Why not trading fulltime can make sense

As many of you know, I do not trade fulltime, I have a “real” job during the day and spend my evenings and weekends doing research for my swing and longer term trades. Based on the success Dave and I’s trading systems (swing, trend following, etc) have had recently I’ve been asked why I don’t trade full time. The short answer is I can not afford to and here’s why.

I make the majority of my money in the market from my equity swing system and my ETF trend following system, which were both designed to be exteremly low maintenance and tradeable without monitoring the market intraday. Therefore, I would need to replace my salary, health insurance, vacation and bonuses with e-mini intraday trades. To see what type of performance is required to achieve this, lets look at hypothetical example of someone who make $50K per yer. I wil skip the relative tax consequences of W-2 vs self-employed or LLC income as the variations are inifinite based on individual situations.

Full time job benefits:

Salary $50,000
Health Insurance $3,600 ($300 per month)
Vacation (2 weeks) $1,923
Bonus $1,500

Total Value $57,023

To find out what type of size we need to be trading in S&P e-mini, we first need to make an assumption about how many points per contract I could make per week. I just checked with Dave and he says a good trader using strategies similar to his could expect at average 2 ES points per week per contract so I’ll use that for this example. I’m also going to assume that actual trading time per year is only 48 weeks to account for market holidays, vacation, sick time and other activities that prevent trading.

Weekly required income (57,023 / 48) = $1188
Points per contract per week2
Value of each point $50
Number of contracts needed per trade ($1188/(2 * $50)) = 11.88 (round up to 12)
Average risk per contract 2 points
$ Risk per trade (12 * 2 * 50) = $1200
Account size needed to only risk 1% per trade (1200 / .01 ) = $120,000

Based on the above assumptions, IF you are able to average 2 ES points per week (no easy task), you would need to allocate ~$120,000 to emini trading per $50K of salary you’re trying to replace, just to keep your emini account even each year (which would have you falling behind inflation and not receiving any “raises”. You’d need to allocated $240,000 if you wanted to generate $50K of salary and another $50K for your account. At this point, I can still do better working my “real” job and trading my swing and ETF systems. Afterall, not having all my income dependent on my trading ability is really just another form of diversification…

-John