This is comment is old, but the issues are timeless.
Fixation with undercapitalization is one of the most pervasive and disabling myths about trading, specifically when referring to futures markets. $5,000 is easily enough funding to not only trade with successfully, but to build wealth from, for an advanced trader. Yes, easily. The point is really this: You can pi$$ away $100,000 just as readily as $5,000; perhaps easier. You must know what you are doing. It won't matter at all what your account size is, if you don't sufficiently know what it is that you are doing.
Regarding the 2%/month comment... If you are referring to CTAs swinging billion dollar bats, sure, but what we are concerned with here, are individual traders with comparatively small accounts. Let's call such traders micro traders. Micro traders, by virtue of their account size, are afforded nimbleness, and also cannot, at any serious level, affect the market in which they trade. The micro trader is not bound by liquidity concerns in the same way CTAs are, and a micro trader's gains are not softened by their impact on their market.
The takeaways are these:
1) You need an account that is just a few times larger than the margin requirement for your market. The exact amount is dictated by your trading style, obviously.
2) You need to be aware of your market offers in ticks. Hint: It's much greater than the ATR or ADR values. For example, the NQ, of which requires only $500 in intraday margin (sometimes less), offered approximately 4,200 ticks of potential profit yesterday, Friday, August 5th, 2011. How much money is that? It's roughly $21,000 per contract. Of course nobody expects to take all or even most of that potential, but then, if astute, one should discern quickly that they don't need to.
3) Micro traders need to set a course to take a percentage of that offer, which incidentally, if modest, will still net them substantially more than the 2%/month figure. Revisiting NQ from yesterday, taking just 1% of the ticks offered, or ~ 42 ticks, would net a micro trader ~ $840 before costs. Such a return would equate to a ~ 68% return on margin. That's one trading day. Of course, most micro traders do not calculate their returns on required margin, so let's calibrate to accommodate. Assuming the micro trader allots 4x the necessary margin intraday, the ROI is still an impressive ~ 17%, before costs. Sounds crazy? It isn't. I won't assert specifically what is possible, since it might stir the nest, but a micro trader can take much more than 1% of their market's intraday offer, all without disproportionally high risk.
4) Drawdowns are not necessary. Of course there will be losses and washes intraday, but with a logical methodology, interday, and certainly interweek losses, are unnecessary. If you are experiencing them, your method isn't, or you simply are not good enough.
This leads me back to my emerging futures.io (formerly BMT) theme: Forget the conventional wisdom. Think for yourselves. Save the time.
Last edited by zer0; August 6th, 2011 at 04:16 PM.
Reason: grammar error
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I would even argue that being undercapitalized should be seen as an advantage as a beginning trader. Consider the following:
- if you have a large account you risk a far greater sum during the learning curve.
- a small account shows you very quickly the negative effects the lack of emotional self-control can have on your trading; and how real money on the line can quickly scuttle your emotional self-control.
- a small account (should) forces you to spend a far longer time in SIM before risking capital - a process I feel undervalued in the trading community. I would give any new trader the advice to spend at least 6 months and more like a year trading in SIM until (as you say) they forget how to lose money.
- not being able to afford education will force one to rely on oneself to develop an understanding of the markets and an approach to trading.
...to name a few.
Seek freedom and become captive of your desires. Seek discipline and find your liberty. - Frank Herbert
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As mentioned in my intro earlier, I am now into Year 14 of trading for a living. Why do I hang around in forums? I don't. I pop in and skim briskly through a handful of posts every week or two, if and when I feel like doing so.
Because despite having 'made it' I am still always learning a new point or two from others, and never too smug to do so. And because personal case histories in forums of this type were a very significant factor in providing me with self belief in my own early years. If I can return the favour by pointing out that success is achievable, I am happy to do so. I have nothing to sell or promote.
If a few people scoff at what I write or dismiss it as fantasy, so be it. I am not discouraged. It's water off a duck's back.
In forums such as this, people normally write under the guise of a username - so fantasising is perfectly possible. But over the years I have met with several forum traders who I now count as friends out there in the real world.We know each other well enough to exchange details of how we trade. So yes, Skyfly, we do exist - but you are of course perfectly entitled to disbelieve if you want - and I take no offence at you doing so.
Last edited by Breconeer; August 6th, 2011 at 05:55 PM.
Reason: syntax error corrected
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I guess I would describe my style as opportunistic. "Get in, grab it, get out; don't still be there when the roof falls in."
