When to turn pro????

G'day mit,

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?

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As trading full time it is like running any business, I take a fixed monthly salary, & in my case it is funded by dividends received. Any excess is returned to the working capital. I increase my salary from time to time as is done in running any business. I plan the year out for the dollar value of dividends required for this purpose.

Hi mit

I'm using a similar method to rozella.

At the end of every June, my wife and I work out our budget for the following 12 months. To err on the side of caution, as per my earlier post, we currently add 5% to the previous years actual expenses re energy, rates, insurance premiums etc etc. We set up our budget in a spreadsheet and then enter the amount of every bill that comes in during the year and the spreadsheet keeps a running total of expenses so we can see if we are running over or under budget.

The income to fund the budget comes from the PREVIOUS year's dividends and distributions. That way we know exactly how much we have to spend on living expenses for the current year and we can avoid drawing down on our investment capital. The funds to fund the first year was drawn down from my redundancy package in 2002 and kept aside as cash. So far, the income generated from my investments is a little higher than our budget reequirements and we have also been running a little under budget the last few years so we have been able to put a little extra aside 'for a rainy day'.

As dividends and distributions come in during the year, they are kept as cash separate from my portfolio as they will be used to fund the following year's budget.

I find monitoring our investments and budget via spreadsheets makes it easy to keep track of actual and forcast income and to monitor whether we are running over or under budget.

cheers

bullmarket

mit said:

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

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Hi Mit

I personally use a buffer to keep up my stake size up. Its easier to make a quick comeback and get back into profit that way and saves time and overtrading. Another thing I do since my main focus like Battman and Bronte is to deal with one stock is to increase my stake after I take a loss on that stock. This is the thing when you make yourself an expert on one or afew suitable stocks. If you know your signals on that stock work 8/9 times out of 10 you can trade to suit.

Cheers
Happytrader

RE: post 19 ,

Thanks Tech for your reply, think iv'e got it now mate !

Regards Bob..

Thanks Guys. There could be a book written about this as I have never seen it covered anywhere.

I still agonise over the buffer. My reasons for having it are similar to happytrader and mainly psychological -
to stop overtrading,
to top up the trading capital after a drawdown -
to buy time in case your system falls out of bed.

However, from a purely logical point of view it would be better to not have a buffer. In my example above, If instead you added the $100k to the trading capital and started with $300k leveraged to $750k but still only drew out $80k initially. Over time you would come out ahead but it would be nasty if you went straight into a drawdown.

MIT

happytrader said:

Hi Mit

I personally use a buffer to keep up my stake size up. Its easier to make a quick comeback and get back into profit that way and saves time and overtrading. Another thing I do since my main focus like Battman and Bronte is to deal with one stock is to increase my stake after I take a loss on that stock. This is the thing when you make yourself an expert on one or afew suitable stocks. If you know your signals on that stock work 8/9 times out of 10 you can trade to suit.

Cheers
Happytrader

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Thought it worth making this point.

Why not 'choose' a stock, pricebar setup, strategy and timeframe 'to suit your personality and risk tolerance' and stick with it? There are some nice performers out there who will give you are good weekly income if you'll only let them and don't avoid them when they occasionally let you down.

Cheers
Happytrader

Happytrader,

I'm happy with my trading at the moment, although I like to try new things. I think I am more about surviving a bear market, where things are a lot tougher and not only for long players as the volatility can dry up as well.

MIT

The other problem often overlooked about people testing systems for bear markets is that liquidity often disappears also. Markets generally tend to have a naturally bullish bias and as a result when things turn south the money goes elsewhere just as quickly as the volatility and the share price. There isn't much point taking a large short position if you're unable to close it due to a lack of depth.

Personally, I enjoy keeping myself busy during the day doing non-stock related stuff... occassionally a bit of company research. I generally try to keep all my trading decisions to outside of market hours though to stop over trading. As for making a living from it, trading is simply a means to an end. The gains from trading usually get siphoned out into another investment once they are sizable enough (e.g., property) to provide a little diversification across asset classes and a little more spice in my life and things to do

I wouldn't give everything else up unless I'd met all of the following conditions:
- Had paid off all outstanding non-productive debt (credit card, car, boat, etc.)
- Had at least 12 months worth of repayments for other debt in "the buffer" (own home, investment properties, etc.)
- Enough to cover all reasonable additional expenses in "the buffer" for the next 12 months (insurance, rent, energy, etc.)

Add +20% to the required "buffer" figure. If you can set that amount aside and not touch it and your trading continues to be successful enough to live off, then I would let it be a consideration. Rental income and dividends would get added to the buffer. Living expenses get drawn out. At the end of the next year give myself a pay rise and then the same formula would apply.

If my trading capital is the same or less than what it was at the start of the previous year, then it is either time to reduce my living expenses or re-assess how viable the decision to not work is. As I believe Techa already pointed out, it is about aiming for excess. If I was trading and just making ends meet I wouldn't be comfortable giving up everything else.

And there is a lot to be said for the social aspect of working in a business. It also helps that almost all of those around me are quite active investors in one or more asset class and a wealth of information in their respective areas

JetDollars said:

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.

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Hey nice, 2003-2005 has been a bull market

just wondering did u "trade" during 2000-2002? how was your result during that period?

Thanks

MS