Trader Tim's Money Management Lesson For 2007

Discussion in 'Risk Management' started by jreynolds212, Dec 27, 2007.

  1. Im not going to post the link to his website because I dont want to be accused of pumping his blog, however, I believe his words are notable. Take a look and you can find his blog on google.

    "OK, so now for the lesson learned.......

    2007 will end pretty well for me in terms of investment return. However, I would have wound up with a lot more cash in my pocket if I had the following insight a year ago: "Make it, then Take it."

    To explain: I need to start regarding trading as a source of income, not as a growing business. In other words, my hope was to grow my account bigger, and bigger, and bigger, and bigger. It hasn't worked out that way.

    Instead, my account will get bigger. For the sake of argument, let's say it goes from $100,000 to $200,000. Then I will trade more aggressively, and the market will turn against me, and the account will shrink to $110,000. Then I'll start up again, $110,000 to $210,000 (again, these are just hypotheticals to make the point). Then I'll start sucking again, having the account fall back down to $120,000. And so on.

    I've decided that, from now on, as I'm banking profits, I'm going to withdraw the money and shove it in my pocket. Banking profits will help reduce the account size when it is at its most vulnerable (that is, when I've been doing really well). Smaller account, smaller risk. And the profits get put somewhere safe (my pocket) instead of remaining at risk.

    This isn't some brilliant portfolio management advice for the world. It is driven by two things: (1) my personality; (2) the nature of the market these days, which tends to be moving in large up-and-down swings.

    In any case, whether it works for you or not, that's my takeaway for the year. Make it, then take it. I hope it helps a few of you in some way."
  2. i've been rec'ing this for traders for years. including in this forum.

    every trader should have a business plan. my plan mandates (MANDATES) frequency, size, etc. of withdrawals from my trading account.

    these aren't discretionary.

  3. That's what all professional traders do. At least the ones who I know are profitable.

    When you read posts that say .." so how come you're not a billionaire"... you know you're dealing with unprofitable idiots.
  4. I've lived by the same principle and mentioned it to aspiring traders a bunch of times.
  5. My opinion is that this website is mainly populated with retail traders attempting to supplement their income.

    If you read through Neke's journal, it is clear why a retail trader should sweep profits away from their "trading desk" at certain intervals. For example, when you are up 100%, then its probably wise to take half off the table and place that money in a short term low yield instrument. I.E. 3-6 month CD

    When Neke was up near 240k, he should have taken half off the table right there and continued on with 120k. Place the other 120k into a "cool off" account for 3-6 months.
  6. JB3


    How else is the professional traders going to live? They live off of their profits. So I don't get this. Unless you have another source of income, it's the only way.
  7. lescor


    It's going to totally depend on the trader's personality and the ability of his strategy to handle additional size. It sounds like Trader Tim thinks the market knows his recent p/l then consipires to trick him into losing trades when it reaches a certain point. Of course that's rubbish. What Tim is really saying is that when he's up a certain amount, he starts to play loose with his rules, take excess risk and probably make bad trades. His problem is inside his head and has nothing to do with his account size.

    Withdrawing profits as income or to diversify your assets is a different story, but that's not what it sounds like Tim is saying.
  8. we've heard this a million times and its so true. nothing wrong with Tim reiterating it,its very good advice.
  9. To me it sounds as if he is just saying if you have a particularly good run, take some of the money out to cool your ego off and prevent you from doing anything crazy because of an inflated ego.

    You can put it back into your account later, just take it out to make it safe from any stupid moves on your part while you're most susceptible to big head syndrome.
  10. Div_Arb


    Heck, even old J.L. regretted not pulling some gains off the hook and placing them aside. Probably why he eventually did himself in.
    #10     Jan 1, 2008