Call me a nutterhead, but I have the opinion that having a small account isn't a problem. OK not $1500 account to trade the ES, but say $5000, which by all standards is considered a small account.
IMO, it is the inexperience coupled with an undersized account that will wreck any new trader, not merely the undersized account. Give a seasoned pro a $5000 account and I'm sure he will be able to trade the ES profitably (but it wouldn't be worth his time )
Thus that being said, I'm not sure of the level of expertise our friend budfox is at. He claims he is a newbie , which obviously doesn't bode well for my equation above. That said, everyone has to start somewhere. I guess whatever the PnL is, it is a worthwhile lesson for a budding trader. Busting an account is a rite of passage afterall!
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The following 2 users say Thank You to strikebackfast for this post:
I agree. But you would think that IF Budfox actually made any profit at all at this stage, he would have no issue with posting a screenshot of his success. As they say- "pics, or it didn't happen" And it still doesn't negate the principle that what he is attempting as a newbie with an account of that size is "unadvisable", regardless of any early success.
In case you thought account size didn't matter, I encourage you to rethink that position. Why? 3 words: RISK OF RUIN
Here is an example of what I mean...
Let's say you have a neat day trading system. It trades 2 times a day. Winning trades are $200 after all costs, 50% of the time. When it loses the other 50% of the time, it loses $175 net.
So, per day, on average, you'd make $25 a day. In a year, you'd make $6,300 per contract. If you traded this with a $10K account, always with one contract, you'd make 63% annual return, with somewhere around 15% drawdown. By most measures that is really good.
Now, let's say you take this positive expectancy system, and trade it with a small account, $5K and under. Let's say you get $500 day trading margin, so that is your "ruin" point - if your account drops below $500, you are ruined and you quit trading.
In one year of trading, how likely are you to be ruined (drop below $500, and cease trading)?
Here are the results...
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So the question is: where do you feel comfortable being on this curve? The guy with $1,500 is probably panicking after each loss, since he doesn't have much wiggle room. But the guy with $5,000 - still a small account, only 3.3x the other guy's account - is 20 times less likely to be ruined.
Being underfunded can be disastrous, even with a winning system.
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The following 8 users say Thank You to kevinkdog for this post:
I think this thread as well as all the others started by budfox are going to serve as excellent resources for newbies to learn from going forward. The threads show a clear path so common among new traders:
Looking for the cheapest broker who will let him trade with the smallest possible account size
Getting fixated on trading one of the largest dollar per tick instruments available for no real reason. I guess "that's what all the cool kids are trading". Why waste time learning on micro's?
Asking for advice but then ignoring most of it, some of which was from very experienced traders
Going silent with no further posts after he started trading
Upon finally posting again, defensiveness and still adamant that he will be the 1 newbie trader in a million who will be able to trade the ES on such a small account
Steps not yet reached:
Blowing out the account
Either leaving trading completely, or starting from scratch taking it much slower this time and heeding some of the lessons learnt the 1st time around. Realizing just how difficult this business is and that it not only takes 100% dedication, but will also take a lot more humility, capital, time and experience to have any hope of making it.
As mentioned by others, whether budfox is up or down currently is largely irrelevant given such a short time frame. The risk of ruin coupled with lack of live trading experience is too great to have the odds in his corner.
This is not the first trader to follow this exact same path, and it wont be the last. Learn from it.
You donít trade the markets; you only trade your beliefs about the markets.
- Van K Tharp
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The following 2 users say Thank You to Big Mike for this post:
I'm new to trading and this post is priceless. Actually, you could probably put a value on it if you could add up all the blown accounts that were too small for the instrument and the experience level. I have printed out this post, posted it on the door to my office, and drawn an arrowed line after "Blowing out the account" with the words "Start Here". Thank you for these words of advise.
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