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Trend following futures with 10k?

  #10 (permalink)

London
 
 
Posts: 3 since Dec 2016
Thanks: 0 given, 1 received



grausch View Post
I think the OP is trying for larger gains holding trades longer. Andreas Clenow is a long-term trend follower which indicates a different style of trading that I think you are thinking of.

As an example, the Turtles had their stops at 2 ATR and risked 2% per trade. If the daily ATR (average true range) of CL is 100 ticks, then the daily $ movement is $1,000. Since the Turtles would placed their stops at 2ATR, the risk on the trade was $2,000 and then working back to a 2% risk per trade, the account size needs to be $100,000 for a single contract of CL. That would then also use the entire risk budget and no more trades could be taken in any other instrument until the CL trade was exited.

However, in recent years trend-followers have started using wider stops and a smaller risk % per trade. Thus, a typical trend following fund could probably only trade 1 CL contract with perhaps $500,000 in capital.

If a trader with a small account wishes to trade the same way as the Turtles, he needs to catch a big trend with his first or second trade. The account does not have a lot of leeway for losses. While most people don't think this is relevant, your best odds of winning money at a casino would be to place a single bet on black (or red) at roulette. The casino has an edge, so gambling there will just lead to losses over time. However, you can negate the casino's edge by just placing a single bet with good odds. If you lose, you at least got it over with quickly.

Small accounts work the same way in trading. Since you can't trade many contracts you can't scale back when things are going badly. Commissions and losses can hurt small accounts much quicker since they have less of a cushion. By focusing on trading less and making wins really count, a smaller account has a better chance of winning. It is just one way to minimize the effect of the house's edge against a small account.

Edit: Low liquidity is not necessarily a bad thing. It makes it easier to spot when a commodity becomes "attractive" for traders again. If you get sudden massive volume spikes, combined with big moves, then that commodity has become "hot". Easier to spot that than in CL, but you may need to wait a couple of years to get these type of trades. However, if you play them correctly, you can get the 100%+ year in one trade.

That's a really useful response, thanks for taking the time to go through it step by step.

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