How much should a "good" trader earn?
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Quote from QdzResurrection:
In general, to be a good trader, he or she needs to grow his or her account an average of 100% in 6 to 12 months.
But that would be the kind of account you blow up a few times. You can trade 1 lots in a $5000 account, and if you're a decent trader you could probably make 100% every few weeks or months, but every once in a while you will lose everything and need a fresh $5000 to start over.
Or you could trade 1 lots in a $50k account, then it will probably take you several years to double your account, but you will never blow out.
But some traders don't have a buying power limit, or have one so high as to be meaningless. For example, my account has over $20 million in buying power. That's just a number, I need that much to enter all my opening orders, but would never be able to just buy 250,000 shares of IBM with it. There is no hard limit on how much money I have available to me, as long as it's acceptable to the firm, since it's their money.
I have always wondered who actually has to put up the money. If you buy $20M worth of stock, you don't actually need $20M cash in your account. But does the prop firm need it? Or do they have their own credit agreement with the clearing firm? Also, the clearing firm does not really need $20M for your (hypothetical) transaction, do they? This brings up another question that will show just how little I know of all this: If the clearing firm has issued debt and then can't pay for a losing trade, who gets paid first, the creditors or the trading partner?
Really, a trader needs to double their account every year to be considered successful? Lets go with that theory for a second.
Lets say your trading a 500K account. You wont be able to double that account by trading 1k share lot positions. You would have to swing or daytrade (depending on you style) minimum of 3000-5000 shares per trade. For example: if you thought YHOO was going up 3 points over the next 2 weeks you should be willing to buy 5,000 shares and hold it for the 15K gain over 2 weeks. You might set a stop loss of lets say 7,500 dollars on a trade that will make you 15,000 dollars right? However thats not all folks....time for some more realities.
Trading 5,000 shares of YHOO ties up at current prices "only" 200k in buying power. However you have 1 million overnight buying power. So lets say you needed to use all your trading power all the time in order to double your account...you might have 5 of these comparable swing positions on at once for the next 2 weeks. In other words your 500k account would have to be willing to have drawdowns of probably 50k dollars in order to ever make it to where it could double for the year. How many of you here have that kind of stomach for those those absolute amounts in drawdowns? Many here are trading with 5k accounts to maybe 10K. Trading eminis....if you ever got your account up to the 500k mark and thought that you could keep doubling it from there you better prepare yourself mentally in advance for swings that will be 10 times the amount of the trading capital you currently have now. Can you handle that? Those are the realities of trading.
If you cant handle that be prepared to settle in and learn to make an income from your trading account once you reach the higher levels. This reply is open to all responses.
Lets say your trading a 500K account. You wont be able to double that account by trading 1k share lot positions. You would have to swing or daytrade (depending on you style) minimum of 3000-5000 shares per trade. For example: if you thought YHOO was going up 3 points over the next 2 weeks you should be willing to buy 5,000 shares and hold it for the 15K gain over 2 weeks. You might set a stop loss of lets say 7,500 dollars on a trade that will make you 15,000 dollars right? However thats not all folks....time for some more realities.
Trading 5,000 shares of YHOO ties up at current prices "only" 200k in buying power. However you have 1 million overnight buying power. So lets say you needed to use all your trading power all the time in order to double your account...you might have 5 of these comparable swing positions on at once for the next 2 weeks. In other words your 500k account would have to be willing to have drawdowns of probably 50k dollars in order to ever make it to where it could double for the year. How many of you here have that kind of stomach for those those absolute amounts in drawdowns? Many here are trading with 5k accounts to maybe 10K. Trading eminis....if you ever got your account up to the 500k mark and thought that you could keep doubling it from there you better prepare yourself mentally in advance for swings that will be 10 times the amount of the trading capital you currently have now. Can you handle that? Those are the realities of trading.
If you cant handle that be prepared to settle in and learn to make an income from your trading account once you reach the higher levels. This reply is open to all responses.
I don't quite see your point. Sure $1M sounds a lot to the average guy, but once you have more money, you can risk more. It's the same in every business: If you operate one restaurant you risk maybe half a million, if that, to make a few hundred thousand dollars a year. If you grow to a chain of 100 restaurants, you now have 100 times the money at risk, and you make 100 times more. What's the big deal? It's the same in trading. I remember when I was little a dollar used to be a lot of money for me. When I was making a few hundred dollars a month, $10 still meant something, when I was making 10 times more in the rat race, $100 had approximately the same value to me as $1 as a small child and $10 back in school. Unfortunately, I have never made 10 times more than an average salary, but I'm pretty sure if I ever get to that point it will be just the same. So far, it has not been a problem. Two years ago a loss of $300 in a single trading day would cause me great discomfort. Yesterday I lost over $500, and I couldn't care less. On Monday I might lose another 1000 or make 1000, either way I won't lose any sleep over it. So what's the big difference between $1000 and $50000? Both these values represent a lot of money, but also not too much. I would certainly have greater difficulties wasting $50k on a car with a certain type of ornament on its hood than risking the money in a trade. The former seems to be no problem at all for the average Joe, while the latter is most certainly the better decision (assuming you are a profitable trader).
