Alright, so let’s talk about trading for growth vs trading for income. For anyone that’s just starting out (or even if you’ve been trading for a while) you need to understand what you’re trading for.
What does trading for income mean?
So what does it mean when you are trading for income?
When you’re trading for income, it means that your account is pretty big. And let’s say, for example, it’s $500,000.
So it is already a larger account and all trading profits are taken out of the account to generate income. Hence the name trading for income.
Let me give you an example.
Let’s say that on the $500,000 account, you would trade the Wheel. One of the trading strategies that I like to trade on larger accounts here.
And the idea here with the Wheel is that you are generating approximately, let’s say, 30% per year. So this would be $150,000.
So here, for the sake of our discussion and to use rounded numbers, this would be approximately $12,000 per month.
I know it’s a little bit more. If you divide $150,000 by 12 months, it would be more than $12,000, but for simple math, you get the idea.
So at the end of the month or quarter, doesn’t really matter depending on how you want to do this, you transfer any amount that is larger than $500,000 into your checking account as your income.
So this is the ultimate goal as a trader. This means that now you have brought your account to a decent size and you’re trading with the intent to wire out profits.
This means that you don’t want to grow your account anymore.
Any excess profits generated are transferred out of your account. Or you can leave it in there, depending on what your living expenses are.
What determines how much money you will make?
Now, again, if you want to make more than $150,000 a year, there’s two ways you can go about doing this.
So what determines how much money you make?
Well, there’s two deciding factors here.
The first one is obviously your account size. And the second is the percentage, right? The ROI or return on investment of the trading strategy.
Let me give you a few examples here.
The Wheel trading strategy ,that I recommend you trade on larger accounts, generates around 30% to 40% per year.
Now, you also know that I love trading the PowerX Strategy. I’m trading it every day. With this strategy you’re looking to generate at least 60% per year.
So this is where you need to choose the strategy that aligns most with your lifestyle and your trading goals.
Now, before we talk more about trading for income and how to get there, let’s talk about trading for growth.
What does trading for growth mean?
If you don’t have over a $500,000 account yet, you need to adapt your trading style so that you can grow your account.
The idea here is to really start growing your account until you are at the level where you can trade for income.
So trading for growth, here is what you do. No withdrawals. All money stays in the account.
This is very important. If you start with a small account, let’s say between $10,000-$20,000, now you have to trade it for growth.
How do you trade for growth?
So how exactly do you do this? Well, again, first of all, no withdrawals. All the money needs to remain in the account. This is where you would use money management to grow your account.
The money management method that I personally recommend, and have used to grow my accounts to a decent size, is the fixed ratio money management technique.
I think it’s very important that you understand money management. I’ll do a dedicated article later on how to do this.
The important thing is that you use trading strategies that support money management.
Now, this is where you’d also use trading strategies that generate at least 50% per year.
So when you’re trading for growth, I highly recommend you focus on the PowerX Strategy and the PowerX Optimizer.
And then the Wheel strategy, although, as you know, you have a smaller percentage ROI.
Growth Trading vs Income Trading
So let’s just summarize this here of what it means to trade for income and trade for growth.
In the life of a trader, there’s generally two steps:
Initially, most traders tend to start by trading for growth. You first want to make sure that you take your account to a certain level. Once your account reaches it, this is when you start trading for income.
At this moment, it makes sense that you can start taking money out of your account. The question is here of how much money do you actually need to have in your account?
And again, the two deciding factors here are your account size and also the ROI of its strategy.
Now I want to give you two more very specific examples so that you know how large your trading account needs to be.
How much money do you need to trade for income?
Let’s say your income goal is $100,000 per year. We’ll do some larger amounts here in just a moment.
So if you have $100,000 per year and you’re using a strategy like the PowerX Strategy, that has an ROI of 60%.
Now the question is, how large does your account need to be so that you can trade for income, then transfer the excess capital out of your account and into your checking account?
Well, this is how it works.
All you need to do at this point is take the $100,000 that you want to make and divide it by the ROI which is 0.6.
So at that moment, it means that you need to have around $166,666 in your account, you get the idea.
How to make $100,000-$200,000 per year trading for income
Let me give you a few other possible scenarios so that you know exactly what strategy to use and also how much money you need in your account.
So let’s say that here you want to make $100,000 per year, but the ROI of the strategy is only 30%.
If this is the case, again, you use the formula, we’ll use the $100,000 divided by the ROI, which now is 0.3 and you arrive at $300,000.
So if you have a strategy that generates 30% per year, you need to have more money in your account, right?
This is why it is so important that you have these two variables, the account size and the ROI of the strategy.
Let me give you one more example. How much would you like to make? Maybe $200,000 per year?
So if you want to make $200,000 per year, and you have a strategy that has an ROI of 60%, you’re taking the $200,000 that you want to make divided by 0.6 and you arrive at around $333,333.
You know how much money you have in your account.
If you don’t have enough money yet to trade for income, this means that you’re in phase one, that you’re trading for growth.
Again, when trading for growth, this is when you definitely need to use proven money management to grow your account.
When you’re trading for income, no money management is needed to grow your account. All you need to do here is proper position sizing.
So, I hope that this helps you to understand the main differences between trading for growth vs trading for income.
Now you know exactly how much money you need to have in your account based on the trading strategy that you use, so that eventually, you can trade for income.
Once you start trading for income, this is when the fun starts.
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Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.