Trading Advice: Should He Stop Trading? True story. I received the following message from a young man named Jason.
Jason said, “So my parents just found out about my trading account and said to stop playing with money, but I don’t want to listen to them, as I believe this could be the beginning of something really big.” Now, they said, “You have to be really smart to be successful and that I should focus on college.” And Jason also added that he is currently 20 years old.
When you read this, what’s your initial reaction? Should he trade or listen to his parents and stop? What would you do if Jason was your son?
By the way, before I continue, I asked Jason if I can use his questions and comments and he said, “absolutely!” So here are a few things that I wanted to know.
What I want to do right now is give you my take, but in order to give him some solid trading advice, I needed some facts. Here are the things that I wanted to know.
First, Let’s Look At The Facts
First, I wanted to know his account size. How big of an account are we talking about? For most 20-year-olds, they often have an account of around maybe $2,000-$3,000.
Jason said, “I have a $27,000 account size with $54,000 in buying power.” This is where I must say impressive, very impressive.
He has a decent account size here. So far, so good.
Next, I wanted to know about his trading strategy. So I asked him what he wanted to trade? Jason replied, “Well I’m really confident about The Wheel Strategy.”
I must say, for his account size of $54,000 in buying power, that’s actually a great trading strategy. As you know, I’m trading the strategy myself.
If you would like to learn more about The Wheel Strategy, you can check out a playlist of videos I did explaining it in detail HERE.
Thus far the account size is good. The trading strategy, I like it. I know the trading strategy, it’s one of the trading strategies that I trade myself.
Third, I wanted to know about his trading discipline. Is he a YOLO trader (You Only Live Once)? Is he the kind of trader who trades crazy stuff like meme stocks, or is he actually disciplined?
This is where in this thread he also said, “I’m really confident about The Wheel Strategy. I was about to buy some calls on ZIM today, but then I followed my plan of selling Puts.“
I love it when I hear this because it’s really important to me that you actually follow your plan.
This is why I have a mug here on my desk that reminds me when I’m drinking out of it. It says “Follow your plan.”
By the way, if you would like your own “Follow Your Plan” mug, you can pick one up HERE.
So it seems that thus far things are going pretty well for Jason. He has a plan. He had some impulses here, but then he realized he was about to do something reckless that’s outside of his plan, and decided to stick to it.
Going back here to my little checklist, I must say, thus far, trading discipline seems to be pretty good.
Next, I wanted to know about his trading goals. He said,
“I feel I can turn my account into $70,000 by 2023.”
Let’s talk about this and see if this is a realistic goal. So right now he has a $27,000 account, this is cash and he’s using a margin account.
Now, with The Wheel Strategy, especially if you’re trading a margin account, it is very realistic that you can expect 60% per year.
That is a realistic return. It’s not something crazy that you’re doubling, tripling, or five x’ing your money within a couple of days or weeks.
If we take the 60%, that would be $16,200. This means that if he maintains the discipline, his account should be around $43,200 by the end of 2022.
Then, if we take the $43,200 times another 60% the next year, this would be $25,920.
If I’m adding all of this up, it is $69,120. Well, looking at this and where Jason said, ” I feel I can turn my account into $70,000 by 2023,” if he follows his plan, he’s at $69,120 by 2023. The math works out.
Going back here to his trading goals, are they realistic? Are they smart? Are they achievable? I say, yes, absolutely.
Then there is your plan. The last thing I wanted to know is, what is Jason’s plan? As you’ll remember, he said he is in college right now, and is 20 years old.
I asked, “Do you want to drop out of college?” because I think that would be a really bad idea, wouldn’t you agree?
When asked about his college he replied, “Oh yes, I’m focusing on college right now.”
So he’s focusing on college. He has a decent account size, he has a good trading strategy, his discipline seems to be good, his trading goals seem to be good, and his trading plan seemed to be good.
Are his parents right when they say he should stop playing with money when you see all of this thus far? Honestly, for me right now, there’s a lot of green.
How Are Jason’s Finances?
