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BookingAlpha Option Trading Advisory

Tuesday, April 19, 2016


"This is it. It is now or never. Just got laid off. Now I have to make this trading thing work, once and for all. How would you deal with this and what type of trading strategies would you use in my situation?" - Nathan

One day, I will start a psychiatry practice and charge for mental counseling. My jump to stardom. It will be the drastic end to this old and tiring site.

Tough situation Nathan. My 0.02:

1- Here's my strategy: I would grab a nice Pick and Ax, a large back-pack and would head to Alaska or Yukon to do some gold hunting up there. Just like during the Gold fever in the early 1800's. Will probably work out better in the end.

2- Are you in your period?

See, what happens is, Nathan, there is a huge mental component that is part of trading. You already know that by now. If trading hasn't worked for you during a time where you haven't had external pressures, imagine how attached you will be to each dollar when your livelihood depends on making consistent gains month after month. You will want to have zero losers. Your need for consistent winners will lead to not taking losses, and eventually one of them will get out of control. Your need for constant dough will lead to invariably cutting your gains too short. It's a perfect recipee for disaster that many have been victim of.

Trading can be a pretty mechanical endeavor. A set of rules that you apply for entry and exit decisions, that can also be extended to position sizing mechanics, adjustments, etc. Looked this way, we would think psychology doesn't have to necessarily be involved in the picture at all. Reality proves otherwise. No matter how much we have back-tested our systems, every challenging situation will put our mental strengths to test. Every single one of them. In addition to this, there is no single strategy that can perfectly accommodate to each type of market environment. Just as there is no single trading system capable of having an endless streak of winning months without draw-downs.

It's probably time to focus on finding a job, even if it pays less than the one you had before. It is not the best time to focus entirely on trading. It is, in fact, less than an ideal time to do so. Not that it is impossible, but it will most likely back fire. No need to mortgage your derrière off this way.

Trading for a living needs, first, some degree of consistency in your results. Along with realistic expectations (read about realistic returns here). If making +20% on your money per year is elite, and you get to that point with consistency, then there comes the other part of the picture: How much capital do you have? If you have $50,000 available, and perform at elite level (+20%), are those $10,000 gains enough for you to live off? Well, I'm sure it is enough in Cuba, but then you cannot trade from that incoherent island.

You need consistent results; you need to trade with realistic expectations so that you don't blow up your account and finally, you need to be well capitalized.

In general in some of North America's cheapest places, you may get by with $20,000 a year (of course it depends on kids, neighborhood bla bla bla), but $20,000 is on the low end of the estimate. So, most people that trade for a living, need a larger than $100,000 account. Do you have that amount of money at your disposal? - Probably not, because if you did, you wouldn't be so desperate. It's a nice sum of "fuck-you" money that provides enough piece of mind for a few years. Enough until you find a new job. So, if you don't have those dead presidents, then that is another reason to not pursue trading for a living at this point.

You have a nice Anglo-Saxon name. You speak English perfectly. You don't lack an arm or a leg. You live in the Home of the Brave. You'll pull through. Just postpone the "trading for a living" plan for the moment, and you will be better off in the end.


Related Articles:
The Torture
Frustration (Mentally dealing with extended draw-downs)
Trading Innocence (The things that hurt new traders)

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