When to turn pro????

[malachii]

Ok - so you've been trading for a while and you are consistantly profitable. When/How do you decided when to give away working for someone else and make trading your sole income? Is it when you have had so many profitable months or is it once you've generated a certain income or a total amount? If so what is your trigger?

Malachii

PS The reason I'm asking this is because I dont know what my "trigger" is and I'm trying to work it out!!

 

[JetDollars]

For me, I will go full time trading from home when I am consistantly reach my target ie. $5000 Per Month for at least 2-3 years or confidence enough that my trading strategy is working for me.

 

[doctorj]

I would 'go pro' when I could demonstrate there was considerably more money able to be made by using a strategy that prevented me from working.

As much as anything I enjoy the social interaction that work provides. I think I would go nuts if I didn't have that.

 

[wayneL]

Ok - so you've been trading for a while and you are consistantly profitable. When/How do you decided when to give away working for someone else and make trading your sole income? Is it when you have had so many profitable months or is it once you've generated a certain income or a total amount? If so what is your trigger?

Malachii

PS The reason I'm asking this is because I dont know what my "trigger" is and I'm trying to work it out!!

1/When you can do as well in a bear market.

2/When you are comfortable with:

a/God like status

b/Being a social pariah

3/At ease with, and at the same rejecting both of the above tags (you will experience both, but nothing in between, and realise you are neither) {PS what ever happened to i befor e except after c....LOL}

4/ renumerative considerations mentioned above

5/ have the support of missus/family (if applicable)

6/ MOST IMPORTANTLY... are sufficiently capitalised...the more the better!

7/ Able to amuse yourself with obtuse and non relevant frivolities in between trades... for instance contemplating the rules of spelling and wondering how "rules" can have "exceptions".:silly:

Cheers

 

[bullmarket]

Morning everyone

Hi malachii, for what it's worth, here is my worth.

I've never been a professional trader, but I imagine a decision to turn professional would be one of the biggest decisions one could make, especially if you have dependants and relatively secure full time employment.

The process I would suggest to help make your decision would be as follows:

1. Do an extensive and REALISTIC home/family annual budget. By realistic I mean err on the side of caution where you have to estimate costs. This gives you the minimum after tax annual income you will need.

2. If your annual budget is less than ~7% of your trading capital then you should be able to generate most if not all your required income from relatively safe high yielding fully franked blue-chips like banks, some listed property and/or infrastructure trusts, long term depostits etc. If you're in this situation then leaving full time employment is easier and boils down to a life style decision.

3. If one needs to rely more on capital gains to generate their income, then obviously the risks are higher and so a written trading/investment plan is a must-have imo.

4. I would advise at least paper trading a trading plan for a while to test and fine tune it and then using it with actual funds for at least 12 months before deciding to go professional. If interested, a very good read imo on how to put together a written trading plan is "Trading with a Plan" by Compton and Kendall.

5. We have been in a strong bull market since March '03 and so making profits has been relatively easy in theory, but imo there will come a period sometime in the next few years where we will have a bear market for at least 12 months (just normal economic cycles). So your trading plan should include a strategy for generating income/profits in bear markets (like short selling - higher risk though, relying more on fully franked dividends, interest income, trading 'dead cat bounces' in downtrends - also higher risk etc).

6. Weigh up the pros and cons of relatively secure full time employment and its income and the pros and cons of sitting infront of a pc all or most of the day doing research etc and punching in buy/sell orders.

7. Finally, be aware that in many chat rooms (not in here though ) there will be posters who will claim to trade full time and that they are doing well.
Maybe they are, maybe they aren't, but please be aware that anecdotal evidence suggests that less then 10% of 'traders' will be profitable in the long run. So in general the odds of being a successful long term trader are against most people. But obviously some will get it right, but not many though.

Good luck and I hope this helps

bullmarket

 

[tech/a]

I actually wonder why people wish to trade for a living.

(1) 5% will ever make it.
(2) Its as boring as hell.
(3) There is only so much golf you can play.
(4) Your friends wont be available to fill in the social void.
(5) In Australia trading commodities means 7-3am.
(6) Most are under capitalised--that goes for 90% of all small businesses,this is the NUMBER ONE hurdle for fulltime traders.

