It's a big plus that you make these calculations. But there are other options that a number of mys students are doing.

 

Trading outside of work hours.

 

I have a number who are still in SIM and some who are trading real money and are working at perfecting the skills of instant trade recognition and trade execution in the heat of battle. They have found markets that are active during the periods they want to trade.

 

With the global nature of markets, there is ALWAYS a market that you can find in your required time zone to trade. This way, the pressure of having to earn while you learn is gone. The step of first achieving CP consistent profitability) in SIM and then transferring those acquired skills into live trading the smallest size possible while still working at your job means that the risks of trying to become a full time trader have mostly disappeared.

 

It can be done and it is being done by many people who have just used the information about how to structure your own road map to CP I've provided freely over the last two years, not just mentored students.

[Do Or Die 10]

To the newbies who are unable to grasp the logic:

 

1. Suppose you read on the internet and get all the motivation to trade for a living.
   
2. You read further on the internet and pick a strategy which apparently makes 200% a year or 6.1% return at end of every month. Everything looks rosy to start trading for a living? Wait.
   
3. The moment you put the theoretical strategy to practice, the returns diminish by 1/4. This is just a raw estimate to offset the costs of slippage, commissions, timings and human errors. In reality, most strategies who make money on paper start to lose in actual market.
   
4. So now assuming you still have a strategy which makes 50% return a year, or 3.5% at end of each month. How much capital do you need to trade for a living this strategy after monthly withdrawals of 5k??
   

 

Say you start with my estimate of 500k. At the end of first month your capital is (500*1.035-5)= 512.5, at end of second month it is (512.5*1.035-5)= 525.4; and at the end of year you will have 700K ONLY.

 

Now for the sake of God you are risking your money for "Trading for a Living" and the return that is left at year end is 40% only. Your account is supposed to grow at this minimal rate or you will never become rich (the risk involved in trading will not be worth the reward). You could be better off with your regular job and forget "trading for a living".

 

I have been trading for a living since more than 5 years (check my first introductory post on TL). This may be maths for some but it is common sense to me.

 

And hell, do not talk about margin/leveraged accounts. For starters, leverage amplifies the volatility of your goddamn PnL.

[MightyMouse 12]

To the newbies who are unable to grasp the logic:

 

1. Suppose you read on the internet and get all the motivation to trade for a living.
   
2. You read further on the internet and pick a strategy which apparently makes 200% a year or 6.1% return at end of every month. Everything looks rosy to start trading for a living? Wait.
   
3. The moment you put the theoretical strategy to practice, the returns diminish by 1/4. This is just a raw estimate to offset the costs of slippage, commissions, timings and human errors. In reality, most strategies who make money on paper start to lose in actual market.
   
4. So now assuming you still have a strategy which makes 50% return a year, or 3.5% at end of each month. How much capital do you need to trade for a living this strategy after monthly withdrawals of 5k??
   

 

Say you start with my estimate of 500k. At the end of first month your capital is (500*1.035-5)= 512.5, at end of second month it is (512.5*1.035-5)= 525.4; and at the end of year you will have 700K ONLY.

 

Now for the sake of God you are risking your money for "Trading for a Living" and the return that is left at year end is 40% only. Your account is supposed to grow at this minimal rate or you will never become rich (the risk involved in trading will not be worth the reward). You could be better off with your regular job and forget "trading for a living".

 

I have been trading for a living since more than 5 years (check my first introductory post on TL). This may be maths for some but it is common sense to me.

 

And hell, do not talk about margin/leveraged accounts. For starters, leverage amplifies the volatility of your goddamn PnL.

 

In practice one will not achieve linear growth. It could very well be that someone will experience a 10 month draw down of only 10% on his account and he will then have used 40k for living expenses, bringing his funds down to 460k before considering trading PNL. So with the loss, he have an account value of 410k. It takes about 12% for him to break even and about 22% for him to end up with an account value of 500k again. 22% is a decent gain but the account doesn't reflect it.

 

There are only a few individuals who have been able to achieve an ror of 50% for a sustained period of time. We can safely safe it is a difficult task when you consider the fact that there are, conservatively, 150 million traders world wide. The more traders, the slimmer the profit margins. It is a very basic economic principle.

