I think it depends on what you trade and what you want out of life. Personally, Im not trying to get into the Forbes Richest 100 list. Making a $500 (which is considered big) donation to PBS so I can watch Monty Python reruns works for me.
i agree. that's how *i* do this. i am not saying it's the best way. it is a good way to ensure CAPITAL preservation 90% + of traders blow out their accounts think about it it is not through lack of analytical ability imo it is mostly through emotion/poor money managment (which go hand in hand) as you trade bigger size, you WILL respond differently to losing trades. when it gets out of your comfort zone, and emotion moves in - judgment is impaired. ONE DAY i may be able to comfortable trade 10-20 cars of YM i will not do that until i have AT least 1 million of banked liquid investments in conservative vehicles, and i have the experience to do so. could i do it now? of course. but i won't
I can relate to what you're saying because my mentor who got me started in trading says the same thing. I asked him the other day, "Dude, you make good money trading before work every day, then you come in. You don't need to come to work, but you do for "extra income to pay the bills." What do you need to quit?" He said, "I would have to make double what I make now to stop working." So I said, "Well, you're successful, you have a good edge, you follow your strategies and have most of your emotion cut out of the equation, so just trade a few contracts more..." He said, "Ya know, I'm not ready yet. Mentally, I can trade 5 contracts, but going up another few contracts is a barrier. I need to work on that from a mental aspect. I'm just not ready yet." When he said that, I really learned from that... it really clicked, in that, this isn't a short term game. It's a business. Why should I be in a hurry -- the market will be there. And besides, it's a whole different game when you rely on your trading to put bread on the table.
My main trading account provides my income. I try to build it up by 6 to 10% a month, and pull out enough to live off of, generally once a month. My other accounts, my goal is to build them and let them compound. Only pulling money out to pay taxes, and costs associated with them. EDIT: I like to build the account throughout the year because I know that every 18 months or so I am going to have bad day. Really bad day, and this let's me cover it and not worry about it.
As soon as I reach my preset monetary goal I take out a fixed "salary". Per example, I use 160k for trading futures and stocks. As soon as I make 10k I pull it out and start over at 160k. I don't know why I use these particular numbers, but, this method keeps me focused on risk rather than reward. I find I pay myself fairly regularly but its still a "soon as I make it, it comes out" type thing.
i think that - in general - you will find that successful traders are "rule based" in this respect. the way that they handle money, and the way that they treat their trading as a business - is totally different than the way most traders trade. just because you can, doesn;'t mean you should. i jealously protect my capital. trading is like electronic crack. you always want "just one more click" what i do is that once i have made some good trades, and i feel the urge to "junk trade" or overtrade, i simply switch my bracket trader program over to "sim mode" and click away. it's fun. and you can;t lose money sim trading comparing my sim trades to my real trades is also instructive
Most traders with good outperformance edges or money management skills are going to post their information for free on EliteTrader. Figuring-out how to pay yourself really doesn't involve more than: a) Simple math skills b) an excel spreadsheet c) trading with fixed risk percentage Good luck