Being OUT of the market, in cash, is the safest place to be - so I don't hang onto a non-performing position with fingers crossed waiting and hoping for a position to come good.
I sift quickly through company charts, looking for any that show a convincing and ongoing uptrend or downtrend, and I use spreadbets to take a position in them, in the direction they are going. I find ongoing downward patterns far more reliable than upward ones, so most of my best gains come from downbets.
I don't try capturing the entire upward or downward run, nor do I try getting in before a run starts. I am happy to capture the middle third of an established run. If momentum slows and the price chart begins to get twitchy, I get out and go find something else.
I maintain a watchlist for what appear to be the best upward contenders and another for downward ones. Some of them are best traded when the market as a whole is moving strongly the same way - such as now for downbets. I have around thirty bets in place this week, of which about 27 are downbets. In another week or month that mix might reverse or I might temporarily hold no positions at all with my portfolio 100% in cash ready for future opportunities, or because I want a few days/weeks holiday. I hold most positions for weeks, some for months, none for a year, some for a few days or less than a day, some for a few hours, and occasionally for just a few minutes. The most positions I hold at a time is 30-35, more often it's around a dozen, sometimes just 2 or 3, sometimes none.
At 7am each day (in my Nov-Dec-Jan-Feb period) and on occasional mornings the rest of the year, I skim through the business news headlines, looking for whatever might impact the stock price of a particular company or sector, and I might aggressively trade something in the first hour of that trading day and then log off for the day. I get more satisfaction from closing and banking the gain (or quickly banking the smallest possible loss on those i get wrong) and walking away, than from constantly watching screens or constantly fretting over what my positions are doing. The positions I leave open when I'm not watching are ones in which my stake has been calculated to tolerate a worst-case scenario; and because I use spreadbets I can utilise the facilty known as a trailing stoploss - in which my designated safety net travels with the stock price when moving in my favour, but stays put and shuts out that position if/when the price turns against me. I appreciate that some countries do not allow spreadbets on stocks and indices, but here in the UK they are quite widely used in preference to actually buying stock.
I don't employ fancy indicators or sophisticated software - I merely climb aboard what's moving and jump off when it isn't going my way. I don't study company accounts attempting to calculate value - I just play the price movement and keep in touch with related news that might affect it.
Last edited by Breconeer; August 7th, 2011 at 04:59 AM.
Reason: spelling error corrected
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As I understand it, Uncle Sam regards gambling on stockmarkets as the work of the devil, and US citizens are not trusted to go there. Spreadbetting is classed as gambling. Conventional trading of stocks is not classed as gambling - despite the fact that it involves studying form, reaching a judgment on likely performance, and backing that judgment with money - which to me seems much the same.
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thank you, Thank You, THANK YOU!! Finally, a trader who tells it like is.
I would place a special emphasis on number 4: "Drawdowns are not necessary . . . If you are experiencing them, your method isn't, or you simply are not good enough."
It took me +3 years to realize who I was as a trader and to find the method right for me and become consistently profitable - with a small account!
I've met and spoken with many both successful and failed or near failed traders. It drives me absolutely crazy when many failed traders blame everything and everybody but the person in the mirror. NOTE - don't take the aforementioned comment personally, if you do then perhaps you should look in the mirror.
The problem in this business, yes it is a business people, is there is some underlying belief you put $2500 in a futures account having never traded before and you become a millionaire overnight. This, I believe, is propagated by the less than ethical vendors selling wares in classes and indicators who convey this is an easy business. Does it happen yes, but rarely. It takes time. For me +3 years for me because I refused to quit. I was helping a trader who had a small account and when he wasn't making $30K a month after three months of trading he got out of the trading business. All too common. 'Nuff said.
Thanks again zer0
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Perhaps you need to go to Elite Trader forums and wallow in your frustration with them. ET is nothing more than an attack forum. I sure don't hang around forums. Let's see I've had about 25 posts since mid 2010 you've had over 100. So who hangs around forums? I intermittently come to futures.io (formerly BMT) to look for subjects and or advice that may interest me at the time. This thread I am a part of so when I get notice from futures.io (formerly BMT) that new posts are awaiting I MAY go look, sometimes not. The fact is sky, there are many successful retail traders but don't boast about it. I need not prove anything to you. If I worked at a "real" job (as if trading isn't) and made $100K would I need to prove it to you? Would you even ask? Temper your pessimism, find a method that works for you and go be successful. I'm sure you can be if you truly work at it.
Note posted at 10:40 CST SUNDAY 8/7/11 ---- I don't go to forums during trading hours