 

In this market, you are a star if you can achieve trading profits in the area of 10% or so on average per year. So, the average of the best traders would need significantly more than 500k to generate 4k a year and achieve growth.

[Do Or Die 10]

In practice one will not achieve linear growth. It could very well be that someone will experience a 10 month draw down of only 10% on his account and he will then have used 40k for living expenses, bringing his funds down to 460k before considering trading PNL. So with the loss, he have an account value of 410k. It takes about 12% for him to break even and about 22% for him to end up with an account value of 500k again. 22% is a decent gain but the account doesn't reflect it.

 

There's even more to it- expenses never stop coming. Say someone remains flat for first six months (costs for learning to trade). Do his bills stop coming? can he tell his mortgage agent that he is having a bad phase? Hell, no. He needs to keep withdrawing something always IF he is "trading for a living".

 

And even more to it- there could an disease, divorce, heart-break or anything which brings down the productivity. The expenses do not stop coming.

 

This is why I took the figure 5K instead of mangeable 4K.

 

In this market, you are a star if you can achieve trading profits in the area of 10% or so on average per year. So, the average of the best traders would need significantly more than 500k to generate 4k a year and achieve growth.

I have a different perception here though. It's not about being a star or being on top. It is simply about being a professional trader.

 

What is the survival rate for wannabe athletes? or entrepreneurs? It's very low similar to professional trading. The majority don't make it, even though who make may just have a average IQ. There are several large trading floors in NY and NJ... walk into one and you'll see REAL TALENT.

[MightyMouse 12]

4k or 5k is ok, I suppose, in certain areas of the country or planet. In the Northeast, specifically, the New York tri-state area, your family will starve at 4k or 5k a month.

[Do Or Die 10]

....If the trader does not net at least $10K/month they kick you out.

...And they don't require money in advance....

...They collect their money from the trader's profits...

So for the young it seems Trading for a Living is a pipedream, unless he/she is willing to work at a proprietary trading firm.

 

PS: it's great to see so many new members in this thread.

[TimRacette 11]

I agree in that when you begin to draw profits out the account each week or month trading takes on a whole new meaning. Even if it's $100, physically removing those profits from your trading account, actually touching the money and depositing into your checking account to pay bills and (one large enough) use for other investments, it really becomes tangible.

[Gooner70 10]

Great Post.

 

I think you getting your wires crossed a bit though, but I can easily see why.

 

I had a 25 year career as a trader, and now coach trader on the psychological aspect of their trading.

 

Trading is a performance activity, success in trading (as in all performance activities) is largely about right attitude and mindset (2 psychological factors), but do you need to learn about psychology to trade - absolutely not. - You need to learn a trading system or method, you need to learn about risk and money management, and you need to learn all about aspects which affect trading, e.g. - Products, markets, economics, politics, finance, Tech analysis, fundamental analysis, behavioural finance (very psychology loaded), etc,etc. though these are things you learn over time, partly through immersion in trading.

 

Trading Psychology underlies all these aspects. Learning discipline, keeping emotions in check, controlling your ego, remaining confident, but not-over confident, being able to take decisions under duress, avoiding self-doubt etc,etc, etc - the list is almost endless.......- If you lose the psychological game in trading, you lose at trading, simple as that.......

 

 

BTW - Don't full for the hype... you said traders are aggressive and out-going.. You may have watched Wall Street one too many times. -- Like most professions, you get all-sorts, your more likely to find sales-people and brokers as aggressive and outgoing, traders tend to be thoughtful and inciteful.........

[TimRacette 11]

Don't full for the hype... you said traders are aggressive and out-going.. You may have watched Wall Street one too many times. -- Like most professions, you get all-sorts, your more likely to find sales-people and brokers as aggressive and outgoing, traders tend to be thoughtful and inciteful.........

 

One glance through Market Wizards by Jack D Schwager will show just how unknown some of the greatest traders are.

[nakachalet 10]

Median household income in the USA for 2009 was about 50K.

