Advice on how I should Raise Trading Capital?

[Businessman]

This is a common midlife crisis pattern.

A 30 or 40 something year old has worked hard in a well paying day job saved decent money. But has now become disillusioned or bored with the day job. Working for annoying bosses or annoying customers.

I also think it has something to do with wealth growth . When you start out working in your early 20s, each year your wealth increases massively compared to the broke 20 year old you. But by your mid 30s, the income you manage to save from the day job is only adding say 10% a year to your now much larger wealth.

This is when the allure of trading comes in, no annoying bosses or customers and the prospect of big wealth growth again.

The risk is you go in as a relatively young high earning 35 year old, with most of your life still ahead, you come out ten years laters, cash poorer with your best years now behind you.

I met this full time trader a few years ago. Single, no wife or family. In his mid 30s he was earning around 200K a year as a contractor. He had stopped doing that and became a full time trader for 10 years, never made any money from trading from what i could tell.

 

[Windlesham1]

Honesty is everything as the truth is all that matters...so here is some brutal, embarrassing honesty:

Long story short...my education as a trader has cost me ~$140k...And I absolutely do not have anymore to lose. My primary choice for gambling was long options believing that "it has to happen"...but it never did and I absolutely deserved to learn that lesson. If it wasn't for options I would have still lost the same amount of money...the problem was obviously me as the driver, not the trading vehicle.

After a 6 month break to really reflect on my failures I decided to get away from options and focus on futures (for a number of reasons not relevant to this thread). I've always been intimidated/afraid of futures trading but drawn to them for whatever reason. After some success paper trading I decided to go live trading micros...actually doing the things you are supposed to do...and I am profitable.

Although this thread is slightly premature based on my skills...the time is coming and I should probably get started with raising capital sooner rather than later.

Looking for some genuine advice on what to do here. I am 37 yo male, I do not have a job and really really do not want to go back to the work place, (haven't worked since 2018). I am really fortunate in that I own a decent house and a profitable small business with zero debt...but my lifestyle has to be extremely frugal due to very low income. Too frugal in fact.

So where would you look for trading capital in this situation? I have about $25k in an IRA I could cash out, probably another $20k in physical goods I could let go of with reluctance...but that's about it.

- Job is most obvious choice, unfortunately.
- Prop firm worth it? would I have to trade their specific way? would they even be interested?
- Take out a loan? If I am profitable maybe it would be worth taking out a cash loan of some sort.

Just looking for some advice,

thanks ET.

You could have saved $140k by getting some education, and paper trading for 2 years minimum. Simply buying naked options is gambling. Selling naked options is........ gambling. Learn how to trade, do not try to guess direction intra day. I could give you a strategy that would set you up for life,with 4 hours work,every year. But you are young and can make your own way.

 

[hoffmanw]

.

....

- Job is most obvious choice, unfortunately.
....

Trading is very, very hard. Most traders will fail eventually. Only few with deep understanding of the markets will survive and thrive in the long term. I don't think people can force the understanding. It has to be come from the other side deep within. It is almost like some physicist working on some very complex problem. Solution just appears out of nowhere come to him e.g. Albert Einstein and his theory of relativity.

Trading is not the only way to become wealth. Recently, I was in an accounting office in New York City. I overheard some CPAs said they are so envy of some of their clients who are working as tech sales. They making couple million dollars a year. You sound like a guy have great people skills. Probably you are good at this.

I mean after working several years, you should have tons of capital for trading. I doubt you still want to be a trader. After all, the ultimate end game for trading is to make lots of money and quit.

 

[taowave]

I agree that trading spreads is a great way to learn as you capped your risk,but its not that simple.

Depending on several variables,you may be better off trading the same delta amount of underlying as the spread..

You may be better off selling a naked put, but not the same size as the short put spread..

Notice I said MAY...

Like the broken record I am, take the trial to Orats and backtest each and every position and then compare them on a risk adjusted basis..

IMHO,if you are directional in nature,buying the underlying is the way to go,and if you are really good at direction,buy Options....

You can't get big enough selling puts,and you aren't paid enough selling tight put spreads...

I think you should study options spreads throughly. Spreads are IMO the best trading vehicles as you can in advance limit your possible loss, unlike with stop loss or trailing loss orders which are not guaranteed, as everybody knows.

Another advantage: you just keep the position some weeks or months. Ie. no constant trading required.
Of course to be on the safe side, one should have about 20 or 25 positions open (diversification, ie. risking max 5% of account with each pos).

I'm currently trying to apply the above plan. Using only 2-leg option spreads (ShortPut + LongPut, can be configured as bullish or bearish (depends on whether LP.K < SP.K or LP.K > SP.K).

My financial situation is similar to yours, but I decided against taking a loan; instead I'll do it with own money, how small it even might be, b/c if the strategy is good then it should help to grow the account, even if it takes some longer. But even that can be optimized by trying to increase the monthly profit rate by finding more lucrative spreads...

