Trading, Taking and Income, and Capital Requirements

[raVar]

So as to not derail the thread ( https://www.elitetrader.com/et/thre...egy-trading-journal-that-shows-profit.337303/ ) where this topic came up? I thought I would start a new thread here.

When it comes to the topic of Professional Trading? Inevitably, the topic comes up ...

How much capital do you need? To live on, and still trade?

A few key posts from folks in that thread ... to this particular topic ...

In the whitepaper in that thread, it states:

"Earning an income from trading a smaller retail account, will require a much different approach than say, growing an account with a single intra-day trading process. Of course, that would require that new retail traders understand that mathematically, they will never, ever be able to pull in a living-income from a small $25,000 trading account. We have found that many refuse to accept this truth. And it is truth. It is not opinion. It is mathematical fact, that has been proven time and time again that you cannot pull a living-income in from a such a small retail trading account."​

To that statement? The following replies are key ...

If you're presenting as "truth" that a specific $ amount is impossible, then at what level does it become possible? IOW the minimum amount needed to produce a living-income?

Obviously the answer will depend on the individual's living expenses, so let's assume the income trader has no dependents, and they live in a location with low living expenses. <=$1000/month.

As well as ...

Well, let's do some math. Suppose I need $5,000/month for living expenses. This pretty much covers rent/mortgage, insurance, gas, food, etc. There are roughly 22 trading days in a month. Hence, I would need a profit of $227.27 per day, every day. Is this doable?

I trade S&P E-mini futures. Suppose I trade only 1 contract, which requires only $500 day margin. Each tick (0.25 point) is worth $12.50 and there are 4 ticks to a point. Hence, 1 point is $50. That would mean I need to capture 18 ticks or 4.5 points. Now is that doable?

Although it's not highly likely to capture (almost) 5 points in one trade, I'm pretty certain this could be done with 2 to 3 trades with the goal of capturing anywhere from 6-10 ticks per trade.

The caveat, however, is do you have a well-planned strategy and the discipline to execute it? This goes back to my earlier premises. It doesn't matter how much trading capital you have, whether it's $25,000 or $250,000, if you have no idea what you're doing, you're going to lose it all.

As I stated in the other thread? I think this is a fantastic topic. And excellent points made by both of the posters above. I'm really glad they said the above, because it's critical for aspiring traders who wish to trade from home as their sole income (Professional?) to understand.

So again, so as to not derail the topic in that thread too much? Let's discuss it here.

So here's the points that I would offer for consideration.

1) Discipline and a great strategy do not matter. $25,000 is too low, for the best traders on this Planet ... because

2) Of Drawdown. Even on the best, of best strategies.

When Drawdown enters the picture? Which every strategy on this Planet experiences ... it quadruples the problem.

So you can have a fantastic strategy. A BEAST of a strategy, that beats most traders on this Planet. But each strategy has a Drawdown Metric.

Every.

Single.

One.

And if you have to take a living from a strategy? A "Draw"?

Then, when you experience inevitable drawdown? Or even a flat month, or two flat months in a row?

You are automatically exercerbating your problems of taking a draw.

That's before we even get to Taxes, Slippage, and Commissions.

 

[raVar]

So as to not derail the thread ( https://www.elitetrader.com/et/thre...egy-trading-journal-that-shows-profit.337303/ ) where this topic came up? I thought I would start a new thread here.

When it comes to the topic of Professional Trading? Inevitably, the topic comes up ...

How much capital do you need? To live on, and still trade?

A few key posts from folks in that thread ... to this particular topic ...

In the whitepaper in that thread, it states:

"Earning an income from trading a smaller retail account, will require a much different approach than say, growing an account with a single intra-day trading process. Of course, that would require that new retail traders understand that mathematically, they will never, ever be able to pull in a living-income from a small $25,000 trading account. We have found that many refuse to accept this truth. And it is truth. It is not opinion. It is mathematical fact, that has been proven time and time again that you cannot pull a living-income in from a such a small retail trading account."​

To that statement? The following replies are key ...



As well as ...



As I stated in the other thread? I think this is a fantastic topic. And excellent points. Because it's critical for aspiring traders who wish to trade from home as their sole income (Professional?) to understand.

So again, so as to not derail the topic in that thread too much? Let's discuss it here.

So here's the points that I would offer for consideration.

1) Discipline and a great strategy do not matter. $25,000 is too low, for the best traders on this Planet ... because

2) Of Drawdown. Even on the best, of best strategies.

