sweeping out profits

Discussion in 'Trading' started by Gordon Gekko, Nov 21, 2002.

  1. before someone else says it, yeah, i know......i have no profits.

    anyway, we all know about the concept of sweeping out profits from your account. i know the obvious reason is to not give back gains. however, what if you want to grow your account? why wouldn't you want to up your size if you're a good trader to make more money? how do you know when to stop upping size and to sweep out money? why wouldn't you just let your account grow?

    thanks
     
  2. bvam1

    bvam1

    I am afraid that in a moment of stupidity, I might make a mistake (probably because of greed) and lose all my money. That's why you take money out so that you can make a come-back when your mind is clear again. A discipline person might make a mistake when not thinking clearly.
    I thought I was disciplined, but greed got the better of me. My account was almost wiped out. Now, I got to start over! I guess I was too anxious for fast growth. I was thinking of 1000% a year, but I had to cut this down a bit.
     
  3. I read about a successful trader once who used to transfer 1% of his trading account every month into another account that he used for investing in anything other than trading. Like property etc. He was trading millions hower.

    Runningbear
     
  4. Tony Oz says in his books that he keeps his account at a constant $50,000 and requests a check every week for any amount over this to put in other types of investments. If he drops below $50,000, he trades his way back up to that number.
     
  5. I think ultimately it depends on the style of the trader and whether larger position sizes will have a big impact on slippage. If you're a scalper that likes to take .50 on stocks like KLAC and QLGC or 2 pts on NQ's, then it's probably in your best interest to sweep out most of your gains after a certain point, as it gets harder and harder to get in and out of trades as your account gets larger. However, if you're a swing trader with a time frame of a few days or more, you can probably keep building on your account size for quite some time without any impact on results. I guess it's a question of whether you view your trading as income stream vs. capital appreciation.

    From my own experience in any case: if you find yourself finally turning the corner and starting to become steadily profitable, it's always a good idea to take a good portion of profits out, if only to keep your head on a more even keel before you think the game has become easy, and that fantasy calculator we all have in our heads starts compounding numbers. :)
     
  6. Gordon aren't you putting your cart before your horse (once again):)

    You don't have a cart. Hell you don't even have the horse! :p
     
  7. Quah

    Quah

    Here is another reason maybe to not keep more than you need to trade in your account.

    Say you are in a futures trade and for whatever reason something very unusual happens and the trade goes against you in a huge way - some sort of world event or even some sort of electronic screw up that you have to eat the loss on.

    If you have excess cash in your account, it will automatically be used to offset this "problem". And it will be gone. If you don't have the cash in your account, you will get a margin call and owe it. It won't be gone - cause it will be somewhere else outside the brokers direct reach.

    At that point in time, you have a choice. Pay it or let the broker come after you. If terrorists nuked NY and the economy goes into turmoil, you might choose to keep that cash in your matress and let the broker spend a long time trying to get it. At least you and your family will have some cash.

    Now - and hear this - don't get me wrong - I'm not advocating ripping off your broker by not paying up on margin calls. I'm talking about a situation that might be once in a lifetime. If that ever happens, I'd rather be in control of the money and not have it "automatically" be used.
     
  8. I try to take out half of my profits each month. That way, my account grows, and I remove some profit from trading risk. If I have a down month, I deduct that from the following month's profit and take out half of what's left.
     
  9. I set up an agreement with my wife that would in effect have me "pay" for the cost of the capital I took from our savings
    Monthly I pay 1 % of the capital "invested" in my trading account back to our general funds - regardless of profit or loss.

    Secondly I set up a formula for funds to be returned to our savings -- a paydown of the funds put into the trading account.
    This formula is based on monthly profits only(therefore, not a monthly guarantee)

    Both of these payments will have initially a two year duration and if I'm very profitable I will return funds in excess of what was taken out over this period.

    Finally, it is my intention to draw additional funds for all living expenses and taxes.

    Therefore, I don't know how much my capital will increase over this period. Also, I just began trading full time in mid October, so that experience may make me wish I never made such an agreement with my wife.
     
  10. He's trading 50 G's and has a book????
     
    #10     Nov 21, 2002