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Paying myself
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Paying myself

  #1 (permalink)
Trading Apprentice
Stockholm, Sweden
 
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Paying myself

Hello everyone, first post on the forum

I am trying to set up some kind of system where I regularly take profits from my trading portfolio.
For simplicity, let's say I have $100,000 in my portfolio and I'm looking to pay myself a monthly salary with this. Important to point out as well is that this is my only source of income!
So far I've thought of two different systems, but I'm sure there are many other ways and systems, so I'd be happy to hear of any.

1) I would take 50% of the monthly profit as wages and let the other 50% remain in the account for growing. Obviously on loosing months I wouldn't receive any payment at all.
The drawback with this is that on a loosing streak I wouldn't make anything.

2) I would take 1% from my portfolio each month regardless of performance. This could be tweaked and fitted so let's say:

0.5% between $1 - $100,000
1% between $100,001 - $200,000
1.5% between $200,001 - $300,00

Let me know if you have any suggestions or tell me how you guys do it yourself.
There has to be a balance between taking profits and letting the portfolio grow.

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  #3 (permalink)
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What I did when actively trading was to sweep all cash over 100K, or whatever your account size is, in to a cash account that I used for living expenses. On down days there was no sweep and I didn't add to the account or sweep again until the account was over 100K.

So I start every day with an account size of 100K or less. If I have a good day then I put cash in the bank and if I had a bad day then I had less capital to play with the next day.

My timing was fortunate as I managed to build up a nice cushion before I had a string of losses. Had I hit my drawdown cycle with out that cushion I might be doing something else today.

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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  #4 (permalink)
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deaddog View Post
What I did when actively trading was to sweep all cash over 100K, or whatever your account size is, in to a cash account that I used for living expenses. On down days there was no sweep and I didn't add to the account or sweep again until the account was over 100K.

So I start every day with an account size of 100K or less. If I have a good day then I put cash in the bank and if I had a bad day then I had less capital to play with the next day.

My timing was fortunate as I managed to build up a nice cushion before I had a string of losses. Had I hit my drawdown cycle with out that cushion I might be doing something else today.

Interesting way of doing it. However, I think I'm looking to do a mix between taking profits and letting the account grow as well.
Thanks!

Larken

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  #5 (permalink)
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Where 'net income' is defined as your trading revenue after subtracting operating expenses (e.g. data feeds), I recommend taking out living expenses + tax on your net income, where living expenses depends on your desired 'ordinary lifestyle' utility (rent, food, healthcare, retirement savings etc.) and reinvest the rest.


Last edited by artemiso; December 10th, 2015 at 12:14 AM.
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  #6 (permalink)
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When I started trading full time 7+ years ago, I realized beforehand that having to take money out of my trading account for living expenses would be a big psychological "monkey on my back."

So, I made sure I had 3-5 years of living expenses in a separate account, not earmarked for trading.

That made trading a lot easier mentally and emotionally, since even if I blew out the trading account, I would still have living expenses for at least a while.

My trading account, then, became just for trading. The only time I withdraw money from it is if I need it to pay taxes on profits (and if no profits, I don't have to worry about taxes!). That helps the account grow more quickly, also.

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  #7 (permalink)
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I think that the practical approach would be not to touch the money for three years, and see what consistency you achieve with your returns. This would give you an idea of your methodology drawdowns and recovery time when things do not go as planned. Like @deaddog said, if you are undercapitalized you may not be able to recover from drawdowns.
In a span of three years, you should, although not necessarily, encounter many trading scenarios as far volatility or lack off, high range and low range, etc. After you analyze your performance month by month, then you can decide how much and how frequently to take out revenues.

Matt
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Last edited by mattz; December 10th, 2015 at 12:22 AM.
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  #8 (permalink)
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Thanks everyone for sharing how you've approached this subject, it has given me a lot of food for though. What surprises me a bit is that this subject, which in my opinion is the foundation of successful trading, isn't discussed much in the trading community. In my search on the internet I only found a couple of threads on this matter.

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Larken View Post
So far I've thought of two different systems, but I'm sure there are many other ways and systems, so I'd be happy to hear of any.

1) I would take 50% of the monthly profit as wages and let the other 50% remain in the account for growing. Obviously on loosing months I wouldn't receive any payment at all.

I'm somwhere between this plan and what Kevin describes above in post #6.

I usually take out half to two-thirds of each month's takings, or half to two thirds of what there is in profit from the previous high-point anyway, and I could last a year and a half or more without taking out anything, if I ever had to.

I'm happy to grow the account slowly. It isn't my only income but it's typically a chunk of it.

In short, there isn't a "right answer": it inevitably depends on your own financial circumstances, but I think you need to pay yourself something, in principle, if you're profitable, and grow the account too, however slowly.

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