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Profitable traders - could you trade with a tiny account and still make money?
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Profitable traders - could you trade with a tiny account and still make money?

  #1 (permalink)
Elite Member
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Profitable traders - could you trade with a tiny account and still make money?

One of the things one is constantly cautioned of is being properly capitalized.

This has me wondering, those who trade well funded accounts successfully with multiple contracts etc, would they be able to apply those same trading techniques/systems to trading a small account and only one or two contracts?

Obviously trading a small (say 5K) account would limit the ability to scale in/out, so trade management would be affected. However, those of you who are profitable traders - do you think you could trade a with a small account and still be profitable?

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  #3 (permalink)
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I'm not a profitable trader, but I am sure I can be profitable once my environment allow me. Now I cannot trade because 2 small kids. I am just doing demo.

To answer your question:

You just need to trade smaller lot. If you have a 5k accounts, then you cannot day trade GLD/SLV or GC.

Try to trade the SPY instead of the ES. You need staying power. At you need at least two targets. I use 3.

The reason for the multiply targets is to reduce risk.

For example: you trade 2 contracts of ES with 2 points risk, that is a total risk of $200.

If you exit 1 trade at 1point profit, and leave stop untouched, then your risk is now only $50 or 25% or 1/4 of your original risk.

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Absolutely, It really depends on what your happy making. If you can be content with making small gains 5K is plenty. If you have making a thousand a day in your head 5K isn't going to cut it. The same technique could be used but stop placement would get moved sooner and initially you would probably take profit at first target but as account grows the management could as well. I guess it depends on what your trading as well...for instance if your trading forex micro-lots 5K would suffice to trade multiple lots, if your trading the 6E it's a different story.

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Twiddle View Post
One of the things one is constantly cautioned of is being properly capitalized.

This has me wondering, those who trade well funded accounts successfully with multiple contracts etc, would they be able to apply those same trading techniques/systems to trading a small account and only one or two contracts?

Obviously trading a small (say 5K) account would limit the ability to scale in/out, so trade management would be affected. However, those of you who are profitable traders - do you think you could trade a with a small account and still be profitable?

Small Accounts are preys to "Smart Money".

Lolu

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  #6 (permalink)
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lolu View Post
Small Accounts are preys to "Smart Money".

Lolu

Cheers, could you elaborate on that please?

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  #7 (permalink)
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cw30000 View Post
I'm not a profitable trader, but I am sure I can be profitable once my environment allow me. Now I cannot trade because 2 small kids. I am just doing demo.

To answer your question:

You just need to trade smaller lot. If you have a 5k accounts, then you cannot day trade GLD/SLV or GC.

Try to trade the SPY instead of the ES. You need staying power. At you need at least two targets. I use 3.

The reason for the multiply targets is to reduce risk.

For example: you trade 2 contracts of ES with 2 points risk, that is a total risk of $200.

If you exit 1 trade at 1point profit, and leave stop untouched, then your risk is now only $50 or 25% or 1/4 of your original risk.

Well - there's the dilemma...

The powers that be will let you day trade the ES with $500 but they won't let you trade SPY, with considerably less risk unless you have $25k.

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Twiddle View Post
Cheers, could you elaborate on that please?

"Smart Money" build up their net trading positions (Short or Long) with their large investment portfolio and capacity, and which trick the "Dumb Money" (small capital retailers) into fallings preys to their trading position antics 'cos the small capital retailers' Stop Loss setups would be swiftly consumed by the Smart Money's trading positions.

Lolu

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  #9 (permalink)
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Once you are successful you have a pool of money. Whether the money is in your trading account A, trading account B, trading account C, or checking, savings, money market, CD's, cash under the mattress, whatever - you have a pool of money.

It is the "having money" part that makes it easier to trade successful from a psychological standpoint. Whereas if you don't have money, if you are trading with rent money, if you are spending all your savings, if you are digging a hole, then psychologically you are being negatively effected by worrying about all this money stuff during trades.

So the answer is yes, profitable traders can trade tiny accounts because that tiny account is just a sliver of their total trading assets.

Mike

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  #10 (permalink)
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It's all relative, but I'll echo some of the things that have already been covered and add some other aspects.

1) The smaller your account, the greater the burden and overhead. Burden: Encumbrances such as taxes, interest charges, penalties or costs, that cannot be assigned or attributed as direct costs such as overheads.

In trading, the burden overhead becomes the cost of doing business. Those costs are greater for smaller revenues.

In essence, your commissions, slippage, training, data fees, platform fees, internet fees, training and any other overhead you experience.

To a guy trading a $1M account and making 1% a week, the net effect of this burden is much smaller than to a guy trading a $10k account and making 1% a week.

2) Your needs are essentially fixed, your goals and desires are variable (to an extent). That is to say....you reach a certain threshold where all your bills are paid and the rest of the money you earn becomes "disposable." Obviously people's lifestyles change as they increase income (which is the chief cause of bankruptcy by wealthy individuals...but I digress).

The bottom line is that for a guy trading a $10M account and earning 1% weekly, he can live and survive comfortably, even after taxes on his earning. For a guy trading a $10K account earning 1% a week, he's lucky just to pay his overhead and burden (see above) and break even.

3) These added "pressures" pose a significant risk to your trading methodology and management. The $10M account guy can afford to go "flat" for a week or two, or a month, and wait for the right opportunity. The $10k account feels much more pressure to perform constantly.

4) The larger account can naturally take less return (in favor of less risk) in his trading and still make a living. Thus he can reduce his position sizes to the point where they're more or less trivial. This allows him to not only trade with less emotion (a loss or two isn't a big deal), but also allow him to weather bigger storms if need be(as outlined above with larger traders squeezing and pushing retail traders out of their positions.)

5) Similar to #4, but the larger account can afford some "mistakes" or even something that would seem catastrophic to the smaller account holder. If he loses $10k in a day, he still has considerable capital to dust off, climb back on and make another go of it. Everything from bad decisions, network outtages, bad data, terrible slippage trades, etc......the smaller account guy literally takes on huge amounts of 2nd and 3rd order risk everytime he fires up his platform.

The number one commonality among losing traders is undercapitalization. I think that's because traders feel pressured into taking larger risks to get acceptible revenue returns (to meet their lifestyle needs/wants), which turn out to be pretty lofty trading return requirements.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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