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I don't think a 10k trading account is unlikely to succeed. I think success depends on how good of an overall trading methodology you have. If you a bad method, 10k is just as likely to fail as 100K
Thanks Big Mike, solved many questions with this, but have another, lets think OK I open my account with $30K, $25K for the margin and the other $5K to play with, once doing this, do I have any transaction limits?
I understand that I can Buy-Sell or Sell-Buy as many times I need to get profit or maybe just to cover break even, isn't it??
I received an email from a trader, who shall remain anonymous, mentioning that they were fairly new to trading and had already experienced blowing up an account. I sent back an email that included some comments that I thought might be useful here;
Trading futures vs. trading stocks is similar to playing Jai Alai vs. playing badminton. If you have a small account , and are not yet a well-skilled trader, your chances are slim to none of making it long term. That is not suggesting that you can't be a succesful trader, or that there is not a lot of money that can be made. And the biggest rewards out there may be in the futures market.
If you want to improve your chances;
1) Study. Buy some books on technical analysis. Books like "Market Wizards" or "Millionaire Traders" are better to avoid as a beginning trader. They might suggest that trading is easy. Books like "Getting Started in Chart Patterns" by Thomas Bulkowski, or "High Probability Trading Strategies" by Robert Miner will give you a much better understanding. If you can't stand reading technical studies and prefer to search for a quick fix, that might be telling you something.
2) Practice. Don't be in a rush to get into to live trading. Trading sim is, in my mind, the only way to become a succesful trader. Not that trading live is not also a requirement, but not as the majority of your time, particularly when you are learning. If you had to compete against a world champion fighter, would you be better off jumping in the ring tomorrow morning, or training for it for 5 years? Would you be better fighting every day of the week, or should you keep going back to training more than fighting?
3) Protect Capital. To trade correctly, you need sufficient capital. Trading is a game of survival, and that does not allow for having to risk 10% or more of your account every time you take a trade. You will lose. If you jump in before you know you are ready, you're most likely going to have some major setbacks. Save your money, add to it over time, until you have a decent sized account. While you are doing that, spend the time to become a good trader. That way, by the time you are really ready to trade you will have the money to do so.
Trading is the biggest business in the world, and it attracts the best of the best. The only way one trader can make money is another trader has to lose money. Are you ready to go up against the best in the world?
Trading According to Plan:
Once you have developed and designed your strategy and trade plan you will have a working outline for your actions in the market. Your primary obligation in this first stage of your trading activity is to trade your strategy(s) and follow your trading plan. Many things encompass the successful application of your trading plan. At the most basic level is your obligation to trade the strategy as designed. Once all criteria of your strategy have been met your entry will show up. Your obligation is to pull the trigger without hesitation. There is no need to worry. You already spent a lot of time and effort getting to this point, so why continue to worry. This causes doubt when there should not be any. (Doubt comes later and we will talk about this in another essay). But in this stage there should not be any. Included in your strategy should be not only your entry, but your exits. This will free you up to exercise the next stage of the trade with the most consistent action and greatest potential for sustained success. If the statistical expectation of profit is low (your strategy may not be 75%), then stage two is crucial as it will be the deciding factor in most cases as to whether you will be able to continue to trade profitably in the long run. I would go further and say that even though you may have a high statistical expectation of profit from your strategy, with poor stage two action you will not be able to sustain a profitable outcome and so still fail in the long run. The main reason is that no strategy works the same all the time and there will always be draw-down periods. Controlling loss comes in stage two after you have entered the trade.
The Money Management:
Success in this stage of your trading requires your trading according to what is happening not what you think may happen. You actually already covered the part about what you think may happen in stage one. The strategy was designed according to a certain expected outcome so further thinking about what may happen is pointless. Either the strategy will fulfill its statistical probability or not. However, if you watch what is happening and react accordingly you will be in the perfect position to do what stage two requires. In this stage success comes from controlling loss. The strategy will make you money, but only you can control loss. The idea in this stage is to first take full responsibility and complete charge of your losses, and second to decide to trade for money. The concept of trading for money can be put in very simply terms:
target is better than full stop out
two ticks is better than no ticks
break-even better than scratch
scratch better than loss
small loss better than full stop out
This is not so easy a thing to do. If it were then we would all be rolling in profits. This is probably the most difficult aspect of trading for many traders to grasp no matter how long they have been trading. It is the successful application of stage two that tends to mark the turning point in most traders careers. Until stage two is completely understood, sustained profitability is a myth. Most likely your trading will be a roller coaster ride with the final destination the same starting point.