Interesting Lobster.. you have made many good points in this reply. I think to go with it further I would say that when you get to a certain level with your account. How does one overcome the "emotional" hump that accompanies trading with larger size? The "emotional" hump being that eventually your making or risking more money on a trade than most people have in their savings account. Its weird to think of it as a problem as how would one get their account up to a certain spot in the first place and then all of a sudden shut down and say "I cant take the numbers anymore I need to trade more conservatively". It does happen...it happened to me for some time. I would trade very conservatively. I wasn't trying to double my account I was happy with 30-40% a year on my account size. I am just getting past that block now but its not easy. Yes your correct, when you say that if your profitable and you obviously have gotten there because you are a consistent trader. Then it stands to reason why not just continue to increase size and be more absolutely profitable? Its logical and thats what should be done.
I guess it could be summed up this way. Its like the game show "Lets Make a Deal". You have a good prize now (large account) but do you want to risk it for an even bigger prize behind curtain number 2? Or does Curtain # 2 hold something that you don't want to happen to you? That is what can sometimes be called the mental f-ck of trading when you get to certain levels. However Lobster I agree it needs to be dealt with and overcome.
I measure my results by:
I want to display a consistency in profits that are accelerating on a monthly, quarterly or yearly basis....this can adjust according to time frame, style and methodology. The key is consistency and a gradual increase in profits measured by percent. I do try to stay away of thinking in dollars...I prefer points. Now, when starting a new instrument, system or methodology it is key to start small and expand slowly....do not expose yourself to high risk or "out of balance" tests. I laugh at myself at times as I think of my style as a conservative speculator....ha ha that is what they call an oxymoron right? But really, I want to trade everything once.
I want to be able to adapt quarterly to the changing market conditions, cycles, seasons etc.....
I want to control risk through diversification
Michael B.
P.S. I do not think measuring in dollars is relevant as long as I am fulfilling the above in my opinion. So I could not answer the poll.
P.S.S. Just another quick point.....start small and accelerate forward....take your time.... you have got the rest of your life. Reward yourself with those successes measured with the above....not in dollars.
- Consistency
- Acceleration
- Adaptation
- Exposure
- Risk
- Diversification
I want to display a consistency in profits that are accelerating on a monthly, quarterly or yearly basis....this can adjust according to time frame, style and methodology. The key is consistency and a gradual increase in profits measured by percent. I do try to stay away of thinking in dollars...I prefer points. Now, when starting a new instrument, system or methodology it is key to start small and expand slowly....do not expose yourself to high risk or "out of balance" tests. I laugh at myself at times as I think of my style as a conservative speculator....ha ha that is what they call an oxymoron right? But really, I want to trade everything once.
I want to be able to adapt quarterly to the changing market conditions, cycles, seasons etc.....
I want to control risk through diversification
Michael B.
P.S. I do not think measuring in dollars is relevant as long as I am fulfilling the above in my opinion. So I could not answer the poll.
P.S.S. Just another quick point.....start small and accelerate forward....take your time.... you have got the rest of your life. Reward yourself with those successes measured with the above....not in dollars.
We seem to agree on this point, although we must have had entirely different approaches to trading: In the very beginning, I was extremely conservative. I had $30k in my account and traded 100 share lots with $0.10 or $0.15 stops. Now that I have approximately twice as much in my trading account, I risk more than 10 times as much per trade as I used to. So I guess you could say I have gone from extremely conservative to slightly more aggressive. But if I had a few hundred thousand to trade with, I don't believe I would even want to shoot for 100% a year. You probably meant exactly that with your original post, I just didn't understand it. I would look at it from an absolute income perspective: Why take all that risk just to make a million a year instead of $100k? Once you have a nice house, a car, and whatever you need to be happy, for some it's a boat, for others music, etc, why would you want more? Would you really be 100 times happier in a $20M mansion than in a $200k single family home in a decent neighborhood? Or would driving a car that costs $1 per mile make you 10 times happier than a little civic? I know that I wouldn't want it. Sure, I can see myself taking on the challange of making more money trading, just for the fun of it, but my financial goal is a house, a car and a couple of grand monthly interest income. Once (if ever) I have that, I will probably try to maximize the use of my time, not my bank account. If I feel my time is best spent trading, I will probably do that, but if I want to study physics or play the piano, I will have no problem with never becoming a millionaire. Although I have never read this on ET, There are more important things in life than money, especially when you already have enough to live and die comfortably.
You will earn as much as your mind will allow you.
Emotions and mental capacity have a lot to do with trading.
For me, it is to earn enough to be comfy but have a great deal of free time. I highly doubt I will be a multi-millionare unless Bob wins a lottery.
What trading gives me is time to enjoy.
Life is very short.
Emotions and mental capacity have a lot to do with trading.
For me, it is to earn enough to be comfy but have a great deal of free time. I highly doubt I will be a multi-millionare unless Bob wins a lottery.
What trading gives me is time to enjoy.
Life is very short.