Keep in mind that this info/data/link was found on the interweb so i highly reccommend doing your own research.
I have read the adage that 90% of traders are not profitable. It also stated on this forum and many other places that trading with a small account is not prudent and usally ends in failure. I can attest to the latter as my trading experience thus far has been with a small account trading equity futures (minis) and proper risk management is diffulcult to adhere to when bankroll is limited. Objective perspectives are diffulcult to keep in tact when a few bad trades can cause max pain. Using proper risk management forces shallow stop placement and I found my weak hand getting squeezed (stops getting run over) even when ultimatley, I had taken a posistion in the winning direction. While in SIM it was easy to get back in once the pullback reverted to the drift, but in real time, with skin in the game, for me, it was much more diffulcult to pull the trigger. In retrospect since I began with a small account i should have started with FOREX as one can trade micro lots and mini lots which pay 10 cents and a dollar a pip. This would allow one to set stops deeper and practice dominant techniques such as scaling in and scaling out, letting winners run, and giving swing trades room to breathe. While the payout is not as rich, the drawdown is not as crippling as it would be trading something that took 10 to 12 dollars a pip or tick. In retrospect I would have gotten many more reps and more experience from trading micros and mini's in FOREX. My reservations with FOREX however, is there is no central regulated exchange and No volume data. One could trade micro individual currencies through the CME but the volume on these instruments is fair to say not 'not so much'. I have not traded these instruments, primarily the M6E which I believe is the mini or micro EURO through the CME and the most liquid of the CME micros but based on the volume which I have watched I would think slippage would prevail and to counter fee's one would be limited to attempting larger swings. SO in short I should have started with FOREX until i built my account to proper proportions before diving in to the ES, YM, and NQ. I was drawn in by the fallacy of looking at moves that had already occured and thinkin how easy it would have been to "get that".
Anyway this data (the link below) would lead one to believe that small accounts are statistically more unsuccessful than larger accounts and also that FOREX has a higher winning percentage rate than Equity futures if indeed equities only have a 10% success rate amongst retail traders and the stats in this data are accurate. (can't believe everything you read on the internet)
If you are deadset on trading mini's, I highly reccomend that your account is 10,000 USD +, and that it is true risk capital.
I also suggest becoming an elite member here as the for the price the info on this forum is invaluable. Watch the webinars here and definitley follow and scour through in paticulary the ESPOONALYSIS thread by TIGER TRADER and take to heart what he and his band of experiened contributors post. There are many other great threads here, BIG MIKE's daytrading advice is pragmatic and realistic and NQnalysis is good for seeing how someone technically analyzes their instrument. Unmentioned are the many other great threads offered. I for one really like a good book as well! but one that explains the inner workings. i am skeptical of holy grail books.
The books and info of real value will teach you how to understand , and develop over time, your very own winning edge.
"Napoleans severest comment on his beaten enemies - that they "saw to many things at once""- Hart
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Thank you for providing those explanations. It provides some background info and perhaps the following may of use to you - you can read Darvas, William O'Neil (How to Make Money in Stocks) and Mark Minervini (How to Trade like a Stock Market Wizard) if you wish. They all use methods that are roughly the same. William O'Neil takes Darvas's work quite a bit further and Mark Minervini chose to focus on certain patterns. Darvas and O'Neil trade longer term while Minervini trades shorter term, although his shorter term is longer than your average three-week swing trade. However, the similarities between their approaches are striking. Dan Zanger is also a huge fan of O'Neil and his results were extraordinary.
If you wish to incorporate their methods, it is quite easy to do on weekends. I do all of my analysis over weekends and then add stop-limit orders (GTC) to enter new positions. I use stop-limit orders since I don't want a market order on a stock that gaps up more than 2% past its breakout point. Downside to that is that I can miss some nice trades, but at least my risk is contained. You can use OTO orders that will also place a stop-loss in the market. I don't do that, I generally just place my stops at the close of the day. If I don't chase the stocks with big gaps, this generally works quite well.
