Projected earnings re: trading for a living

[Milk Man]

Hi guys,

Need some help working out projected earnings when trading for a living. Say someone has $500k capital, 100% pa return after tax and wants to take $5k a mth living expenses; how would you calculate the annual returns. That's disregarding drawdowns; I might need Einstein to figure that one out! Please let me know any other ways it can be done.

Is there a resident maths whiz to devise a formula? Any help would be much appreciated.

 

[tech/a]

Re: Projected earnings re: trading for a living.

I need to get my head around the question first.

You say you start with $500K and return 100% after tax so would need then to return $1million approx (Or 200%) for $500K after tax.
You then wish to draw $5k a month or 60K a year which would then leave a surplus of approx $440k.
You wish to calculate the NETT return after tax on this on a yearly basis?

200% before tax and 100% after is the quick and not 100% accurate reply---

If not then you've lost me.

 

[mit]

Re: Projected earnings re: trading for a living.

100% returns. Nice what are you doing? Is the 100% include pyramiding of positions? With those returns and only pulling out $60k a year you would get seriously rich in a couple of years.

I don't understand your question through? Your return is still 100% isn't it?

Very interesting subject though. I'm looking at trading for a living in 12months - 2 years and interested in people currently doing it and how they manage their money etc.

MIT

 

[Milk Man]

Re: Projected earnings re: trading for a living.

Story so far,

100% net return requires app. 150% gross using 30% company tax rate (correct me if i'm wrong). This isn't actual: just a goal of mine (sorry MIT, not that good yet!). Ambitious but not impossible.

I know one of the better futures traders in the land and he basically laughed when I said my unleveraged system returned app. 50%pa in backtesting. "Shares are too boring for me", he says. Millions might well be luck but tens/hundreds of them isn't IMO. He reckons he uses hand drawn charts too! So 150% is do-able quite easily.

What I mean in my question is; say I take $15k out every quarter i'd have to then re-calculate capital value.

$500k capital * 25% net gain = $125k - $15k
= $110k more for next quarter.

But this is wrong. Tax isn't taken out till end of year and 25% compounded quarterly is app. 140%. Maybe the two cancel each other out; I don't know. Its been 5 yrs since I attempted algebra and I barely passed then!

It's not crucial just yet. I wont have $500k to trade with for a couple of years by my reckoning (wishful thinking? ) but its nice to know so I can set some goals. That calculation is probably out of whack too since it involves quartely capital injections.

Maybe I need a refresher in algebra. Id rather pull my finger nails out but hey...

 

[tech/a]

Re: Projected earnings re: trading for a living.

I'd work back the other way.
IE.
(1) How much do I wish/need to live off each month.
(2) How much do I need as surplus each year.(For lean un profitable years).
(3) Will I trade only one method to achieve this--IE Futures---Most players that stay in the game have long and short term stratagies running simulataniously.

Then after finding what these figures are determining capital requirements.

I dont trade fulltime and never wish to--to damned boring,no interaction with people,its not necessary to make serious $$$s.
Banks hate it and without 3 yrs of returns that look like your Soros wont lend you a zack.
Each to their own.

 

[Milk Man]

Re: Projected earnings re: trading for a living.

I'd work back the other way.
IE.
(1) How much do I wish/need to live off each month.
(2) How much do I need as surplus each year.(For lean un profitable years).
(3) Will I trade only one method to achieve this--IE Futures---Most players that stay in the game have long and short term stratagies running simulataniously.

Then after finding what these figures are determining capital requirements.

I dont trade fulltime and never wish to--to damned boring,no interaction with people,its not necessary to make serious $$$s.
Banks hate it and without 3 yrs of returns that look like your Soros wont lend you a zack.
Each to their own.

Thanks tech,
I was looking at it from a capital growth point of view mainly though. I know how much I want to throw at it just not what i'll likely end up with. It really is a whole big can of worms. I might try throwing some numbers at excel and see how it turns out.

As for methods; its funny you should say that because I just realised it not long ago. Great minds think alike . I was going to throw my stock method in the water and see if it swam. I don't like the look of the market though (toppy IMO) so I thought a good hedge would be to trade precious metals on the up-leg short term. I'm also looking at forex, then ill look at futures then options. The main thing being to keep most of it mechanical- tech's best revelation. (Thanks once again!)

