Option FanaticOptions, stock, futures, and system trading, backtesting, money management, and much more!

Realistic Expectations (Part 4)

Today I will conclude this blog series by talking about making a living through full-time trading.

I cannot accomplish this task by relying solely on trading income to cover monthly expenses.  This is too much stress for anyone who is required to think clearly.  Any trader will have periods of “feast” and of “famine.”  If I require trading profits every month to pay the bills then at some point I am likely to fail.  Treat trading as a business.  Nobody starts a successful business without having savings to sustain them through the rough times until the business becomes profitable [again].

While I cannot rely on monthly income, I should aim to cover the expenses each and every month.  I look to make $X per month.  I don’t care what percent return that is or how it fares relative to the broad market.  My goal is to avoid having to go back to work for someone else.  If I cover my bills on a regular basis then I will be successful.

I would offer two footnotes to the above-stated points.  First, while I do not care much about it, if my monthly requirements demand an unrealistic percent return then I need to be cognizant of that to lower risk of going bust.  Second, for me a particular type of trading strategy is needed to trade for a living.  Because the mortgage is due every month, my personality requires something that will make money most of the time.  This means I need to place trades that give me a high probability of making my monthly requirement.  More speculative trades tend to have a lower probability of profit, a higher reward-to-risk ratio, and are characteristic of less liquid markets.  Speculative trades, as an experienced trader once described, can buy me “dinner and a movie” but are not something to trade with the goal of covering the mortgage.  I need to understand the difference.

In summary, I need to implement critical thinking to help determine realistic expectations and then I need to develop a mind-set that keeps me focused on requisite monthly income generation rather than the commonly advertised percent return relative to a benchmark.

Prospective traders:  you can do it!

No comments posted.

Leave a Reply

Your email address will not be published. Required fields are marked *