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Alex wrote:
> It is my goal to trade for a living. In order to do that, I need
> to be able to draw out a "salary" from my account. I figure that
> I could live quite comfortably drawing out $75,000/year. I don't
> think about yearly return. It's not important, other than the
> return be positive, and sufficient to sustain the income I demand.
Of course that does boil down to an annual return eventually, whether
you view it that way or not. As you say later,
> Making a $30K account generate $75K/year in income represents an
> unreasonably huge return to expect. Doing it with a $200K account
> is probably more reasonable.
Right. So projecting your expected annual return will tell you
roughly what account size you need to produce your desired annual
profits. Or you can work it from the bottom up, as you did, figuring
you need $300/day to produce $75k/yr, then you need to figure out
what position size (and thus what account size) you need to do that.
> With approximately 250 trading days/year, this means that I have
> to earn a MINIMUM average of $300/day in my trading, or $1500/week.
Remember that trading doesn't always pop out a steady return every
day, or week, or month, or even year. Anyone who has lived through a
3- or 6-month drawdown can tell you that you need plenty of breathing
room if you're going to survive. Maybe your trading approach will
come out of the drawdown with a huge runup, and produce the 50% or
whatever you need **by the end of the year**, but that doesn't do you
any good if you drain your account before you get to the hot period.
Personally I'd recommend starting with an account AT LEAST 1.5-2x
larger than you think you need. E.g. if you want $75k/year, and you
think you can comfortably do 50% per year, you should start out with
at least about $225k and preferably $300k. That way, assuming you
have some good months at the start of your trading, you will build up
some extra cushion since you're making 1.5-2x as much as you need.
If you have a drawdown right off the bat (and trust me, it happens),
you have enough to live on through the drawdown, and hopefully leave
enough at the end of the DD to still produce your desired annual
income.
If you don't have a big enough account to do that, then you aren't
ready to live off your trading yet.
Gary
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