A couple of weeks ago, a subscriber wrote asking how someone who
trades for a living manages money in their trading account. The
subscriber was interested in whether profits are plowed back into the
account or taken out or exactly how the money is managed. One of the
most essential points of my book,
"Trade Your Way to Wealth", is the
importance of an individualized plan. In the book, I emphasize the
importance of personalizing your plan and set out in depth guidelines to
assist the reader in the construction of his or her own plan.
Since each of us has differing amounts of money, different risk
tolerance, different levels of knowledge, prefer different strategies,
has different amounts of time to devote to trading, and so on, I believe
it is important to create a trading business (whether full time or part
time) that meets the specific needs of each individual.
It is the same for those, like me, who trade for their living. I
use a specific plan that is designed for me and might not be appropriate
for many others. For example, unlike most subscribers, I don't have a
job other than trading. I do devote time to individual coaching,
speaking engagements, and writing things like these articles, but my
real job is trading. Therefore, when it comes time to answer the
question will I trade full time or part time, the answer for me is full
time.
I can give you an idea of how I go about handling money in my own
trading account, but just because I trade for my living does not mean or
even suggest that others who trade for their livings are going to do the
same thing or even anything similar. First, I want to note that I
believe money management is a critical element to successful trading and
I devoted time to that concept in
"Trade Your Way to Wealth" as well as
in archived articles here. There are many ways to manage trading money
as I have set out in those writings, but, for me, at least, the
important point is to have a money management plan that keeps a trader
in the game. Betting it all on one position, for example, may be a
money management plan, but it may not be a very good one. If you "bet
it all on black" and black doesn't hit, you are no longer in the game.
I've seen people do exactly that expecting to hit a home run only to
lose it all. So, the first thing I do with my own trading account is
have a money management plan.
The subscriber who wrote seemed most interested in what full time
traders do with their profits and I can only answer for myself. I have
several brokerage accounts, but only one that I identify as a true
"trading" account. Among the things I do in that account is trade
options and one of the issues with trading options is how large can a
trade be. If I am trading something like the "Q's" (QQQQ) (representing
the Nasdaq 100 index) or the "Diamonds" (DIA) (representing the Dow) I
might be able to take large positions because there is a great deal of
open interest. However, if I am trading options in some less liquid
options, I need to make sure that my position is not so large as to
affect the market or spread in that option. For that reason, I place a
limit on the amount of money I keep in the trading account. By some
standards, it is a fairly large amount, but it only represents a portion
of my liquid assets. I will transfer funds out of the trading account
to do things like pay some bills or enter other investments when the
account gets above a specific level so I do not reinvest all the profits
back through that specific trading account. In another account that I
think of as longer term investments (not buy and hold since I always
have an exit strategy even if I'm guessing the asset will be a longer
term hold) I generally do reinvest profits less living expenses as they
are realized. I also use dividend reinvestment plans in that account to
accumulate larger positions without commission over time. Of course, the
funds in that account are also generally relatively liquid and are
available for other large investments like real estate or for emergencies.
As I indicated, that is my own method and is only an illustration
of what one trader does. What each trader does with his or her money is
the product of their own plan. It may be similar or differ radically
from what I do. Trading plans and money management like choosing
strategies truly are personal to the trader. I was happy to read the
subscriber's question since it is evident that he is giving thought to
the issue of what to do with profits. It shows that he is looking for
at least a part of a plan and that, to my mind, is a good thing. Once
again, I believe a trader can increase the chance of success by taking
the time and expending the effort to create a plan that fits his or her
individual circumstances.
You can comment on this article on my blog!
Good Trading!
Bill Kraft
Editor of $10 Trader, Option Trader and Trend Trader
"Trade Your Way to Wealth" by Bill Kraft is an Amazon.com best seller!
Mr. Kraft's past articles are posted on our website for your review.
$10 TRADER -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Details Here.
OPTION TRADER -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on minimizing our losses. We always know our downside potential in a trade.
Details Here.
TREND TRADER -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Details Here.
Trading is a path to financial independence, personal freedom, and wealth. But the path is immensely challenging and only a few emerge victorious. Bill Kraft's book Trade Your Way to Wealth, an Amazon.com "best seller", shows you the path.
SUCCESS TRADING GROUP -- by Eric Aafedt
52 Wins in 52 Weeks
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Details Here.
DIVIDEND INVESTOR -- by Eric Aafedt
Perfect for your IRA! Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. Many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. We buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value.
Feel free to sign-up for a free 30-day trial. During such time you can review our Trade Table and see the type of stocks we are buying. You will also receive all the new investing alerts we send during your trial period. Again, many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. Don't miss out on this service!
While we titled this service an "investor" service, we also believe these stocks are solid for the "trader" in you. With these stocks, we believe an exit point of 3% above the buy price is generally appropriate for traders. And, in fact, our first 53 positions have hit our 3% target subsequent to the buy alert!
Details Here.
COVERED CALL SERVICE -- by the Covered Call Research Team
Details Here.
|
Success Trading Group Trade the same stocks over and over. 340 trades with only 9 losses on our Main Trade Table!
Trend Trader "The Trend Is Your Friend". Utilize trends and momentum in your stock trading!
Option Trader Use the power and leverage inherent in option trading to your advantage!
$10 Trader Focusing on stocks under $10 per share!
Dividend Investor Perfect for your IRA! Quality dividend paying stocks!
Covered Calls Conservative option writing -- Allowed in your IRA!
|
|
The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP. or the associated editor. This information is not meant to be a solicitation or recommendation to buy, sell, or hold securities. Past results do not guarantee future performance. Stock investing is risky. Option trading is risky. Futures trading entails great risk where one can lose more than his account balance. We are not licensed or registered in the securities or futures industries. The information presented herein and on the related web sites is presented "as is" without warranty of any kind either express or implied. Although the information has been obtained or derived from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites. By accepting emails, including various paid subscriptions and free email reports and newsletters, you agree to the terms of the MarketFN.com's website Disclaimer, Privacy Policy and Terms of Use provisions as such may be amended from time to time.
This email was sent to ~~EMAIL~~.
|
|
|
|
|
