20 ‘I need a million dollars to make a living from day trading‘ those are the exact words of my friends when I ask them why don’t they think about daytrading, if they hate their job so much. My response to the statment of my friends is ‘ Buddy, we are in 2012 not in 1912. We live in a period where LEVERAGE is the key and THE utmost important thing. It’s how you use it to your benefit’.
Let me elaborate on my statement. In this age where there are proprietary firms (firms which provide you capital or requires you to deposit a minimum amount and give you 10:1 to 20:1 or even 30:1 leverage) you don’t really need a lot of money to day trade and guess what they even have cheaper commissions and have direct access to exchanges to route your orders. In full disclosure, I have an account with a proprietary firm and am more than happy with them since I need to deposit only a small seed capital and can use my skills to make that seed into a tree.
Let me give you a realistic example, say you have $5,000 and you have developed your trading skills and are now ready to make some serious money not BABY money. What do you do?
You go and do your research and find the best firm which can give you the best benefits for you buck. How do I define best firm.
1. Reputable firm which has been around for more than 10 years
2. Competitive Commissions
3. Manageable Leverage
4. Good Trading Platform
5. Great back office to provide you instant response on technical or account issues.
Once you have decided which firm you want. You sit down and develop your trading plan. I call it a business plan. So you have $5K and with a 10:1 leverage, you can get $50K buying power for daytrading. Now with $50K buying power you only have to trade 500-1000 shares (stocks below $100) everyday and look to hit 50 cent or $1 per share profit. Now once again I am not being greedy over here. Remember, I am treating trading as a business. So, in my plan of action I am looking to make anywhere between $250-$1000 per day., with 50 weeks and 250 days available for trading ( I have ballparked the number, it might be a few days more or less depending on the year). We are looking at an income of $62,500-$250,000 per year. Now that is a salary which only a fucking lawyer in a top firm or a top notch accountant or a dentist or any guy who has gone through the grind or in most corporate culture/white collar jobs have fucked all his friends and family over to have reached there or a nerd ..u shud hve got what I mean by now…if not daytrading is not for you.
Now the biggest question you gotta ask yourself is am I capable of making 50 cent or $1 per share profit on every trading day. Here, is where skills development comes into place. For this above business plan to work you need to have worked on a strategy which will allows you to make that amount of profit, it might take you 1 yr, 2yr, 3yrs or even 10yr or even more. But once you get it, your set.
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20 Responses to “I Need a Million Dollars!!”
Ricky Roma
Great points. Many successful day traders don’t have anymore than 40-50k in their accounts. And with the power of compounding you actually only need to make like 0.4% on average per day to end up 100%+ in a year.
dchsn6
agreed Rick. It’s hard when individuals think about it. But when they put pen on paper, things actually look a lot more different and doable.
The Fly
Two friends of mine tried it and KABOOMED their accounts to zero. From what I hear, the leverage and time constraints messes with their normal strategies.
It’s not for everyone.
dchsn6
Sorry to hear about you friends.Yes, it works best for traders who don’t hve a big bankroll and trade purely based on technicals with short time frames. Fundamentals or overnight hold traders are HIGHLY LIKELY to be burnt, good example are hedge fund traders.
zenhunter
“Now the biggest question you gotta ask yourself is am I capable of making 50 cent or $1 per share profit on every trading day.”
This question BEGS the next question, “How are you going to learn to trade so well that you can earn 50 cents to $1 per share profit on every trading day when you can only allocate $5K to leverage it up to $50K?”
In other words, you can’t become a seasoned trader with a track record of making 50 cents to a $1 a day per share without paying your due first.
Without the experience you needed to understand the emotional control required to trade successfully, you are going to burn that $5K before your next month rent is due. The $50K leveraged amount is an illusion since you really only have $5K to lose. Once you lost the $5K; the other $45K vanished into thin air and the game is over.
Even if you started small by trading BABY money and did well on that level, it is going to take some mental adjustment to use heavy leverage to make serious money. With that kind of leverage, $5K will be gone in no times after you hit a few bad trades.
In my opinion, your friends are right to suggest a $1 million dollar account. With that kind of money, you don’t have the leverage and time constraints (mentioned by The Fly) to mess with your head and strategies. You trade more freely and have the ability to recover instantly to move on to the next trade opportunity when you are proved to be wrong in the trade.
zenhunter
Example of a mental response to a $300 loss on a day trade:
The million dollar account holder: “Darn! Thought I’ve that one pin down!! Let’s see this chart over here…”
The $5K leveraged to $50K account: “FUCK!!!”
dchsn6
U hve some great points in there…but ur missing out where I mentioned “u need to have worked on a strategy that will give you those profits” ..never recommended it for a noob
zenhunter
“u need to have worked on a strategy that will give you those profits”
Unless you are born with a talent to trade well; most people do not and probably will never be able to develop the skill necessary to be a successful pattern day trader without a coach to guide the way.
My only exposure to pattern day trading/proprietary trading is from the book “One Good Trade” by Mike Bellafiore. It seems to me that even Mike is having a hard time finding these raw talented traders. And even then, Mike still has to create the “ideal environment” for these selected traders to excel.