The website Stock Investment Research & Education - Business & Financial News - IBD - Investors.com is William O'Neil's site and it provides some nice data on stocks. I find that it does not screen very well, but you can get the IBD 50 and charts of those stocks. If you buy the IBD 50 stocks that are setting up, cut your losses short and generally let the winners run, I think you can do quite well. The Big Picture column also provides you with info of when to avoid the market and when to reduce exposure. O'Neil also offers a daily newspaper called Investors Business Daily (IBD). I get the electronic copy (eIBD) and it provides some nice screens like the IBD 50, IBD 85/85, Sector Leaders and Stock Spotlight. My only gripe is that sometimes stocks are added to these lists after they break out and thus I don't buy them. However, they do provide good annotations and will tell you when a stock is setting up.
My main tool though is MarketSmith | Stock Research & Investment Tools for Stock Market Analysis which is also an O'Neil product. It is more expensive but provides the best screening tool by far. I have set up a custom screen which limits my stocks to the top 100 or so. This number can change a bit during bull and bear markets but it is manageable. Marketsmith also offers their Growth 250 which does a lot of the work for you, as well as, Pattern Recognition which identifies CANSLIM bases. Thus, it can do a lot of the work for you.
I then select the top 5 or so stocks that are 2-3% under their breakout points and place stop-limit orders that scale into the position. I find that I like that approach, but you can also buy the full position outright. Both methods have pros and cons.
O'Neil provides his methods for selling winning stocks in his book, and here you have some leeway. You could sell on strength at certain points, i.e. once a stock hits 25% past the breakout point, or you could trail a stop loss which then gets adjusted on a weekly basis. Taking profits can lead to a smoother equity curve, but I tend to hold for larger gains. One of my weaknesses is selling stocks that are negative before they hit their stop. A lot of those recover and move on and then I sit with losses, try to trade again in other names, sell them before their stops and it just becomes a bad cycle. I find it easier to hold stocks that are positive, so my exit strategy is based on countering one of my weaknesses.
These methods had a bad year in 2012 where the market struggled to get going, but did well in 2013, and not so well in 2014 due to the sector rotation that is still happening. However, if you scale back when things are not going that well you can limit the damage and then in good years more than make up for it. If you catch a big multi-year winner (see BIDU which was in the IBD 50 in 2009) with 25% to 50% of your account, you account would probably grow much more than the market averages.
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The link does provide a nice summary of Darvas's trading. However, it does not offer any of the insights Darvas has in his book. He literally guides you through his learning process and that is extremely valuable. How and why he did what he did is explained very well in his book.
I would get all of the books I mentioned and read them a couple of times. I have read O'Neil's book more than 20 times, Darvas at least 10 times and Minervini twice. Reminiscences of a Stock Operator should also be required reading - it details the trading of Jesse Livermore who was once regarded as the man who caused the 1929 crash. The 1st 2 Market Wizards books are also very good, the 3rd has some good interviews (Minervini, Bender and Cook) but more bad ones. I would get all 3. I found the last Market Wizards book to be not as good as the others.
Spending the cash to buy these books may be the best investment you will ever make. You will get insights from traders who have actually made it (although some have blown their accounts subsequently). Several of the Market Wizards did not trade stocks, but their experience is well worth noting. However, for all reasons mentioned before, if I were in your shoes, I would stick to stocks.
I found that I had exactly the same problems you describe above while I was trading a small forex account. I don't think that trading different markets will improve results. For instance, if you lost money trading futures, trading forex will just slow down the losing process. That was just my experience. Ultimately, I needed to completely change my approach to trading.
I also saw a lot of traders blow up on www.myfxbook.com. A trader can remove accounts at any time, and if all the blown accounts would still be published, I would guess 95% of all of the accounts got blown up. The worst traders were those who won the competitions. I don't think a single trader ever won more than one, and I would be very surprised if someone who won, did well in a second competition.
Trading stocks as described above is possible with a small account, as long as you don't expect to withdraw living expenses from there and keep trading activity to the bare minimum. I really think that most of the pitfalls of trading can be avoided by just applying those methods correctly. There is just something to keep in mind though - someone once told me - If the market is right, your method is sound, and you are not making money then the problem lies with you. Most people who fail refuse to acknowledge this fact and therefore never become successful traders.
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