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Coach's Playbook Posted by Team Topstep May 4, 2021

When Should Traders Take A Withdrawal?


By: Mick Ieronimo

When to take a withdrawal is a great question, and there is no “one size fits all” answer. Realistically, when you withdraw, and how much you withdraw is going to vary from trader to trader. The answer depends on who you are and how you need to operate.

The goal of a trader is one thing, to make money. It may sound greedy, but that is ultimately why we are here, to take money out of the markets and put it in our own pocket. As a trader, you take on risk in the markets to reap potential rewards, and like any other business, you want to be paying yourself. Trading is a business and should be treated as such. 

How Will A Withdrawal Affect Your Trading?

There are several things one should consider when taking money out of their trading account, the most critical consideration being survival. When you decide to pull money from your account, the first thing you should be thinking about is, “How will this affect my ability to continue operating in the markets?” In other words, you want to ensure that the money you pull out will not affect your ability to continue trading if you hit a rough patch. You should always feel comfortable with the amount you are pulling.

The best way to think about how much you should withdraw would be to think about what percentage of your overall account you are pulling out. Am I pulling out 50% of my account, or am I paying myself 10% of the account balance?

Withdrawals vary for most people, depending on their risk tolerance, specifically how much they are willing to risk or lose in a single trading day or trading week. Usually, traders like to maintain a certain account balance based on how much they need to keep in the account to post margin for their contract sizing. The other factor to consider is “how much do I allow myself to draw down on my losing days?”.

Risk Matters When Taking A Withdrawal

Traders who assume considerable risk will want to maintain a larger account balance to ensure they do not blow out their account in a single day(s) or even a single week. Traders who do not risk as much on any given trading day might not need to maintain as large an account balance. 

The amount a trader maintains should be determined by the size of their max risk on their losing days.

For example: If I have a $10,000 trading account, can I withdraw $5,000 of it? Well, maybe I can, and perhaps I shouldn’t.

  • If I am a low-risk trader that usually only risks $250 each day I trade, I likely could take this $5,000 withdrawal and safely operate with a $5,000 account balance. After all, it would take me 20, $250 losing days in a row to burn through that $5,000 balance. The odds are I won’t have 20 losing days in a row. Plus, my winning days are usually larger than my losing days. 
  • If I am a trader who is willing to take larger risk, then maybe I shouldn’t be taking such a large withdrawal and should maintain a larger account balance. If I sometimes risk up to $1,000 trading on my losing days, then I’m not setting myself up for survival if I withdraw $5,000 and only leave $5,000 in the account. If I have five $1,000 losing days, my account is at $0, and I can no longer trade. I should not risk blowing up my account over one bad trading week. 

A trader should always measure how many losing days they could survive when thinking about how much to keep in their account and how much they should withdraw. 

The Important Thing Is To Pay Yourself

The reality is, withdrawals do not need to be huge when you take them. There is nothing wrong with paying yourself in small amounts! Whether it’s a $100 check you take or a $1,000 check you take, you should make an effort to pay yourself often. Have a good trading month? Account balance over what you usually maintain? PAY YOURSELF! Have an unusually large winning day? PAY YOURSELF!

It feels good to turn those numbers you see on your computer screen that say “Account Balance” into something tangible that you can put in your hand to use in the real world. Whether it’s buying yourself a basic lunch, treating yourself to something nice, or paying the bills, THIS IS WHY YOU ARE HERE!

Paying yourself can and will also help with your money management when in the markets. Again, it lets you know that your Account Balance isn’t just a number on the computer screen, it’s real money! It could also influence your decisions while in a trade for the better. If you’re up money on the week going into Friday and had intended to take a check at the end of the week, well, you might be more conscious of hanging onto the money you’ve made and potentially get out of a trade you are unsure of to ensure you walk away up on the week. 

For more insight and discussion around withdrawals and maintaining an account balance, click to watch Topstep’s Coach’s Playbook: When, How, and Why to Pay Yourself