Assuming 250 trading days in a year this translates into 200$ per day or 4K per month.

How much money do you need to make 200$ ???

 

Just a thought.

 

Gabe

 

frankly speaking, it depends on who do you ask and whom do you talk to or with....OK?

 

for many serious traders on board, it just takes the initial deposit of whatever.... and a few minutes, hours.... or so of waiting PATIENTLY AND VERY PATIENTLY for the personal super setup to develop on your 42 inch digital screen....

 

did you say.... $200....? well, when that setup develops before your eyes....

 

the entire process would probably take one to two minutes or even lesss.... to generate $200....

 

yes, in gc, cl, tf, 6e and some other markets....

 

and many of you would know, i meant every word i said....

 

unless, if you have not had the privilege of being on there yourself....

 

you would of course accuse me of biting off more than i can chew....

 

which is also alright with me too.... no harm done.... :missy:

 

happy and profitable trading everyone

Edited September 8, 2011 by nakachalet

[nakachalet 10]

Sorry son, your maths is totally out. What if I only needed to make $100 a day (i.e one point on the Russell), on a $25000 account, to make a living. Stop telling everyone thay can't make a living from trading just because you can't.

 

i admire your ability to say it so concisely,

 

much more concisely than what i was trying to say in my post above and repeated below.

 

thx much.

-------------

frankly speaking, it depends on who do you ask and whom do you talk to or with....OK?

 

for many serious traders on board, it just takes the initial deposit of whatever.... and a few minutes, hours.... or so of waiting PATIENTLY AND VERY PATIENTLY for the personal super setup to develop on your 42 inch digital screen....

 

did you say.... $200....? well, when that setup develops before your eyes....

 

the entire process would probably take one to two minutes or even lesss.... to generate $200....

 

yes, in gc, cl, tf, 6e and some other markets....

 

and many of you would know, i meant every word i said....

 

unless, if you have not had the privilege of being on there yourself....

 

you would of course accuse me of biting off more than i can chew....

 

which is also alright with me too.... no harm done....

 

[Do Or Die 10]

Old news but relevant: Currency Trading | Foreign currency trading is an easy way to lose money - Los Angeles Times

 

An estimated 615,000 Americans are dabbling in foreign currency trading...

 

At FXCM, 75% to 77% of customers lost money each quarter last year, according to newly required disclosures to the Commodity Futures Trading Commission. At Gain... the number of unprofitable customers hovered between 72% and 79% every quarter last year, according to its filing.

 

FXCM made $2,641 for every active trader, while the average customer had $3,658.

 

The NFA complaint alleged that Gain set its trading program to allow certain trades when they went in Gain's favor, while not allowing the same trades when they went in the customer's favor, costing clients $169,502 during one three-month stretch in 2009.

[Perrin 10]

Those quotes from that article:-

 

“These customers are losing money in spectacular fashion.”

“At FXCM, 75% to 77% of customers lost money each quarter last year”

"At Gain... the number of unprofitable customers hovered between 72% and 79% every quarter last year"

 

Those are impressive statements, aren't they? Especially as everyone who gets involved in trading thinks they'll be the ones to make a fortune. However 3 out of 4 people 'lost money in spectacular fashion'. 3 out of 4.

 

And 75% are only the ones who lost money in all four quarters of the year – it doesn't mention the amount who maybe made money in 1 or 2 quarters, but still lost money overall. Or who even made money in 3 quarters and lost it all in the last quarter, or even those who are yet to blow up and lose everything.

 

Although it might mean 'for any given quarter last year, 75% of people lost money during that quarter'?

 

Either way, those are extremely bad odds.

 

"Gain" (the company) "ended up making an average of $2,913 from every active trader it had last year, even though the average customer account contained only $3,000, according to the company's financial data."

 

Very interesting article, thank you. I think every single person on TL should read it at least twice.

[jonnyfutures 10]

If you have no experience you should go and work at a prop shop to learn the roots of the business,

 

Once you have made your first 500k go and buy a flat or a house or start a side business and trade at the same time. The market will eat you up eventually not wise to depend wholly on trading profits.