When Drawdown enters the picture? Which every strategy on this Planet experiences ... it quadruples the problem.

So you can have a fantastic strategy. A BEAST of a strategy, that beats most traders on this Planet. But each strategy has a Drawdown Metric.

Every.

Single.

One.

And if you have to take a living from a strategy? A "Draw"?

Then, when you experience inevitable drawdown? Or even a flat month, or two flat months in a row?

You are automatically exercerbating your problems of taking a draw.

That's before we even get to Taxes, Slippage, and Commissions.

So ... let's look at some of the greatest Asset Managers on the Planet. Here's a view of some of them ...

So ... that ... is a look at the ranked, third-party audited, best Alt Traders on this Planet, third from the Sun ... with tens of millions under management. Taken from ( https://app.coquesttradersresearch.com/ ) Take a look through those. Anyone, pick the best one you think would fit this topic? And let's work the math.

I'll leave it to everyone to pick a Program.

But if you work the math with their DD numbers?

It's just not possible ... on $25,000.00

 

[raVar]

(By the way, just an aside to let you know where I'm looking at? As far as what I think is a "great" ? ... I have been observing Global Sigma Group for years. Easily, I personally think one of the single Greatest Asset Management Firms available to 'quasi' normal Investors (QEP's) ... at the moment. What they have been able to do? Is outstanding. Unreal even.)

 

[TheBigShort]

Thats a lot of hype for a company that has done OK over the past 36 months. Sure their sharpe looks really high but holding QQQ has out performed them in the last 10 and 3 year periods. A "quasi" normal investor (not to sure what that is) should care more about their absolute return rather than their drawdowns.

Far from Unreal if you ask me.

That being said I am surprised why they only have 385 million AUM. Their pnl graph looks quite nice. I would not be surprised if we found out they were selling DOTMP. Only time will tell

https://www.ironbeam.com/global-sigma-group-plus-program/

 

[raVar]

Thats a lot of hype for a company that has done OK over the past 36 months. Sure their sharpe looks really high but holding QQQ has out performed them in the last 10 and 3 year periods. A "quasi" normal investor (not to sure what that is) should care more about their absolute return rather than their drawdowns.

Far from Unreal if you ask me.

That being said I am surprised why they only have 385 million AUM. Their pnl graph looks quite nice. I would not be surprised if we found out they were selling DOTMP. Only time will tell

Show me any other audited trailer on this Planet or audited firm whose maximum drawdown is under 1 times their annualized return. I could care less if the annualized return is 5% or 38%.

As a shortcut for you as you learn about large programs with large AUM? That is your shortcut. What is the ratio of the three year annualized return to the maximum drawdown. You are going to find that most Traders fall somewhere in the range of three times the annualized return. It does not matter what the annualized return is. Most average traders have a maximum drawdown of three times their annualized return. Really good traders have a maximum drawdown of 2 times their annual return.

So now, go out and find anyone who can have a maximum drawdown of under 1 times their annual return. Somehow, someway. ... Global Sigma is able to do that with under 1X their annualized return. That makes them a trading God when you have to consider scalability.

Heck, forget large programs with firms that have to concern themselves with scalability issues. Show me the any audited Trader with even tiny $100,000 accounts they can do something like that.

Global Sigma, is the Premier example of how to create "sticky money"

 

[imjohn]

I'll leave it to everyone to pick a Program.

But if you work the math with their DD numbers?

It's just not possible ... on $25,000.00

I follow what you're saying. But Asset Mgmt Firms with 9-10 figures under mgmt, and small retail accounts with low six figures, are two entirely different ball games. No reason to even compare performance stats between those two groups.

 

[TheBigShort]

Show me any other audited trailer on this Planet or audited firm whose maximum drawdown is under 1 times their annualized return. I could care less if the annualized return is 5% or 38%.

As a shortcut for you as you learn about large programs with large AUM? That is your shortcut. What is the ratio of the three year annualized return to the maximum drawdown. You are going to find that most Traders fall somewhere in the range of three times the annualized return. It does not matter what the annualized return is. Most average traders have a maximum drawdown of three times their annualized return. Really good trailers have a maximum drawdown of 2 times their annual return.

So now, go out and find anyone who can have a maximum drawdown of under 1 times their annual return. Somehow, someway. ... Global Sigma is able to do that with under 1X their annualized return. That makes them a trading God when you have to consider scalability.