Now, $27,000 for a twenty-year-old is some good money. Now my question is, how did he get the money? Is this your money? Where is this money coming from? Is this your parent’s money? Is this borrowed money? Let’s go back here and see what Jason said to this.
OK, so he got the money from working a part-time job for two years, and investments. That’s pretty good. However, he also says he is using around $10,000 from his parents.
Stop right here. Stop the presses. Hold on. Number one, never trade with money you can’t afford to lose. This is a cardinal rule and you cannot break this.
Number two, never trade with borrowed money. My advice for Jason would be the $10,000 from his parents is off-limits right now. He cannot trade this 10K, as it is not his. His parents gave it to him probably for college, they lent it to him. That’s not his money.
Again, this is where he knows more about his situation. I’m just giving my advice here regarding, should you trade?
What Plan Do I Recommend For Jason?
Here is my five-step approach for Jason.
Number one, this is what I highly recommend, because this way you’re getting a feel for the market. Start paper trading if you haven’t already. Making forty trades on a simulator will take you two to three months, but this way you have more experience on getting assigned with the Wheel Strategy.
As you know, the Wheel is a very unique strategy where you are first selling puts, then you might or might not get assigned, and then based on this, you might have to sell calls.
So I highly recommend at least forty trades. If you haven’t done this yet, hold your horses right now, stop the presses and do it now because this will give you more confidence in what to expect.
Number two, with this done, do you have a trading log where you’re writing down the results? Can you prove that you’re successful? Are you writing down where you entered, how much money you would have gotten for the put, and when you bought it back?
You must do this. Jason is 20 years old, 2-3 months of his life is nothing. I know as a 20 old you’re probably impatient, but trust me, there’s a method to my madness here, just wait for it.
Number three, only trade your money and money that you can afford to lose. First of all, take the $10,000 out of the account. This leaves you with $17,000.
Now, can you afford to lose the whole $17,000? What will happen if you lose $10.000? Are you ok with this, or is this something that will put you in a pinch?
So maybe consider that out of this $17,000, you use 10k for trading, and the other 7k you put away into a savings account. Or maybe $10,000 in an index fund.
Number four, I would say build your account. You are doing really, really well. What I mean by this is, you want to build your account, focus on college, and maybe get a job to make more money.
You have already had a job where you made about $17,000 in 2 years doing a part-time job. Whatever you have done seemed to work really, really well. The question is, can you do this while staying focused on college? Because I do believe that it’s important.
If you can get a job to make more money, out of this I would put half of it into your savings account, and half of it into your trading account. This way, you’re building your savings account and you’re also building your trading account. This is what I would tell you if you were my son in this situation.
Number five would be to talk to your parents about your plan.
Trading Advice From Experience
Think about it this way. I’m a parent. I have two kids, and one is off to college. The other one, Vivian, she’s a junior in high school right now.
I can tell you that parents always want the best for their kids. It might not sound this way right now when they say stop doing this, but trust me, your parents want the best for you, and they are very proud of you. You’re going to college. That’s a big deal, not everybody is going to college.
Now, here’s the thing. They want to be proud of you, but being a trader is not always making parents very proud. Let me share a very personal story.
When I left my job at IBM in 2002 to move to the United States to become a trader, my mom kept asking me for years, when are you getting a real job?
When people asked my mom about what her son did in the United States, she would say I was in the investing business. She didn’t want to say that I was a trader. So just keep this in mind. Your parents might have a difficult time wrapping their heads around you being a trader.
But you see, if you have a solid plan, you’re doing forty trades on a simulator, and you have a trading log and a proven track record, here’s where you’re being smart, and you can present this plan to your parents.
I mean, if my kids would come to me, even if I would be completely against trading, with a solid plan I would listen and say, “OK, let’s talk about this.”
I hope this makes sense and was good advice for Jason. Do you agree or disagree with this advice? What would you do in Jason’s situation? If you were Jason’s parent, what would you do? What would you do if this were your son?
If you would like to know how I personally trade these crazy markets, then here are 2 videos for you. One of them is explaining the “PowerX Strategy“, and the other one is explaining “The Wheel Strategy” in detail.