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Making a 100 a day

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Trading Experience: Intermediate
Platform: Bookmap and Jigsaw DOM
Broker/Data: Stage 5 Trading
Favorite Futures: ZN
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Posts: 433 since Jun 2015
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Jayboii478 View Post
I'd just like opinions, past the risk 5% of my account and emotional part sense like I said i would not be attached to the money and have experience with live trading, what's stoppong from making a 100 a day if it worked out as stated above? I'm just curious, it seems great to me sense stocks was holding me back at the 25k needed to day trade.

Hey there JayBoii! It's good to hear that you're considering these things as you begin your trading journey. I've got a few points that I wanted to share with you real quick.

I'd say that the main reason that people are advised against trading with only $1000 is because it is a terribly small sum in the futures market. However, people do trade with small sums because they want to turn a paycheck into a new house in a year's time. After all, that's how compounding returns work, right?

Let's take your 5% account risk example for a moment.
  • You take the first trade, risking $50 to make $150. You pay the commissions and fees of roughly $5, for argument's sake, for one round turn on one contract.
  • The trade is a loser. Now you're down $50 + $5 = $55, which is 5.5% of your account.
  • You take the second trade. Now, however, you're down to $945 in your account. A 5% account risk now only allows you $47.25.
  • The trade is a loser. Now you're down $52.25, which is another 5.5% loss. Your account is down over $100, and over 10%, in just two trades.

Now, this is often the part where newbie traders start rationalizing. They'll say "Well, my R:R means that with 1 winner, I'll make all of that back and then some. And my winning percent is over 50%, so I probably won't even have a string of losers." It's true that with one winner you're back in the black, but every single trader out there has had a string of losers before.

You need to ask yourself "Can my $1000 account withstand 5 losers in a row?". After 5 losers--assuming that your market of choice allows you to perfectly scale your account risk with the market's tick size--your account will stand just above $750.

Once you have had 5 losing trades, your risk is limited to $37.50 per trade. This is when you'll start to see why it's near impossible to trade such a small account. I'll assume you're looking at trading crude oil at this point; the tick size and margin seems to roughly fit the product. Crude moves in tick increments of $10, like you mentioned above. This means that you lose risk granularity on a small $1000 account. With $1000, you're forced to risk your account in increments of 1%. If you had $50,000, you could risk in increments of 0.02%.

Now, to revisit the previous example:
  • You take the first trade, risking $50 (5 ticks) to make $150.
  • The trade is a loser. You're down 5.5% of your account.
  • You take the second trade. Now you can't risk $50 because that's over 5% of your account, but risking only $40 doesn't fit your plan for a 5% account risk profile.
  • Being a prudent trader, you decide to only risk $40 (4 ticks) on this trade.
  • The trade is a loser. You're down 95$.
  • But wait! The trade was only a loser because of the risk profile. If your stop had been 5 ticks instead of 4, it would have won big. As soon as the market went against you for 4 ticks, it reversed and ran on for 80 ticks.

One of the things that you need to focus on as a newbie trader is the way in which the market moves. Crude loves to move in 8 tick rotations, the ES in 5 tick rotations, and the treasuries in 4 tick rotations. This means that, in very short timeframes, you are putting yourself at the mercy of the market's harmonic rotations. Perhaps you saw the market perfectly, but you entered 1 tick too soon. Your account is small, your overall risk is small, your stop loss is forced to be less than the market's harmonic rotation, so you're losing money.

Lastly, if you are deciding to move into futures because you think that stocks are holding you back, I'd advise caution. It's possible to trade consistently with a small account, but it is unlikely to find success this way.

Cheers, and Merry Christmas!

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