I haven't written an article in a little while, so I decided to write something different. So why did a choose trading?
I have always been very entrepreneurial. The first thing I started with was an allowance. I had a choice I could receive all the change in my dads pocket everyday or I could receive an allowance. This brought me to thinking about risk versus reward. Do I want a steady income or something less reliable with more upside. I took the upside. Why you ask? I was FIVE what risk did I really have. If I wanted something I could just ask my mom to buy it, and I wouldn't have to spend a dime to buy it. Now to be fair, I don't think I was necessarily thinking through all of this at that age, but I think I grasped the idea.
3 years later after I got out of the being "King of the World" stages I became interested in business and finance. I was fascinated about how you could make money. Therefore, I started my own business. Now at age 8 I was a little shy and had limited resources, so I was kind of stuck with illiquid and unfair markets....my parents (they could charge any price the wanted). However, I decided to start with dish washing. I was making a $1 a day from this at dinner time. Okay great that is $365 a year which went into my savings. Then I decided to have a lawn watering business. Okay great no cost and plain revenue takes 20 minutes. That brought in $282 (140 days a year of watering * $2 per job). Then, being the evil child that I am, I sold "information" to my mom of the daily happenings at school, which I probably made $.50 a reports, and I sold about 3 reports a week (begining, middle, and end of the week) which ends up at $78 a year. So we are at a minimum of $726 a year + the income I was making from my dads change (which if you think about is a lot like options income investing, if the insurance doesn't pay I don't get my premium). So, I was making pretty decent for a 8 year old at this point. I decided to package this into a "giant" conglomerate, so I could use cash from one company to fund another company. Then the question came up. What do I do with the extra cash?
This shot me right into the trading world. Within a few weeks, I had decided I needed a brokerage account, and I had to invest. I spent a 1/2 year learning and not doing as single trade until January 2009. In January 2009, with a $500 trading account, I bought shares of 5 shares of INTU at $ 52. I ended up scratching the trade, but it was a great experience. So, at the end of 2009 I ended up going through some decent pain, and I scratched the year. I also decided from just that volatility that I couldn't make big returns from such a small account, but I could prove that I could consistently the outperform the market, and I did making 20 % + with relatively small draw downs in 2010 and the same in 2011 of less than 10% unfortunately it was to difficult to leverage in such small accounts. Today, I have learned to simply use more leverage for a higher return
Now by the end of 2011 I had decided that I am going to learn options trading. I also began trading longer term and mostly macro markets in 2012 with a $2500 trading account. By the summer of 2012 I was almost solely trading macro directional options buying ITM options, and a pretty non strategic approach. I was basically managing winners and playing the trend, in my dads IRA account, and my own account. After the summer of 2012, I began taking on a strategic approach, and I was also doing pretty well with that, and I ended the year in my dad's IRA in + 15% with a max drawdown of 3% (My dad has a limited risk tolerance so I cut down on leverage big time), and I made just a little in my small account ending with $4500, but I put in contributions. I think I had the best year ever here from a risk to reward standpoint. To put it in perspective, in a higher risk trading account I would use 3x leverage of a low risk IRA with a return of 45% and a draw down of 9%.
Now I am going to fast forward into summer of 2013. At this time I was up 4% on the year in a higher risk margin account that I was willing to take more risk in. Then I got whipsawed on deltas, volatility sucked, and I got overly short deltas. It ended up being the first year the market tested me into losing money, but I learned 100x what I did before all the previous year because nothing teaches you more than being tested.
Now in 2014, I have been doing much better. My portfolio volatility has decreased and returns have been much more consistent. My goal is to beat my 5/1 risk to reward in 2012.