Perhaps you are one of those few who have a raw talent for trading. Kudos for you. Lawyers and doctors invested hundred of thousands of dollars for their education and the thousand of hours in studying so that they can pass the bar exam (lawyer) and the USMLE (doctor).
In my opinion, for someone who “wants” to be a professional trader (as opposed to being a lawyer or doctor); the necessary investment in money and time are also required to accomplish this endeavor. By the time he/she succeeds, proprietary trading may or may not be one of their trading arsenal.
But then, what do I know? All I know is that it took me years to develop a trading style that work for me. Your friends may understand their need to develop and harness the skill set needed to become a full-time trader; thus the million dollar is probably a fair amount to pay for the education, living expense, and the trading losses while they spend the necessary time to learn the art of trading successfully.
Cheers!
Tarek Salah
Day trading has been the worst thing i discovered a month ago! I was up over 10K on AAPL, PWRD & AMRN..& left them alone, didn’t have to freak out if they went up or down..then came the day trading…can’t sleep, dreaming about stocks..can’t control myself from hitting the buy button..seem to be buying on momentum and keep getting burnt…make 2k one day, lose 3k the next..very mentally frustrating
Schadenfreude
What about commissions and Uncle Sugar’s tax cut IF you are profitable? From my personal experience, this is nothing more than an exciting way to lose all your money at the casino. Besides, if you are going to engage in pattern daytrading, you must maintain $25k equity balance in your margin account at all times.
dchsn6
I’m sorry to say but the response I gave to my friend is what I have for you ” its 1912 not 2012″ ……Google about proprietary firm and u wud know more about pattern day trading
noodle
He’s right about pattern daytrading
dchsn6
yes..but with prop firm u don;t need to maintain a 25K balance..that’s y it’s good for retail traders who don’t a hve big bank roll
Schadenfreude
I thought you said these people were your friends? Why point any of them towards a endeavor that will, statistically speaking, leave at least 8 – 9.5 out of 10 of them busted out?
The market is just a function of human behavior. Human behavior has not changed in the last 100 years and neither has the market. Speculative behavior, bubbles, crashes and leverage is nothing new and it never will be. You really don’t think people were on margin back in 1912?
It is highly unrealistic to think you can be consistently profitable each and every trading day. At best, maybe 65% of your trades will be winners. Regardless of ‘the system’ and your abilities. You might have amazing success for a week, a month, a year, but a time will come when your trades don’t work, you get stopped out and you draw down your account.
Even then with the best prop firm in the world, what sort of commission are you paying on all your trading? And even then when you are making money, you still owe Uncle Sugar 25% off the top in short term cap gains.
I hope you know I am not trying to insult you. But anytime I see someone talking about turning $5k into $62.5k – $250k per year with nothing more than there wits and a few clicks of a mouse, I think it is a disservice to not point out a few of the flaws in that line of thinking.
And please believe me when I say I know what I am talking about. Been there, done that, got the tee shirt. I have blown up a couple of times and lost over $150k of my own money in the market trying to be a trader. Losing in the market is amazingly easy to do. Believe me, if you can make 10% per year consistently, you are winning in this game.
dchsn6
Sounds like you need to work on ur trading plan first..concerning risk- reward strategies
Spy007
Good luck
Greed will kill you
dchsn6
Greed goes both ways. It’s good if it’s controlled.
elizamae
I saw your most recent post, and it reminded me that I wanted to comment on this post. As a disclaimer, this is purely my opinion on this matter, and therefore don’t judge anyone for what they choose to do with their money.
I think a more prudent course of action is to take 5000 dollars and try to turn that into 6000 dollars over the course of a year.
That’s a 20% return…aka: a pretty good fucking year.
Taking 5k, and levering it up 10x and daytrading is inviting way too many opportunities for either a) a slow bleed into a closed account, or b) a tremendous blowup leading to a closed account.
If you can find a way to turn 5k into 6k, you can turn 50k into 60k, 500k into 600k…you see where I’m going with this, right?
I’m in this for the long haul. I don’t need to get to point “B” anytime soon.
Ricky Roma
Any form of trading/investing is gambling by definition (see some points I made in this post http://ibankcoin.com/rickyroma0/2012/05/06/i-bet-it-all-or-when-to-be-aggressive/). However, it is – much like poker – form of gambling where in the long run skill dominates over luck. So having leverage will really just accentuate and amplify your skills (or lack of them). If you’re selectively aggressive where appropriate and manage risk well, leverage will allow you to make a lot more money a lot quicker. If you’re just there to ‘gamble’ and have a ‘I’ll either make a crapload of money that will make my year or lose it all’ mentality, leverage will only increase the speed with which you’d bust. I guess my advice would be – sure, get an account with a prop firm but in the beginning use it just to escape the PDT restrictions, do not use their leverage until you’re confident that you can be consistently profitable. If one is truly a daytrading ‘ace’, it won’t take that much time to get to a bigger account. And another – so very often overlooked – point. If you’re planning to trade full time, you have to be properly bankrolled for it and have at least 6 months of living expenses set aside, money with which you don’t trade at all.
4nursebee
This kind of dribble will make people lose more than they make. I’d feel immoral posting this myself. Irresponsible.