In your case: you should optimize the said 5.3% per month. If you can bring it to about 14% then
you could reach $150k in just 2 years:

sim_acct_perf(sc=6700.00, pos_size=5.00, f_pos_size_is_pct=1, PLpct_per_DT=0.6500, TD_per_month=20, add_sub_amt_per_month=0.00, months=24):
TD/mo=20 PL%/TD=PL%/DT=0.650000 gross_PL%/mo=13.834940(Ann=373.485860% DF=4.754665)
month          sc               ec               pl_tm  pl%_tm           pl_tot    pl%_tot      DF
  1          6700.00          7626.94           926.94   13.83           926.94      13.83    0.19
  2          7626.94          8682.12          1055.18   13.83          1982.12      29.58    0.37
  3          8682.12          9883.29          1201.17   13.83          3183.29      47.51    0.56
  4          9883.29         11250.64          1367.35   13.83          4550.64      67.92    0.75
  5         11250.64         12807.16          1556.52   13.83          6107.16      91.15    0.93
  6         12807.16         14579.02          1771.86   13.83          7879.02     117.60    1.12
  7         14579.02         16596.02          2017.00   13.83          9896.02     147.70    1.31
  8         16596.02         18892.07          2296.05   13.83         12192.07     181.97    1.50
  9         18892.07         21505.77          2613.71   13.83         14805.77     220.98    1.68
10         21505.77         24481.08          2975.31   13.83         17781.08     265.39    1.87
11         24481.08         27868.03          3386.94   13.83         21168.03     315.94    2.06
12         27868.03         31723.55          3855.53   13.83         25023.55     373.49    2.24
13         31723.55         36112.49          4388.93   13.83         29412.49     438.99    2.43
14         36112.49         41108.63          4996.14   13.83         34408.63     513.56    2.62
15         41108.63         46795.98          5687.35   13.83         40095.98     598.45    2.80
16         46795.98         53270.18          6474.20   13.83         46570.18     695.08    2.99
17         53270.18         60640.08          7369.90   13.83         53940.08     805.08    3.18
18         60640.08         69029.59          8389.52   13.83         62329.59     930.29    3.36
19         69029.59         78579.80          9550.20   13.83         71879.80    1072.83    3.55
20         78579.80         89451.27         10871.47   13.83         82751.27    1235.09    3.74
21         89451.27        101826.80         12375.53   13.83         95126.80    1419.80    3.93
22        101826.80        115914.47         14087.68   13.83        109214.47    1630.07    4.11
23        115914.47        131951.17         16036.70   13.83        125251.17    1869.42    4.30
24        131951.17        150206.54         18255.37   13.83        143506.54    2141.89    4.49

 

[earth_imperator]

@taowave, I've throughly analyzed it There are many very lucrative opportunities. One just needs to automate the process to reap these fruits b/c doing diversification at say 5% level means to have 20 spreads open (ideally each using a different ticker), meaning 40 positions at minimum (2-leg spreads). Handling and managing that much positions can only be done by a program, IMO...

 

[taowave]

Fully agree and am glad you are capable of automating the process.I am not,which is why I reccomended Orats.It scans and backtests..

What percent wide are your spreads,how far out and apx deltas..

Ill backtest spreads vs nude options if you like..

@taowave, I've throughly analyzed it There are many very lucrative opportunities. One just needs to automate the process to reap these fruits b/c doing diversification at say 5% level means to have 20 spreads open, meaning 40 positions at minimum (2-leg spreads). Handling and managing that much positions can only be done by a program, IMO...

 

[ondafringe]

You can't get big enough selling puts...

Would you flesh that out a bit?

 

[deaddog]

Financial trading is very different from trading in physical goods. It doesn't have inventory or clientele to worry about but you are not working with something concrete either so there is very little that you can build upon I find. Everything is decided in one shot. You either win it or you don't.

I see it as very similar. The assets you are trading are your inventory. You clientele is the public. You attempt to find bargains that you can sell later at higher price.

If you believe in stage analysis the terminology is business like. Accumulation, mark-up distribution, and mark down. The problem is that most don't look at it as a business.

 

[taowave]

I should have said selling puts with prudent risk management...

Most beginning traders love the probability of being right as opposed to the probability of making money..Probability of Profit vs Expected return..Two different things...

If you believe in risking 1-2 percent of your capital per trade, position sizing with stops on some vol measure,its fairly cut and dry with a long stock position..Biggest risk is gap risk,but you can survive and live to trade another day

On the flip side,you can sell one ATM put as a stock equivalant but are only long .50 delta vs 1 for the stock..Should you sell 2? Should you sell 3 of the .33 options,or 10 of the .10 options???

Im not a directional trader,but gun to my head,if you told me forced me to trade directionally,I would either buy the stock or buy options/spreads/broken wing flys

Dont get me wrong,if you are a Value investor ,nothing wrong with selling puts and HAPPILY taking the stock if assigned..But as a trader,you run too much extinction risk if you want to push the envelope by selling puts..

Would you flesh that out a bit?

 

[Laissez Faire]

Here's a simple example illustrating that lack of capital usually isn't the problem. Lack of trading skills and impatience are more likely the cause.

I'll use ES as an example, but feel free to substitute it with any other liquid and volatile contract.

If you fund a $10K account and allow yourself a 50 % drawdown, that's 100 ES points gross. No able day trader should ever see a 100 point drawdown on one single contract.

So, fund a $10K account and allocate $10K per contract. This means that when your account hits $20K you can trade 2 contracts, 3 contracts at $30K, etc. Initially, progress is slow, but eventually the compounding effect starts to snowball. The key to getting rich is to compound your returns and don't take money out of your account, but keep adding contracts as your account grows keeping your % risk the same.

The average RTH range so far for ES in 2022 is a whopping 76 points per day. That's a lot of points every day.

If instead we look at the sum of the major swings each day (which will always exceed the daily range except when it's a trend day), the average of that is 135 points. Even more.

If we go even finer and look at the sum of the minor swings, the daily average is 490 points. That's a ton of points on offer each day.

So, let's say a conservative trader aims to capture 3 points per day net. That's $150 points per contract.

Let's face it. If you can't on average capture 3 points per day in current conditions with the market offering infinitely more, you have no business trading with real money.

After 250 trading days you are trading 23 contracts and your account hits $239 200. All you need is your 3 points per day.

It's all there for the taking for those who have the skills to do so. This shows that lack of capital isn't the problem, but lack of trading skills.