How do you pay yourself?

[Lee W 82]

This question is for the full time traders. Well, I guess it could be answered by anyone, actually.

 

If your main (or only) source of income is from trading, how do you pay yourself?

Do you transfer a fixed amount from your brokerage every month? Twice a month?

Do you transfer only the profits (whatever amount over the balance you keep as your minimum) on a fixed schedule?

 

I’m curious how traders handle this. Would love to hear some feedback. Perhaps you’ve not started this yet but you have a plan. Feel free to share!

 

Thanks!

[Mario M 1]

I plan to transfer a fixed amount of profits every time it is reached.

[Lee W 82]

Thanks, Mario!

 

Would love to hear from others, too.

[Abiel 475]

I’m not there yet but I´d withdraw some profits in a monthly basis, allowing for account growing.

 

You can find in John Carter´s book “Mastering the Trade” the “Plateau Method” of managing day trading accounts.

 

This method works like this: For a $10,000 hypothetical starting account, your initial goal is to run the account up to 2.5 times your starting capital, which is $25,000. When you reach your desired target of $25,000 you withdraw your original $10,000, plus a profit of $2,500, leaving you with a balance of $12,500 in your trading account. Next you tweak your goal, instead of $25,000, your aim is to run your account up to 2.5 times your new starting capital, which equals $31,250. Once you reach your target of $31,250, withdraw half of the account ($15,625) and reset your goal. And so on, when you reach your target, take out half, and continue.

 

[Carlos M. 232]

Abiel, that's a great method. I am still reading the "Mastering the Trade" stuck in Part 2 when he goes deep into strategy and explanations of other markets...

 

I am still in my first month of live trading and as you can imaging there is no profit taking at this stage and I don't expect to be taking profits for probably a year or so. (Let's hope my girlfriend stays very supportive as she is now lol....)The goal right now is to grow the account at least twice its size. After the account is doubled I am thinking of probably taking out 50% to 75% of what profits are made that month. This way I can pay myself and keep growing the account.

 

Long time away from that so things can change. Let's see how it goes.

 

Carlos M.

[Jason H. 56]

I've written more versions of this answer than I care to admit to, and I haven't settled on allocations or percentages, but I do finally have what I consider a solid strategy. I have made only 3 real money day trades since I started learning and taking it seriously. I don't subscribe to the "set a daily goal" mentality, I've found in my life I'm much better at simply continuing any given effort while it's working and I have the energy, and stepping away when I don't. I also don't want to artificially cap my income based on a number. I'd rather cap myself through good trade management and opportunity recognition. That said, I don't have much of an expectation one way or the other what my income might actually be, so instead my goal starting out will be to have a framework in place to manage whatever profits I make.

 

Each stage would allocate profits in order once until they are all allocated:

 

1. Pay next months living expenses: Basically, pay my bills.

2. Pay one months living expenses into padding account: This assumes I make more than a months expenses in a month obviously, but who isn't aiming for that? The goal here is to build a backup fund to cover living expenses should I have a bad month. Hopefully I'll never need it!

3. Deposit X% in one or more retirement investment accounts: I don't want to be a long term investor. I think there are folks much more interested and suited to that and so I'll trust them to run their funds for my benefit and I'll stick to day trading. The goal here obviously is to diversify.

4. Retain X% to grow trading account: This one is last because once I've begun day trading full time I assume I'll have a large enough account size to realistically earn enough for 1 through 3, but I also want to be open to scaling my trades as I get more consistent and confident, and I'll always prefer to do this with my own money, not margin.

 

So the big question obviously is how to I get to a point where I can implement my plan? My goal right now is staged. Stage 1 is learn to trade. I believe I can confidently recognize ABCD, bull and bear flags, trends, and reversals. I'm good at math so I can calculate correct share size, stop loss, etc. in my head on the fly for risk management, and I'm getting better and exiting at my set stop.

 

All of which is to say, I know basically nothing and have almost no discipline. I have a long way to go.

 

Assuming I can learn to trade, my next goal is purely to grow my account, first to a point where I can day trade without restriction (I'm currently under the PDT balance requirement). I'll do this through a few trades a week and accumulation. I'm fortunate to have a flexible job that allows me to take "hobby" jobs to earn extra income. All of that income is being allocated to growing my trading account. My original goal was to have a years salary put away plus a safely funded trading account. Robert put the fear of god into me and now I'm thinking closer to 3 or 4 years put away. I'm quite a ways from that goal, but feel it's important to ensure success. I don't want to put myself into a position of being a desperation trader. I have enough sources of income to make it a realistic goal, and while I'm excited to become a full-time trader, I'm also in no hurry to. I've always pushed myself to do things the best way possible to increase the chances of success.

 

I expect I'll go live in 6 months to a year, mostly trading the open. Probably a year after that I'll aim to go full time. All of this is subject to change. I'm still figuring out what works, but I'm enjoying that as well!

[Lee W 82]

Thanks for all of the input, guys! I'm still not sure what I'll do. Like Jason, I've considered many different approaches. There are some good ideas in here, though! Thank you!

[Robert H 455]

Robert put the fear of god into me and now I’m thinking closer to 3 or 4 years put away.

 

Lol! I meant to say that the more cushion you have, the better. One year's salary put away is more than most people (aspiring day trader or not). I plan to never go back to my old career, so a bigger nest egg gives me the confidence and patience to overcome the learning curve. Everyone's situation is unique and only you know what's best for you.

 

It looks like you have developed a detailed plan there, Jason. Good on you and thanks for sharing.