• Frank Font

Phase One: Trading Plan

Updated: Jul 6, 2021

Before elaborating on my plan itself, I would like to layout my current and future situation. I want to supply the trading account for five years, but I will contribute funds over ten years if that is not possible. Therefore, the total contribution to the account will be $70,000 to a high of $140,000. However, if I start to see success within the first two years, I would be willing to get two jobs and contribute a further $60,000 to the account in the first five years. By the time I have passed away, my desired lifestyle should cost no more than $8,000,000 over a 70-year time frame. I will be an active investor for 30 years, which means that I will need to average 20% returns over 30 years.

Risk Management

When starting, I will risk no more than 2% of the entire portfolio. That means that with a starting principle of $4,000, I would not risk more than $80 per trade. As time progresses and the account gets more significant, I will reduce the risk exposure to .5% or even .2% of the total account size.

Goals

  • The first goal would be to get past PDT and be able to day trade without any limitations. That would mean getting the account to a $30,000 price point.

  • Bring the yearly return rate to an amount that exceeds the SPYs average of about 12%.

  • Have the account exceed $100,000.

  • Reach a Yearly Return that is over 30% for any single year.

  • Reduce the number of red months to less than 3.

  • Have the account exceed the $1,000,0000 mark.

  • Reach a $10,000,000 account size.

  • Have fun with whatever money I have accumulated.

The main goal for the first year would be to not lose a substantial amount of money, but I will be aiming for a 14% return and each year after that I would try to increase the yearly return rate by 1%. In that manner I would be able to average 28.5% returns year after year.

Risk Reward

When starting, I should stick to the basic rule of 2 to 1 risk per trade. In that manner, it would only take 40 trades to reach a return of 20% if I am willing to risk a max of $40 per trade. That is assuming that I can be correct 50% of the time. Spread over 50 weeks, I would have to have a trade duration of about 1.25 weeks. Over time I would likely reduce the risk-reward to 1.5 to 1 to increase trading volume. In that manner, I would win $20 every two trades with a $4,000 account. After I no longer operate under the PDT rule, I would likely sit at the computer all day as I truly enjoy the concept of trading. Assuming I can average a 50% correction rate, I would earn .025% per day, which translates to about 625% per year, given that for each trade, I am risking the maximum amount of 1%. This is somewhat an unrealistic estimate, but even if I were to get a 6th of that return, I would see the account grown tremendously.

Conclusion

Moving forward, I will strictly follow my risk management rules. I will split up the $4,000 as follows: $3,000 will be used to sell cash-covered puts or even stock-covered puts while the remaining $1,000 to execute swing trades. I will restrict my swing trades to be done with the stock itself and not the option itself in order. As I see an increase in the account size, I will have a much stricter guideline to follow. This would look something along the lines of having 20% of the account in a high growth eft, 40% for options spreads, and the remaining 40% for swing trades.

0 views0 comments

Recent Posts

See All

If I cannot reach an average higher than the S&P over that period after five years of trading, I will focus on passive investments like ETFs. If I see that the returns have not progressed upwards over

I have started to diversify the total equity in the account between three or four different assets. I devote a portion of the account to selling poor man's covered calls, which could yield a return of

After trading for about two weeks, I have lost nearly half of my initial capital of $400. I put an additional $800 to bring the total of the account to $1,000. I will wait until the end of the month t