The Reaction:
This is the stage where you really find out about your trading prowess and skills. Your reaction will be based on the outcome of your trading. Profitable outcome tends to lead to positive reaction. Loss tends to lead to negative reaction. There is another criteria for your reactions that can help turn loss events into positive reaction which will help you to continue to pull the trigger when you should be. If you followed your strategy and you followed your trade plan and you used sound money management that reduced the risk to a smaller loss than a full stop out, especially when the trade may have come within a few ticks of your target then you can say you traded well. However, if price came to within a few ticks of your target yet you allowed it to turn into a loser, then you failed to trade for money but succeeded in trading the theory of your statistical outcome. So, this is one of those crucial points where failing traders and profitable traders part ways.
The reality of your real cash contract in the market is a different one than the non-reality of back-testing, market replay, theory, statistical past, and the market energy to the left of the hard right edge of your chart. You simply do not exist in the market until you place a real cash trade. At its basic level, you cannot win without a counterpart loss. The equilibrium of the market is tipped by your single contract. It is tipped in the volume, it is tipped in the tick count, it is tipped by your presence. For every contract you want to make a profit on, a contract must yield to your desire. It is a great deception to believe and think otherwise. If you wonder why most strategy's work great in sim, back-test phenomenally, replay perfectly, yet fail when you employ that same strategy in the live market with your money then here it is. If you trade 1 contract then you are not asking for the market to supply more than 1 loser. If you trade 5 contract lots, then think of what you are asking of the market! Either a 5 lot trader must step up to lose or a combination of lot traders, or 5 new single losers must be created. Most 5 lot traders did not get to this level by losing. Do you think you have what it takes to take them out? To my mind, finding 5 more single losers is a lot easier. So, therefore a steady flow of new traders must be created, and I will leave it to your imagination as to how that gets done.
The more preparation you do before entering the market, the better your chances of going through these stages in successful fashion. Rush into the market and you are most likely supplying what someone else needs. In the beginning going through these stages carefully and with steadily growing confidence will enable you to absorb and apply what you are learning. Trading confidence comes from successful trading experience. Successful experience is gained from profitable trading. Profitable trading comes from realistic expectation. Aha! Realistic Expectation will be covered in another essay.
I have been sim trading futures and have been profitable in simulation for several months.
To break myself into trading with real money I have been using the following etfs:
QQQ 59.86 (todays close) Power Shares QQQ Trust
IWM 78.25 ishares Russell 2000
USO 37.78 United States Oil Fund
C 29.64 Citigroup
I trade the above putting on a 100 share layer and adding up to another layer if it goes againt me. The above are reasonably priced, thus requiring modest margin requirements. They also all have good volatility.
After I can trade the above with even emotions, I will start live trading the following futures.
/nq Nasdaq 100 index futures - $5 per tick
/ym Mini Dow Jones Industrial Futures - $5 per tick
/dx US Index dollar futures $10 per tick
Since I am most comfortable with trading long, I will consider trading the Dollar on market down days, since they are inversely correlated. I can also trade FAZ long on down days. FAZ is the Bear ETF.
Even though you have a long bias, trading an instrument of higher volume, aka higher liquidity, can have a lot of advantages. If you want to trade the DX, you may want to consider shorting the 6E instead. Currencies move up because other currencies move down. The DX is weighed against 6 currencies, but the Euro dominates that equation and the 6E has almost 20 times the daily trading volume of the DX. That could mean a trade exit advantage, more reliable indicators, less "whippy" volatile movements, more accurate chart analysis (less gaps, more accurate highs and lows) etc.
If it helps, reverse your "up" chart color with your "down" color (for example, up bars red and down bars green). Or, turn you monitor upside down lol! I traded for a week with a monitor on it's side, and that was very educational to understand movement differently.