Returning 20% consistently on $500K is easier than returning 200% on $50k

Most have no idea of how to run a small business and if your paying yourself each week or month then this is YOUR business.

I'm also often bemused at the necessity to trade short term.Particularly by those who wish to trade for a living.
I know of 3 profitable long term share traders and if they placed $500K in their methods they would return between $500K and $850K a year.(Over the last 4 yrs).Take 5 min a day.

When you make excellent profit from trading youll need other areas to offset profit and minimise tax losses.
I dont think you need to be able to trade a bear market,if you do it right youll be able to ride out these periods.(In otherwords do something with your excess---diversify--not necesserily in trading,a friend of mine in Florida has commercial realestate,I have a Company,Realestate and Project developement in high density community title apartments,Trading is only a minor part of overall business although on its own would be seen as "worthwhile".It would support a wage earner).

Success in finance is measured in EXCESS as is business.
Rather than trading for a living or working for a living or working for yourself,everyone should be aiming toward creating excess.True financial freedom comes from excess.When your planning allows your affairs to be looked after by others or even better they can take care of themselves (Such as passive income) while you do as you wish without the necessity of counting your pennies---then youve made it.

So my point is Plan longer term,dont be premature,diversify,understand business (the YOU business),think in terms of Excess rather than financial existance.

 

[mime]

Tech A's right. It would be boring clicking refresh over and over again. Plus unless your really lucky the only way you could make any real money is gearing your money which is super risky on the stock market.

But if your confident go for it. Why not.

 

[tech/a]

Just on the point of Capitalization (What you need to trade fulltime).
Here is my view and I'm sure others would perhaps take a different view.

If you work out your fixed costs(Overheads) I guess the average would be $30-45K a year.
Variable costs $200+ a week I would think reasonably average-- not the bottom end and not the top end.

So pre tax you'd need $70-90K.
If you want to put away surplus that would add further to variable costs.

If you have a consistant trading methodology that returns 100% then $100K initial capital.
20% then $500K

Now if you own your home and car,and your fixed overheads are less then the maths are better for you.

However you need to know that a drawdown of 30% will have most struggling on the scales of return.
Best explained that if you lose 50% then you need a 100% return on remaining capital to get back to square 1.

Initial drawdown is deadlier than Peak to Valley drawdown as these deminish gains as initial drawdown deminishes start up capital.
Most trading methods would fail to return a decient profit with initial drawdowns of 20-50%.

There will always be initial drawdowns and open or unrealised profit will always (Particularly in longterm trading methods) need to be factored into return.The power of compounding and the power of longterm holding leverage on initial purchases cannot be overlooked. IE a 10% up move on a $3 stock bought at $3 is a 10% return on capital--- a 10% gain when its $12 is $1.20 or 40% gain on initial capital.

So before I started trading fulltime I'd need 3 X initial capital costs.
And a method with a good return.
The advent of CFD's mean we can trade with less of our own $$s up front--an important factor in survivorship.

Dont get me wrong---few busineses have no staff, such low overheads and you dont need to answer to anyone but you (or the other half). Great hrs and the flexability to carry on business anywhere in the world.

 

[bullmarket]

Hi everyone

Looks like we're now starting to talk about the initial trading capital one needs to trade professionally...ie..full time

A relatively simple way to work out the initial trading capital you will need is, after putting together your annual home/family budget, as I mentioned in an earlier post, multiply your annual budget by 1/(forcast % annual return from trading) to get the intial trading capital you will need...eg...if your annual budget = $50,000 and you expect a 20%pa return from your trading then the initial trading capital you will need is:

Initial trading capital = 50000/0.20 = $250,000.00

The forcast annual trading return can best be estimated from paper or actual trading for at least 12 months as suggested in my earlier post.

The above numbers don't take into account any tax one would also have to pay.

But be aware that being profitable in the long run is not as easy as the above numbers might suggest as anecdotal evidence suggests less than 10% of traders are profitable in the long run, at least to the point where they can generate sufficient income to live comfortably solely from trading.

If you want to lessen the potential volatilty in income from trading, then if your trading capital is large enough maybe consider allocating at least part of your capital to high yielding full franked blue-chips like some LPT's and/or infrastructure trusts in order to generate income without having to rely too heavily on capital gains from trading. But I wouldn't advise this if it meant having to expose yourself to very high annual percentage returns requirements from capital gains from actual trading to meet your annual total income requirements as per your budget.