I think trading for a living would suit me just fine. Making dollars grow is fun enough for me! I hate talking to people too- much prefer writing as you can probably tell. As for banks; they love real estate (got that covered ).

 

[Milk Man]

Re: Projected earnings re: trading for a living.

I think I have it!
1* 1.19*1.19*1.19*1.19= 2.005
1 to 2 is 100% gain therefore 19% gain compounded 4 times gives 100% so:
500k*1.19= 595k-15k living expenses end 1st quarter
580k*1.19= 690k-15k end 2nd quarter
675k*1.19= 803k-15k end 3rd quarter
788k*1.19= 938k-15k= 923k end yr 1
now just say were being conservative and only want 100% gross per annum. conservative.... yup! the whole lot subject to company tax laws means:
923k- (500k + 60k) = 363k profit = 109k tax
capital growth= 254k
total capital= 754K
phew...

 

[Knobby22]

Re: Projected earnings re: trading for a living.

We are in a great bull market.
Don't presume that it is as easy as it is now.

 

[Milk Man]

Re: Projected earnings re: trading for a living.

We are in a great bull market.
Don't presume that it is as easy as it is now.

Thanks for your concern. I'm taking every precaution to ensure longevity. Not even nearly half way there yet! Please refer post #4 to save my repeating myself (sorry- too lazy).

 

[Smurf1976]

Re: Projected earnings re: trading for a living.

Thanks for your concern. I'm taking every precaution to ensure longevity. Not even nearly half way there yet! Please refer post #4 to save my repeating myself (sorry- too lazy).

If I were you then I would want absolute PROOF that I had a profitable system before going full time and with the sort of $ you are talking about.

Maybe you already have tested and proved it, I don't know, but if you're going to be trading where you NEED to profit since it's your income then I really do think you should make damn sure you have a profitable method FIRST.

 

[ob1kenobi]

Re: Projected earnings re: trading for a living.

I would need time to seriously look at what your saying. However I agree with Tech/A, I would work from the end point or goal back toward the beginning. The ANZ Bank web site have a cash flow forecasting tool (Excel Worksheet) and a very good Business Plan template (Rich Text Format) that you should look at. If you used those and presented them to a Bank, you would be headed in the right direction. They are at the following link:

http://www.anz.com/aus/promo/ineeda/Business/default.asp

My only other comment, is that your calculations are following linear assumptions. Expenses have a habit of occurring in a non-linear fashion and you would need to factor obvious expenses into your thinking. Good luck!

 

[It's Snake Pliskin]

Re: Projected earnings re: trading for a living.

If I were you then I would want absolute PROOF that I had a profitable system before going full time and with the sort of $ you are talking about.

Maybe you already have tested and proved it, I don't know, but if you're going to be trading where you NEED to profit since it's your income then I really do think you should make damn sure you have a profitable method FIRST.

Positive expectancy!

 

[tech/a]

Re: Projected earnings re: trading for a living.

This is a topic which has been discussed at length over many years.

Here are some great discussions and links to Reefcap discussions that I think appropriate.

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=13;t=000175#000003

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=15;t=000219#000000

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=7;t=000113#000000

http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=1;t=001346#000013

 

[Milk Man]

Re: Projected earnings re: trading for a living.

Thank you all greatly for your interest. I'll shout you a beer if youre ever in Mundubbera! LOL: that's a stingy thing to say; maybe if im closer your way.

In reply to Smurf: I have backtesting and positive expectancy pretty much covered. To be sure though I feel the need to test in real time; to ensure the systems aren't over optimised to past data. I tried discretionary on paper after reading about 10 books. This was back in March. I learnt full well the meaning of a bear market! I feel sorry for anyone who got caught long.

I realised then that:
1) Systems need to be thoroughly tested.
2) Even if you use the methods of Guppy and Weinstein half decently you can and probably will lose money.
3) Don't do something just because someone says it works- check it out thoroughly yourself. Their intentions may well be good but there could be something they've overlooked.
And now:
4) Positive expectancy and money management are paramount. Unless of course you're especially handy at discretionary stuff. Even then...

Hope this helps anyone else reading: I dont want to be selfish!