There is an old saying that goes: “How do you eat an elephant? One bite at a time!” Of course it’s not literal, it’s meant to shed some light on how we may want to approach tackling big projects/goals in life. One big reason people fail to achieve the things they set out to do, is that they try to tackle the whole thing all at once. Or to tie it back to the joke – they try to eat the entire “elephant” in one “bite.”
If you ever find yourself feeling really down about a big dream or goal – like say, trading for a living – it can be an extremely helpful exercise to re-frame what you’re trying to do. If you look at it as something you have to just all of a sudden DO one day, or you assign completely arbitrary ideas of what accomplishing this goal might look like (“Making $1million”, “Buying a Lambo”, “Funding my retirement”, or whatever) then I would suggest you’re not really understanding what it is to be a professional (not in the CME sense of the word, of course) trader.
All professionals in any endeavor generally have a few things in common. They show up, they put in the work, they manage the results, and they enjoy the rewards. And they do this day in and day out. They don’t swoop in, strike one big deal or whatever, and they’re done. They grind it out, feast and famine, good times and lean, and especially they are able to break down the big goal into small, “bite-sized” steps that can be ticked off one by one.
I’ve just recently found myself benefitting from this exercise, and it may help you too, if you’re feeling like your dream of earning your living from trading is out of reach (and especially if you have people around you telling you it’s ridiculous and that you should give up!). I found myself going through a rough patch psychologically (in TRG we refer to this as “a funk”). Not so much from a P&L standpoint, but just that I wasn’t making the amount/type of progress I felt I should be making, as quickly as I felt I should be making it (both totally arbitrary concepts!) I realized that I hadn’t done this exercise in a long time, and that I wasn’t actually sure what my results needed to be, in order to reach any specific goal.
So to start, I crated a blank spreadsheet. I like Google Sheets these days, but Excel or any other spreadsheet will do the job. I started at the highest level – what is the annual income goal I want to base my exploration on? This is a “net” figure, as I accounted for taxation separately. I chose a round $10k/month, or $120,000 annually. I made an assumption about taxation and went with 30% (traders in the US trading cash accounts get much better tax treatment, but I wanted to be conservative so for now I’m assuming trading my funded accounts at evaluation companies). I looked at some of my recent trading and worked out the average amount commissions accounted for, and it was a little under 17%, so that’s the number I chose to use. Each of these items went into a separate cell so I could then break it down further into monthly, and even daily “bites”. I expressed this in both dollar amounts and ES ticks (since that’s my particular instrument of choice.)
This got me to a daily profit target that would need to be hit, in order to realistically reach the larger “elephant” goal. But that bite is still larger than I would prefer, so there’s one more element needed to really break this down into the smallest chunks possible – the number of accounts. There are various options available for “trade copying,” which allows you to trade one “leader” account, and assign as many “follower” accounts as you like which will all execute the same trades, make the same order adjustments, and just generally do whatever you do in the main account. Trading in this way allows you to scale “horizontally” rather than having to trade a larger position directly in your main account, or “go for bigger winners” which can lead to very dangerous mental patterns for the trader. It also means that in the case of accounts with specific, fixed amounts of drawdown available such as those at most evaluators, you are able to effectively multiply your available drawdown. Overall this can allow you to trade “bigger” without having to take on more risk, relative to your available drawdown. In my case, I’m running four accounts currently, but plan to work my way up to 10 so that’s the number I used.
The end result of this exercise? I only need to get seven ticks per day to reach my “trading for a living” goal. Not even two points! And that’s an absolute number, meaning if I were trading a two lot I would need half that amount. This is suddenly well within reach, and has totally reframed my perspective around being so critical of the speed of my trading progress. This is doable, and has helped a great deal to keep me focused on what I need to do which is “simply” to adhere to my process, and just trade well.
This game is really not about making money… that’s actually the easy part! It’s about self-mastery. And frankly that’s one of the main reasons I find it so appealing.
Until next time, good trading!
Jonathan van Clute
Community Manager, Trading Research Group