Regarding CFD's, personally I don't like them but that is just because they are too high risk for me. To my understanding they are a highly leveraged tool (90%+ I believe) which greatly magnifies % gains but also greatly magnifies % losses when trades go wrong. Make sure you fully understand how they work and the risks involved before trading CFD's.

Anyway, back to the cricket

bullmarket

 

[brerwallabi]

When you are free of stress, when you dont smoke, don't drink, get plenty of sleep, when you are not in a rush, don't get easily annoyed, when you never shout at your wife. If its adventure and excitement you seek take up hang gliding or sky diving.
Che sara sara.

 

[tech/a]

Trading CFD's doesnt mean you have to trade 10 x leverage what it means is to trade $100,000 you only need to put down 10% as margin.

You dont have to trade the leverage.
If I have a method which would take $100,000 to capitalise I would place $10,000 as margin (security) and the other $90,000 in say High interest.

I still trade only $100,000 of stock.This is to me the wisest use of leverage, to trade,you can ofcourse then leverage to 2 x or 3 x whatever your method allows without risking ruin.

Techtrader has an initial Drwdown of around 8.6% so 3 x would be my max and comfort level.

Now putting up the $100,000 and then trading $1,000,000 of stock is just plain dumb!
Why because a 10% drawdown--common in any trading method and your Broke--totally broke if $100,000 is your nett worth.

 

[wayneL]

Trading CFD's doesnt mean you have to trade 10 x leverage what it means is to trade $100,000 you only need to put down 10% as margin.

You dont have to trade the leverage.
If I have a method which would take $100,000 to capitalise I would place $10,000 as margin (security) and the other $90,000 in say High interest.

I still trade only $100,000 of stock.This is to me the wisest use of leverage, to trade,you can ofcourse then leverage to 2 x or 3 x whatever your method allows without risking ruin.

Techtrader has an initial Drwdown of around 8.6% so 3 x would be my max and comfort level.

Now putting up the $100,000 and then trading $1,000,000 of stock is just plain dumb!
Why because a 10% drawdown--common in any trading method and your Broke--totally broke if $100,000 is your nett worth.

Yes

 

[bullmarket]

Hi tech/a

Yes I agree with what you say about how one can use CFD's.

Using their leverage/gearing to reduce your initial stake by 90% is certainly a lower risk way of using CFD's, but I suspect, from what I've heard elsewhere, that some CFD traders use them to 'turbo-boost' their stake, which they would have traded anyway, by 9x in the hope of gaining huge % cap gains on their stake. Of course, like you correctly pointed out, a 10% drop in share price and your initial stake is wiped out. But a 10% rise in share price gives them a 100% cap gain on their initial stake and that is what I imagine most CFD traders are aiming for. That is why I said in my earlier post that leveraged/geared investments, whether CFD's, margin loans or whatever, magnify both profits and losses. The point I was making earlier is that one should know exactly how CFD's work and the risks involved before using them.

Another thing to be wary of with CFD's is that in some unusual circumstances you can lose very much more than your initial stake. I recall reading in the old Shares mag a few months ago when they talked about the pros and cons of CFD's is that if a company is permanently suspended and/or goes belly-up you will lose your 10% stake and most probably PLUS the 90% the CFD provider lent you to buy your stock because you can bet your bottom dollar that a CFD provider will want to get their money back either from the liquidation of the company or from their client. (I think getting it from the client will be their easisest option)

I see CFD's are becoming increasingly popular, but they are not for me as they do not suit my objectives or risk tolerances. But good luck to those using them.

But I think we are now digressing from the original question in this thread

cheers, bullmarket

 

[happytrader]

Hi Malachi

Can you make at least 40% on your stake in all market conditions month in and month out?

Can you do this without any stress?

Can you do this without guilt?

Can you trade automatically without thinking about it?

Are you indifferent to wins and losses?

If you can do all this, then chances are you're not in front of your computer watching your stock for more that afew hours a week. If you have this mindset you sure as hell want to maintain it. That means you better take up a fullfilling pastime because boredom and thinking too much are a traders worst enemies.

