Sultan's Off Wins

My friend the Sultan sounds a little down right now. My Trading Solo post from the weekend covered the topic of whether you are better of trading for yourself or trading for others, and for me, it's a no-brainer. If you have an edge, use it for yourself, build up your bank, and your balance will at some point grow to more than you need for day-to-day trading. 

The Sultan writes that he is "treading water when I could be freestyling into the distance" but turning £20 into £40 is going as fast as turning £2,000 into £4,000. The famous Odwyer (" It's frustrating because I know I can make this pay big if I had some kind of stability, but I've not had that for a good year now") claimed that bank size was his edge, which showed the same lack of comprehension of value as WhyAlwaysMe has shown in more recent times. 

So why is The Sultan treading water? Trading is very much a mental game, and if the doubts are there, which seems to be the case, then that negativity will come to the surface.

As long-time readers will know, I think it's a terrible idea to do sports trading full-time. There are so many positives for trading as a part-time hobby while you work full-time and so many negatives against trading full-time. The Sultan himself is well aware of this, writing in 2011:

The one thing you cannot experience as a part-timer is the pressure of trading being your sole source of income. You may think you have felt pressure when losing or coming close to losing your whole bank but trust me, it pales into insignificance compared to the pressure a full-timer feels. You might be gutted at losing a bank you've been trading with but in the back of your mind, you know it's not the end of the world. You know you can always replace it when the next pay-cheque arrives or start saving up again and return in a few months for another shot. It doesn't usually affect your life that badly. If you lose your bank as a full-timer, you could be struggling to pay the bills, keep a roof over your head or even put food on the table. And as you have seen on this very blog, that pressure, that anxiety, that stress, can cause you to do things that perhaps you thought you had cut out of your trading long ago. You may have been raking it in as a part-timer but when things start to get tricky and it's your only source of income, will you still remain steadfast in your approach?

To trade optimally, the money needs to be irrelevant. Fund the bank with money you will never need and leave it alone. Now the Sultan writes:

I want to make some serious cash or I'm really not that bothered. I always thought that was going to happen one day and I'm almost certain that it would if I could only compound my profits. But that isn't going to happen this year and I don't know if I can continue treading water for another year, when I could be doing something else. Without investment, I'm stuck and although I've been doing well, everything I earn goes straight back out.

"Everything I earn goes straight back out!". That is not my definition of  "I've been doing well". That's my definition of 'keeping the wolves from the door'. And unfortunately those withdrawals do not offset the Premium Charge which is only a matter of time for most full-time traders. When you have a full-time job, you make enough to pay the bills, and probably have a little left over. When your full-time job is trading, there is no guarantee that you will even cover your bills. Again in 2011, the Sultan questioned his own decision to go pro:

I've made a lot of mistakes in my trading life but none of them were more damaging than my decision to go full-time too early. I wish I'd waited at least another year. I should have given it 2 full tennis seasons, if only to see how the whole tour works and how it affects you as a trader. I was fortunate in that I had some fairly large savings that I could dig into if it didn't work out as expected. I would urge anyone thinking of going full-time to have a big chunk saved up for emergencies. And that's just the start of what you'll need in preparation.

And as for the pressure of trading for your main income:

I always liken the move from part-time to full-time as similar to a penalty shoot-out. The best players will be slotting home penalties in training as if it's the easiest thing in the world. But when it comes to the real thing, in front of thousands of fans, maybe millions on TV and with the added pressure that you are one mistake away from being knocked out of a major tournament, the pressure plays games with your mind. All of a sudden, those 12 yards to goal seem like a mile, the posts have shrunk and the keeper has grown a metre. There is no way of preparing for that pressure with football and I don't think you can with trading either. Not unless you used your entire month's wages to trade with - now THAT would give you some idea!

For me, it seems there are so many opportunities to trade at nights and weekends that there is no need to give up a full-time job. You may miss a few events, but anything important and you can take the day off, or "work" from home that day. Most jobs have other benefits too, and you shouldn't underestimate the loss of future benefits and earnings, or the challenges of re-entering the full-time world after taking a break.

It's never pleasant losing a big wedge, but as the Sultan says, "in the back of your mind, you know it's not the end of the world." It's just a few points lost in a never-ending video game, and when you have a proven edge, the points will come back. 

I wish the Sultan the best of luck, (his blog is one of the best out there), but don't accept that outside funding is the answer. He has answered his own question really - he needs to keep more in the bank so that he can slowly build up his balance and stakes, and not take out everything he earns. Use some of those 'fairly large savings' perhaps to cover daily living expenses while the bank grows? If you get down to the point where the emergency fund of 3 months living expenses is reached, then if the bank hasn't grown by enough, it's time to take a fresh look and re-evaluate options. I can't imagine the pressure of trading in that situation - it must almost as bad as when the end of the month is coming. Final week of February starts today!