Chump change: that's what many traders would call my earnings this year. The definition of "chump change" is, according to Merriam-Webster
online, "a relatively small or insignificant amount of money."
I have not closed my current trade yet, the last of this year. Excluding that trade, my quick calculations of profits and losses show that my trades this year earned an average of only 2.03 percent of the maximum margin or buying-power effect while those trades were open. For many active traders, that's chump change. They may expect far better returns.
Does that mean I'm disappointed? Not a bit. If that average persisted through the years, that translates into an annual gain of about 24.36 percent of the average margin I have tied up each month. That's not doubling my account, not even close, but it's not negligible, either. However, this was a learning year, one in which I expected to pay a tuition.
This was a year in which I gravitated, slowly, from trading iron condors to trading butterflies. I set out my own goals for my trading, goals that might be quite different from yours. My husband is retired, we have saved, and I'm dealing with a chronic illness. Our primary concern is preserving the money in our accounts. Making money without suffering too much trauma while doing so is the second priority. Younger people or people in other financial circumstances might have different goals.
Meeting that second goal meant that I wanted to keep my "T+0" or "today" line relatively flat throughout the trade. I wanted Armageddon insurance in case we woke up one morning with the European situation cratering the world's financial markets. I did not want or attempt to hedge against all possible losses: that's an impossible task. I wanted to hedge against huge losses. Those are the kind that can and do happen when that today line slopes sharply away from the current price and markets gap open and run strongly. Or, when we have a flash crash.
I knew I would pay a price for what I wanted. Meeting those goals would rob me of some of the profit possible in the trade. Despite a figurative shaking of the head from some fellow active traders, I was willing to give up some of my profit. What I wanted to know was whether I could produce any profit at all and keep that today line as flat as I wanted it, and I was willing to spend a year finding out if I could.
What have I learned? I learned in the first seven months, when I took losses of 2.91 and 3.60 percent in two of those months, that I was spending too much on my Armageddon insurance. I straightened that out. As an expected bonus, profitable months have been more profitable since.
It's my ultimate goal to average a profit of 3-5 percent of the max margin I have in each monthly cycle. I've now sized up to 15-20 contracts per month from the original three, except for the current trade. Increasing volatility and upcoming holidays convinced me to cut back my size to nine contracts for this month. I intend to size up further, but I'll likely stay at 15-20 contracts until we've had one of those terrible downdrafts. I want to determine if I can manage the trade so that it suffers only minor losses, if any are incurred. If so, then I'll size up again. If not, I'll retrench and rethink my plan.
Now is the time of year for all traders to set their goals for next year. I know what mine are. They're modest by the goals that some traders set. I know active traders with similar setups who are earning more, not at all worried about providing Armageddon insurance.
This year, they earned more.
Someone who owns a portfolio that is long a lot of stocks sees a better performance in years like this than does someone who has all that same portfolio of stocks collared with a sold call and a long put. Collared portfolios underperform during rally years, but they outperform during downturns. Their overall profit line may be smoother than the sharp peaks and valleys of an uncollared portfolio.
I always was susceptible to motion sickness. I find that's translating into my feelings about my trading, too. After beginning trading as a day trader and switching in response to a health challenge faced by a grandchild, I'm once again moderating my trading style. As a result, the state of my trades never keeps me awake at night. I never have that Sunday afternoon dread settle around my shoulders as the weekend draws to a close. This is right for me, my husband, and our financial and other needs.
Spend some time in the next few weeks determining what is right for yours. How many trades do you want to manage at a time? What size feels comfortable for you, and at what risk level does your emotional reaction to the trade escalate? What type of trade fits your availability to adjust? Do you want to sit at the computer for twenty minutes each morning or afternoon and not look at your trading platform again the rest of the day? Or, do you want to be in and out of the market all day long with short trades that never put too much money at risk at any one time? Do the ups and downs of weeklies scare you, when there's so little time to recover from a gap and run in the markets, or does the paint-drying slowness of a monthly trade drive you so batty that you overtrade it?
Likely your plan won't be to be satisfied with the chump change I'm willing to accept in return for my efforts, but that's okay with me. I'll enjoy your gains vicariously without suffering through the scary moments.