Is it any wonder many extremely successful traders, business owners and investors choose to keep working?

Cheers
Happytrader

 

[malachii]

Some fantastic and thought provoking replies there - thanks guys!!

Malachii

 

[Bobby]

Trading CFD's doesnt mean you have to trade 10 x leverage what it means is to trade $100,000 you only need to put down 10% as margin.

You dont have to trade the leverage.
If I have a method which would take $100,000 to capitalise I would place $10,000 as margin (security) and the other $90,000 in say High interest.

I still trade only $100,000 of stock.This is to me the wisest use of leverage, to trade,you can ofcourse then leverage to 2 x or 3 x whatever your method allows without risking ruin.

Techtrader has an initial Drwdown of around 8.6% so 3 x would be my max and comfort level.

Now putting up the $100,000 and then trading $1,000,000 of stock is just plain dumb!
Why because a 10% drawdown--common in any trading method and your Broke--totally broke if $100,000 is your nett worth.

Hi Tech,
You lost me a bit, I must be a dope with my understanding of CFDs, can you expand on this please?

Regards Bob.

 

[Smurf1976]

Is it any wonder many extremely successful traders, business owners and investors choose to keep working?

Based on those I know, totally agreed. And they tend to work "hands on" in the business rather than sitting in some office with "boss" written on the door. Those that do the latter seem to be somewhat less successful than the hands on types from what I've seen.

 

[wayneL]

It would be boring clicking refresh over and over again.

eeermmm....technology has moved on a bit from this.

Dynamic data is the norm now. The refresh button is obsolete.

Cheers

 

[tech/a]

Hi Tech,
You lost me a bit, I must be a dope with my understanding of CFDs, can you expand on this please?

Regards Bob.

Bob.
When you trade CFD's you place a deposit known as a margin with the CFD provider.They will then lend you upto 10 X this figure to trade with.
So give them $10,000 and you can trade $100,000 worth of stock.
If the value of your stock falls sufficiently to cause the lender concern he will ask for more margin---you will have been called!.
You would then either.
(1) Give them more cash to top up the gap (leaving a buffer between cashed up sale of your holdings and cash held)
OR
(2) Sell some of your stock so you werent exposed as much.

If the total allocation of capital you have is $100,000 then you only buy shares at a leverage that exposes you to $100,000.So if you want a portfolio of 10 shares thats $10,000 per share.
You can trade $100,000 worth of shares with a CFD provider by only placing $10,000 with them.All you need to do then is place the $90 left in a safe place incase you need it and then take positions understanding the leverage.

To alter the leverage.
Lets take UTB at $13.20 a share.
Full leverage of $100K would mean you buy 7575 shares
5:1 leverage is $50K would mean 3787
2.5:1 is $25k would mean 1893 shares.
1:1 using CFD's as I have pointed out above would mean trading at 1:1 leverage so youd buy 757 shares in UTB.

So just buy the number of shares at the leverage your method will hold.
To know this you will need to know your initial drawdown requirements to trade the way you do.
If you dont know this use minimum leverage!! 2:1 or less.

Contracts for Difference by Catherine Davey ISBN 0 7314 0026 7
is a good read.

Hope this helps

 

[mit]

I'm going down the same track. The following is my plan:


1. The first thing is to have confidence in your system. One advantage of mechanical systems is the fact that you can test them through bull and bear markets.

Remember that most backtesting programs will reinvest your gains. Remember to allow your salary drawdown. Calculate what you will need to survive. Remember to allow for a pay rise each year. So for example, you may have worked out that $200k leveraged to $500k will give you on average $100k a year after costs and interest and you are currently happy to live on $80k a year. You will have $20k to reinvest for growth.


2. The second thing is to trade up to the capital needed to support yourself.

3. The next thing you do is to then run the system for 6-12 months and put the profits somewhere safe and accessible (and high interest). This is the buffer I'll need in case of drawdowns and will remove some of the psychological pressure of making salary each month.



4. Resign. Salary comes out of buffer and profits go into buffer.

I would be interested in how Wayne and Rozella (and anybody else doing for a living manages their trading. Do they have a buffer? or do they draw from their profits? Do they draw the same amount each month or do they just take profits?

MIT