Heck, forget large programs with firms that have to concern themselves with scalability issues. Show me the any audited Trader with even tiny $100,000 accounts they can do something like that.

Global Sigma, is the Premier example of how to create "sticky money"

I have no clue what their strategy is but I would take a guess that they are either market making or selling deep out of the money puts. I mean did you ever wonder - with a drawdown of 1% why they are not scaling up 5x there current position?

Here is a very simple way to get those returns (but don't tell anyone I told you). Sell delta 5 puts on SPX from 2010 to current and mark to model. Any retail trader can do that. These guys only started in 2010 so it also makes me wonder if they were under a different name, closed down and re-opened using the same strategy.

Their only drawdown in the past 3 years was in 2015 when the market tanked. Thats another clue.

I am not bashing them, just pointing out, they are not "Unreal"

 

[raVar]

I follow what you're saying. But Asset Mgmt Firms with 9-10 figures under mgmt, and small retail accounts with low six figures, are two entirely different ball games. No reason to even compare performance stats between those two groups.

There really is a lot to that statement.

Perhaps, it's that I live in a world where my entire concern is about creating sticky money by being able to demonstrate linearity to folks who Ifor some reason think that should be the norm. I will be the first to admit that my daily Focus creates my reality. Which can skew my perception.

And why I think so highly of global Sigma. To be able to achieve that sort of linearity with that AUM, is insanely impressive. It cannot be done with options because the AUM is too high. Usually, options program scale out at around 25 million.

But, to sort of the topic at hand? The number of small AUM private traders I have seen in the last 30 years that can produce that linearity on even a small account? I can probably count on one hand.

Which, leading to the topic ... means that a brand-new aspiring Trader who is trying to take am income from this trading account is trying to compete with the greatest Traders on this planet.

Eeehhhhhh ...

 

[raVar]

I have no clue what their strategy is but I would take a guess that they are either market making or selling deep out of the money puts. I mean did you ever wonder - with a drawdown of 1% why they are not scaling up 5x there current position?

Here is a very simple way to get those returns (but don't tell anyone I told you). Sell delta 5 puts on SPX from 2010 to current and mark to model. Any retail trader can do that. These guys only started in 2010 so it also makes me wonder if they were under a different name, closed down and re-opened using the same strategy.

Their only drawdown in the past 3 years was in 2015 when the market tanked. Thats another clue.

I am not bashing them, just pointing out, they are not "Unreal"

But, at that AUM, they are.

I know of a case, of an individual who is probably one of the single greatest options Traders on this planet. And that's not an exaggeration. And Incredibly talented software writer who is responsible for coding systems that are used Tier 1 institutions. Nothing that retail Trader would ever hear of because quite frankly, it's just working at a level that's too far above them.

Back when Goldman Sachs could look at trading strategies and prop, before befour Volcker ... and back in that day. Amd even he cannot scale up past 25 million.

 

[raVar]

I have no clue what their strategy is but I would take a guess that they are either market making or selling deep out of the money puts. I mean did you ever wonder - with a drawdown of 1% why they are not scaling up 5x there current position?

Here is a very simple way to get those returns (but don't tell anyone I told you). Sell delta 5 puts on SPX from 2010 to current and mark to model. Any retail trader can do that. These guys only started in 2010 so it also makes me wonder if they were under a different name, closed down and re-opened using the same strategy.

Their only drawdown in the past 3 years was in 2015 when the market tanked. Thats another clue.

I am not bashing them, just pointing out, they are not "Unreal"

Well as far as they are AUM? Look at the reporting database. 325 million AUM for the Alts puts them at one of the biggest in the world for being an Alt.

And then just do the math. Forget my anecdotal experience. At 325 million, what is the number of deep in the money options they would need to be selling? When you do that math, you find out that it matches with my anecdotal experience that I related earlier. There is just no way and they're doing that on options alone at 325 million. They'd be scaled out.

And like I told @imjohn above? To the point of the thread? We are at a point where we are discussing the survivability of a new aspiring Trader to some of the largest alternative trading firms on this planetBut, to sort of the topic at hand? The number of small AUM private traders I have seen in the last 30 years that can produce that linearity on even a small account? I can probably count on one hand.

Which, leading to the topic ... means that a brand-new aspiring Trader who is trying to take am income from this trading account is trying to compete with the greatest Traders on this planet.

Eeehhhhhh ...

I doubt that the new aspiring Trader as anywhere near that skill level to draw an income from