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While I was brainstorming on this topic "How would I manage my finances to trade for living" , I had some doubts and would put up few questions in front the veteran traders: -
- Do you make your living only by trading the markets? (I mean what would you do when you have consecutive loosing weeks or even months)
- If you have diversified sources of income then what are they.
- When should one start thinking and planning and start taking actions on creating diversified income.
- Where can one learn about this particular side of trading (like managing finances for TRADERS i.e. for a uncertain income source as we all know markets are volatile and no one sure that He / She would get profit every month)
Thanks & Regards
Rishi,
This is a good question, and a lot of it comes from studying your own numbers, which is the best source of information in the first place (but the last place many look).
1. How many trades are taken in a day?
2. What is the profitability across many market types?
3. What is the consistency and variability of returns?
4. MONEY MANAGEMENT!
a. This aspect, in review of your performance determines both the risk profile as well as how much should be risked on any given trade.
b. As part of money management should be both a scaling up and down plan as any trade should simply be like any other trade. Volatility goes up, size should scale down.
While you may have a losing week, part of the question becomes are you a scalper or swing trader? If you are a scalper, you should not have 2 consecutive weeks of drawdown or something needs to be closely reviewed. Scalpers are dependent on high probability and that is the tradeoff for risk/reward. Swing traders may have higher variability due to the nature of the lower probability.
Hopefully helpful! Not a complete listing, but something to "get you going". Consistency is the key you are looking for, and the data for this takes awhile to build. Let the numbers speak for viability.
Thank you very much Eric for the reply
Its a very long haul to make a living as a trader. First you've got to become consistently profitable which is a journey that takes years. And that's just the beginning. Then you've got to grow your equity to a level that it can sustain your lifestyle..... Which is where I'm at now. I had a pretty good lifestyle before I started trading - now I don't; I pretty much just work all the time (I trade both the European and US sessions). I'm single, I moved away from all my friends and I pretty much just work all the time trying to grow my accounts.
How much income do you need have a good lifestyle? $100k? For me that's more than 25% of my equity and is less than what I made before I started trading full time. So I want a bigger income than that.
Realistically I've got a figure of £1 Million in equity in mind before I let myself relax a bit and can have a reasonable lifestyle, £5Million to sustain a pretty extravagant lifestyle while also being able to continue to increase equity.
Until then I'm going to keep grinding on-and-on.
If you can make 2% a day, every day, no losers and no withdrawals, you can turn $10k into $1.7M in a year.
So in addition to what Eric said, you've got to ask yourself how much your lifestyle (or desired lifestyle) will cost per year.
There's also unexpected psychological consequences with being successful to overcome. For example sometimes (like today!!!!) I make 5% in the morning then lose most of it in the afternoon.... My successes make me over-confident. I could just stop when I get to 2%, but I'm determined to overcome this aspect of my trading psychology.
So to put a long story short.... Learning to trade consistently profitably is just the beginning to making a living as a trader - its a long grind from there.
Here's a couple of videos from Al which are very insightful:
