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A bit about going full time

Discussion in 'General Discussion' started by Marcas, Dec 3, 2016.

  1. Marcas

    Marcas Well-Known Member

    Every trader, at one point or another, especially after long streak of wins ;), considers possibility of living of trading. I noticed few fellows here on CD who mentioned this and I consider this move myself too. There are few ways to approach subject; one can simply jump into the water with conviction that he somehow learn to swim in process just because it becomes matter of life an death, others rather stay on the beach lay down on sand and dry practice swimming movements, practice, practice and practice…
    I find myself in position of thinking of consequences that arise from fact of entering water at all.
    It seems that one of challenges I have to face is my mood swings – I know how loosing trade makes me feel leery and I know euphoria like state I'm in when my trade makes money - I think I can deal with it.

    No doubt each situation is unique and there is no one and only path leading to “professionalism” nevertheless I would like to hear your thoughts. I'm interested in every aspect of it, as in general ideas as in particular, specific problems – there is now way I was able to get to every aspect of this at my own. If this idea just passed your mind or if you are already swimming for a while, please, share if you will.
  2. Ryan Simmen

    Ryan Simmen Well-Known Member

    On a similar note does anyone run their personal trading activity through a pass through entity such as an S-Corp? What are the tax advantages? Can you write off your commissions or the cost of OV? I'm especially considering this as Trump campaigned on reducing pass through taxation to 15%.
    Last edited: Dec 3, 2016
  3. Paul Demers

    Paul Demers Well-Known Member

    Hi Marcas
    Early on in my options trading career I made the decision to go full time. I have learned a lot from the experience, mostly on how ill prepared I was for the emotional aspects of trading for a living. No matter how well prepared you are in understanding how the greeks work and have back tested the trades you are doing everything changes when you are relying on the profits from your trading to pay your bills. At one point I became so discouraged I stopped trading and took a W-2 job for a while. In the end I decided that trading was where I wanted to be. Based on my experiences I could probably write a book or do a webinar series :).

    Hope this helps.
    Chaitanya and Jack like this.
  4. DGH

    DGH Administrator

    Yes, Marcas, the decision to trade full time is a daunting one. For me, it was a bit different. In my late forties I knew that my career as a neuropathologist was, of necessity, drawing to a close because of retinal problems and the decline of fine, detailed vision. I had been interested in trading and, like most folks, had dabbled a bit. I considered moving into another branch of medicine, of course, but opportunities were a bit limited in my situation and age at that time. So, I dove headlong into learning to trade stocks and options. I bought the few materials which were available then and took the plunge. Over time, I also added futures trading to my "skill set", but gradually became an options trader primarily and was able to make a living entirely from trading. Of course, my trading returns have never matched my income as a neuropathologist, but I expected that. Here are a few things I learned in the process: 1. the first year or two will likely prove difficult since "hobby" and "job" are radically different in terms of trading. I have friends who experienced this, some of whom had to return to a "day job". 2. the win rate and returns in real dollars (or pounds or AUD) may not be as large as expected. A working spouse can help to fill in the gaps, but that is not the ultimate goal, of course. 3. As losses appear, there is a temptation to constantly try a new strategy in order to avoid losing more money. This approach generally does not work. It's far better to stick with 2 or 3 strategies, each of which is known to work in specific market environments. 4. there is a temptation to increase size too soon. This can be dangerous. As they say, if a trader can't make money with a small size, why should he or she be able to do it with larger size? 5. gradually, skill and confidence improve along with knowledge of expected return and other metrics of successful trading which help to "fine tune" the trading returns 5. the ability to take a loss when needed without hesitation and without looking back will eventually develop out of necessity. Otherwise, the trader will "blow up". 6. Obviously, as numbers 1-5 illustrate, it is vital to have adequate capital before taking the plunge. I had begun to save like a miser and invest in Treasuries and high grade corporate bonds, both of which were paying good interest at the time, for several years prior to actually resigning my practice partnership. In today's economy, I think it is critical to have a healthy nest egg prior to trading full time. Hope this helps.
  5. Boomer34

    Boomer34 Well-Known Member

    This will be a very beneficial thread! As has been mentioned, most anyone who has tasted any success has at least had the passing thought of doing this for a living.
    Chaitanya likes this.
  6. Boomer34

    Boomer34 Well-Known Member

    Maybe this isn't that place for this discussion, but I think we should start a thread talking through tax issues/ideas for those who are trading for a living, or can justify operating under some type of entity.
    David C. likes this.
  7. Steve S

    Steve S Well-Known Member

    Go to Greentradertax.com and buy the Trader tax Guide. I have used these guys for 15 years and they are the best, both for general information and professional services. All your questions will be answered in painful detail.
  8. Steve S

    Steve S Well-Known Member

    My 2 cents:
    There is no substitute for starting with adequate capitalization (actually there is one: being young enough to take excessive risks with small capital and probably blow out a couple of times). Don't do it unless you've got at least $200k - $300k to commit, and if you're on the low end of this be prepared to live a modest lifestyle for awhile.

    Don't do it unless you are a good risk manager. It helps to have the psychology that (A) you don't get emotional about profits and (B) you care a lot about losses, and the losses drive you to work on your strategies and risk management rather than just despair.

    Have modest expectations. Forget about 50%+ per year and just try for 20% with insanely aggressive risk management.

    I've traded for a living as a market maker (easy) and a retail trader (harder), but I had my biggest success in dollar terms just trading retail following the script above.
  9. Paul Demers

    Paul Demers Well-Known Member

    There is so much that can be added to this thread.

    You need to develop a good business plan.
    Risk management goes further than the trades.
    Health and well being is important.
    Know and understand your limitations.
    If you can't sleep at night then you are trading to big a size
  10. Jason A

    Jason A Member

    This thread is very useful. I hope more full time traders and chip in and share their journey as well to inspire and guide the rest of us.
  11. Marcas

    Marcas Well-Known Member

    Thanks for thoughts, few issues popped up that I neglected, some intentionally.

    I 'd like to add a bit about capital requirements. Futures traders trade by units. One may trade 1, 2, 5 or 10 units, of each unit only small part is put into particular trade - .5 to 1.5 or 2 or even3+%. Unit size is about 100K, so it is in line with suggested 200-300K. I will be trading significantly smaller amount, though. I hear bunch of warnings coming my way – Iknow what are they about , but, as I said, each situation is different. My goal is 3-4% per month which may seem not too bad for short term – for longer it requires effort and discipline and other things but is is doable. Couple strategies popular on CD are in that range. One important concept that I realized, being member of CD, is approach to capital: money on trading account are not money, it is a tool, means you can not look at them as at Bahamas vacation but as a hammer or car taking you to daily job – I will not sell my hammer to buy a bear case. I have to be very careful with trading capital and be prepared to replenish it if necessary. So 3-4% is my goal and I can survive in case of few months of drought. It is sound advice to have a healthy nest egg prior to trading full time but it is general advice (I read this as advice about being able to support oneself in downtime and, most important, not to put oneself under tremendous pressure while trading) but I think it can be achieved by other means as well.

    Other things I neglected are taxes. I purposely pushed it for later. My understanding is that incorporated structure will not have direct effect on taxes (you can include commissions, software cost, learning expenses etc. into costs ether case), but it may be useful in structuring your situation vs irs in broader perspective. I will be outside 'trader by irs definition' for a while. It is also in my field of view moving to place with better tax treatment.

    Although I see my position as not too stressful (doesn't mean stress-less) I anticipate problems on psychology side (from many directions) – Paul, I'm very interested in your book… but I can not theorize here I have to face it.
    On a long side (short side being organizing your desk, system, workflow etc.) I do not intend to trade for trading itself, no matter how much I like it, I want to free my time and my head to do something good as for myself (I have a loooong list of books to read – and many house projects too :) ) as for others even if it will be just supporting those who can do more good than I can. I notice this direction of activity in many traders and businessmen and I appreciate it a lot (one don't have to look too far :) ).

    One more thing that was mentioned – health. It is very important as I cant trade while sick or having a headache. I'm working on it. Seems obvious but there was only one person, to my knowledge, who mentioned it on CD before – Ed Tulauskas.

    Again, thanks for sharing thoughts and experience, I hope this is only beginning of tread. I'm considering full time now more than ever and maybe I will be able to add bits more later on.

    On private note: Dan are you familiar with work of John Eccles? I find evolution of his position on role of brain very interesting.
  12. AKJ

    AKJ Well-Known Member

    I hate to be the turd-in-the-punchbowl, but I think it is unrealistically optimistic to plan to make 3-4% per month. Planning to make ~20% per year consistently on your asset base (over a full market cycle) may be possible but only for the cream of the crop traders (perhaps top 5% or top 1%) in communities like ours.

    The top money managers in the world have track records along the lines of 15-20% per year at a 1.5 sharpe ratio. I'm ready to acknowledge that there's a big difference between managing $1B+ versus trading $250k, but regardless, it's important to have some perspective regarding the goals we set for ourselves relative to the ceiling of what has been achieved by some of the most talented traders in the world.
    kiet likes this.
  13. DGH

    DGH Administrator

    Hi Marcas. Yes, I remember Eccles from my neurophysiology courses in medical school and my fellowship. I have always had an abiding interest in philosophy, and I am aware that he is also known for some of his philosophical concepts. However, I am not intimately familiar with his work.

    Best of luck to you in your goal to become a full time trader. I certainly don't want to discourage you in your quest but, to be honest, I have to agree with AKJ that 20% a year is, perhaps, unrealistic when you are first starting out. May I suggest a target of 10% for the first few years? Remember, many fund managers and equities/bond traders would be thrilled to net 10% a year.
  14. Paul Demers

    Paul Demers Well-Known Member

    It does depend on what the 3-4% per month reflects, is it on a per trade basis or the entire portfolio? I also agree that expecting 3-4% is an ambitious goal to start with.
    Here is how I now look at capital requirements:
    You need at minimum 1 years living expenses in the bank separate from the trading account.
    To help figure out your working capital requirements you need some trade data, preferably live data.You will need a trade that has a positive expectancy rate (very important) then your average monthly return rate. Dividing your monthly income requirement by your average win rate will give you the minimum amount of money that you will be required to put at risk per month. At best this should be no more than 50% of your account size so you should at least have double the amount required.
    Required monthly income is 6,000.00
    Average rate of return on the trades is 2%
    6,000.00/2% = 300,000.00
    300,000.00/50% = 600,000.00
    (hope my math is ok)
    So the results show that to have a reasonable expectation of making 6,000.00 per month your start up capital of your business needs to be 672,000.00.
    Timo and tman like this.
  15. Scott Slivnik

    Scott Slivnik Well-Known Member

    Excellent discussion.

    From my experience, 10-20% annual return is realistic after some experience. I had a goal of trading full-time years ago but dropped that goal after a few years. I realized I was placing too much pressure on myself. I do make enough trading to live a very simple lifestyle. I did quit my day job in February 2015 but have been a part-time self-employed software engineer since then. I create mobile apps for companies 20-30 hours per week. I enjoy the work and it pays well. Trading has allowed me to work part-time since 2009. My former employer reduced everyone's hours from 40 hours to 32 hours after the 2008 crash. A year later they offered to raise my hours back to 40 and I declined. My work hours have been slowly declining since then. I currently plan on eventually settling on 20 hours per week. I have no desire to be a full-time trader now. I believe many would love to work only part-time.
  16. status1

    status1 Well-Known Member

    Great discussion
    I would say 3-4% per month on one trade is quite high that's 36-48% a year
    If I could make that consistently every month without loosing I would consider retiring and going full time also
    Now if you spread it out over 2-3 months than doing 3-4% per trade is more doable and much easier to manage
    I would try and paper trade going full time
    In other words pretend that you are a full time trader and write down all the expenses you have that would be paid from that account (no cheating) and see where you are in one year

    I think working part time while trading is also a good step in between to see how it works
    If you can make more money consistently by trading than working part time than I think you have a good chance of going full time I think part time is also better because it forces you to take a break from looking at the screen all day and give your brain a chance to relax and think about other things

    Even if you are full time you may want to get a hobby or do something else besides trading although that would depend on what kind of trading you are doing
    If you are doing BWB trades once you place the trade you are pretty much done with trading and can take the rest of the day off and just check how it looks at the end of the day to see if you need to adjust

    If you are day trading than you are pretty much stuck at staring at the screen all day looking to place a trade and than quickly take your profit or loss and look for another trade and hopefully not get burned out or go insane after a few months and or years of doing that I am pretty sure I would not want to do that for a living even if I can make 3-4% per month
  17. Kevin Lee

    Kevin Lee Well-Known Member

    I quit a high paying corporate management career to go full time trading. There are a few things I realized were important in my journey. Let me share with those who have similar career path.

    1. Firstly - the main reason is I quit a comfortable high paying job is I enjoy the freedom of trading more - no need to convince anyone or be accountable to anyone except yourself. In addition, I love the intellectual challenge of trading. Results are completely based on your own capability and dedication. One important thing - money was NEVER the main motivation to begin with. Personally, I think that's critical because success in trading is a long and winding road. If money is the main motivator, the chances of quitting once you hit a rough patch along the way will be high. The irony is the less you focus on money and the more you focus on perfecting the skills, the more money you'll end up earning in the long run. For me, I'm now earning more than my corporate salary.

    2. It took me 5 years to get ready for full time trading. I started by subscribing to all kinds of classes and mentoring. Then I realized it wasn't effective learning while working. So I took a 2 year sabbatical to do full time learning. This was really helpful. Through the full time learning, I realized there are many shinny objects in the market that promise short term profits but do not deliver. I took many courses, subscribe to trade along services, hire coaches. I learned options, technical analysis, day trading, swing trading, etc... during the 2 years of intensive learning. I realized 9 out of 10 things out there don't work. Most are either marketing gimmicks or techniques that used to work once upon a time. These 2 years of sorting through what's real and what's fake was really important.

    After I found what I liked, I went back to work while I practice live trading with the safety net of a corporate job for another 3 years. With my own track record to base on, then I took the leap.

    3. Insist on track record and be data driven - continuing on what I mentioned above, I would say having a data driven mindset is truly important. That because there are so many people out there trying to convince you that what they teach is the true north. Anything you learn must be first fully tested and backed up with real performance data. Otherwise, it's really easy to deplete your learning budget by trying things that you come across.

    4. Safey net is extremely important. Although options trading provides me the highest return, I'm only deploying a fraction of my total capital. The rest goes into long term equity investments and other high yield investment. With that I know even if I don't earn anything from options for a period of time, there is cash flow coming in. Another really important thing is I know even if I lose 100% of my options trading capital, I will not be thrown out on the street. With this kind of assurance, I'm less stressed and it definitely improved my performance. As a result, I do not have to keep looking for the holy grail that provides me profits with safety (which doesn't exits, no matter how lucrative the promises are).

    5. Moving to low gamma trade - this one is really critical for me, otherwise I couldn't scale up. Strategies that allows the P&L to swing like a pendulum might potentially end up yielding higher long term results, but it's not practical for full time trading. When I was backtesting, those strategies were great. Trading small tranches were fine too. But to trade for a living, you can't keep trading small sizes. That's when I realized I had to give up big yield in exchange for smoother yield. Some of these strategies might look exciting but do remember when trading is the only source of income, excitement is never an objective. Safety is paramount.

    I can go on for a while more but I thought the above are the key points. Hope that's helpful.
    Last edited: Dec 5, 2016
  18. tman

    tman Active Member

    Great responses. I quit my day job in 2009 to trade full time. I ended up going back to my full time job in 2011, mostly because I have a high expense profile (live in North Jersey, 4 kids, etc). My trading has always been profitable, just not profitable enough. I've been trading options since the '80s.
    I did go down to part time at my day job (12 hours/week) in 2015 and am lucky enough to work these hour after 3:00pm eastern.
    This year, I formed an LLC to trade in. I used Paul Mann at daytradertax.com and am satisfied. He is very reasonably priced.
    There has been some very good advice imparted in this thread; I would especially heed Kevin's advice about using low gamma strategies.
  19. Marcas

    Marcas Well-Known Member

    Mentoring wasn't mentioned yet..

    As per job. I'm not planning to keep it even as part time. I'm considering taking some projects from time to time but it will be (with big question mark) nothing more than little extra – can't put this position on income side. Later on... we will see.

    Day job is an important factor: if one is satisfied with it there is no need to change - trading will stay just a hobby no need to go full time. On opposite side if one hates his work he may find himself in bit dangerous situation because desire to change may overcome one's decision process.
    I like your stories how you get there. I listened few Trader of the Month recordings, always more enjoying to listen about traders path than about technicals itself. I know the pain of intensive learning with full time job+ that Kevin mentioned just 2 year sabbatical isn't realistic for many.

    Tony, what was the reasoning behind forming LLC for trading?

    I would like to return to capital requirements/expectations for a while. All say avg return 2%month (20%/Y) is high. I don't try to contest this statement as it comes from experienced trades and other sources: 2% is good to very good, 5% is crème de crème. Hmmm...

    Lets look at some data:

    CD Alerts:
    Amy's Nested ICondor – Avg 5.53% over 40 month (Wow!!!) - and 3.37% this year
    Amy's Weridor – 2.77% / 36m
    Bruno,s Rhino – 4.08% / 20m
    Dan's RTT – 1.49% / 12 m
    Jim's Kevlar – 7.17% / 12m
    Baby Rhino - ?

    Other trades I remember:
    AKJ's trade – 8.55% /3 m
    Paul's 'weekly M3' – cant find data but it was high number
    Fruit Fly Trade - ? I have only backtest results

    JL's basic trades:
    M3 - ?
    Bearish Bfly - ?

    If somebody has missing data/other strategies please enter. I omitted Ron's STT on purpose.

    I'm aware of saying not to confuse bull market with brain. I'm also aware of weakness of presented data (short period of samples, all data from same market period etc.), I believe there is strategy for each market. I'm using them as a ballpark to show that data are tend to be better then 2%.

    Using Paul's math: to get avg $1000/m one has to put 100K into account: 50K as backup and 50K as working capital which will be close to capital at risk. Let's leave backup alone for now.

    $1000/m ← 50Kx2%

    I see discrepancy between used 2% and strategies' data. Again I'm not saying that 2% is wrong, more likely I'm wrong assuming 3-4% but I can't see why I'm wrong. Is it that hart to recognize changes in market then modify bread and butter strategy or scale down for time or introduce small strategies for opposite market? Many possibilities and yet from practitioners we have 2% as decent return (Dan even suggested 1% for first two years).

    Maybe my point of view will be better understand and answered if I explain where I'm coming from. I traded weeklies for a while with 8-10% profit goal. Traded small. Results weren't too bad I tried to increase trade size but couldn't get satisfactory consistency. (Trading weeklies while working full time+ :) ) Then I found CD and my perspective changed. Point is I'm getting to this 3-4% from top not from bottom and I'm puzzled of uniform stand at 2%. What I'm missing?
  20. AKJ

    AKJ Well-Known Member

    many of the strategies you mentioned, mine included, have a tendency to experience big losses in the left-tail of the return distribution. In fact, a big source of the long-run returns come precisely from the shortage of investors willing to take on this tail risk - therefore those willing to shoulder the risk are paid a premium.

    You can be humming along for months-on-end generating 3-4% or more, but my eyes are wide open to the fact that a 20%+ drawdown could be around every corner. These drawdowns really hurt your long-run CAGR.

    I do not and have never traded for a living, but just within the last year and a half, I can recall conversations of traders pulling their hair out over Aug 2015 flash crash, Jan-Feb 2016 selloff, March 2016 rally, BREXIT, and US elections (selloff and rally). These are all pretty mild compared to the volatility around Tech bubble, Financial Crisis, Euro debt crisis, Debt ceiling, 2010 flash crash, etc. If you traded these events poorly, any and all could have put a sizeable dent into your portfolio.

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