A way of defining the difference between trading and investing is to assign trading the goal of making "income". But actually not every trading method-and trading service-is really designed to produce income on a steady basis and at a sufficient level. Such a design seeks to optimize the combined results of conflicting parameters. The amount of CASH income (the "paycheck") depends on: -the size of the trading capital -the frequency of trades -the amount of risk taken for each trade -the percentage of wins -the ratio gains/losses on average For a given capital there still are four inter-related variables, and in order to maximize the cash income for this fixed capital the trading method must meet certain requirements and put the four variables in good balance. This balance must be embedded in the set-up selection and the profit target definition processes in order to be part of the system and not to owe anything to discretionary decisions. Let's see what we could have for a 100 000$ capital. In March in the TP Portfolio, 19 trades have been initiated and closed (partially or totally) during the month. Each trade starts with an equal amount of risk and we know from experience that, in our method, we hold on average 7 equivalent-trades at a given point in time (for instance 4 residual trades with 25% of the initial position and 4 full positions). Hence we can easily take a 2% risk on each trade (2000$) which is the amount of the stop-loss and the "unit of risk" that we take as a metrics for measuring gains and losses. By definition a direct loss is the loss of 1 unit. For March, the real world results of the TP Porfolio is a net gain 14.88 units of risk (no open profits here, only closed trades). The paycheck is 14.88x2000= 29 760 $ or 29.76% of the capital. For April as of today, 21 trades has been totally or partially closed and the net gain is 20.24 risk units or 40 480 $ (40.48% of the capital). A good thing is that the profits are not concentrated on a small number of outliers. Of the 38 "trades of the day" of the period, 29 produced income and with a limited variance. This feature makes taking a 2% risk even easier without no drawdown to speak of. Making such monthly paychecks out of a 100 000 $ capital is possible only with the good mix of trade frequency (fixed at 1 per day) target definition and entry point placement. Profit targets must be close enough to ensure a high percentage of winners and a quick rotation of capital, in order not to carry too many trades. But they must be ambitious enough when compared to the the size of the possible loss. In order to consistently produce income the trading method must be designed from scratch according to these equations. Good trading!
I believe in keeping a separation between investments for income and investments for growth / capital appreciation, and the income dollars being invested much more conservatively.
I definitely agree with JR Ewing. You have to be careful when you're dealing with your income. You have to make sure that it stays at least at a certain level so that you can pay your bills and handle your responsibilities.
I believe nobody should take up trading as their first job until they have atleast 5-10 years of experience under their belts and alot of capital. Thats the only way you wont run into problems.
