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Strategies for large account sizes
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Strategies for large account sizes

  #1 (permalink)
Elite Member
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Strategies for large account sizes

I'm scratching my head for a while on what to do with my money which I had under professional management for a while but without too much success (<5% return per year). I'm not sure what the average account size is of people reading this forum but my sense is that with ~300k I'm probably in the upper percentile so my question is what kind of advantage a (relatively) large account size has in trading apart from the obvious of providing more protection against a quick blow-up.

I'm drawn to the idea of day trading and have spend the last couple of month educating myself and recently started to back test a few strategies as well as starting to take "test" trades with tiny risk in Forex (1 lot on Eur/USD). Surprisingly I got 13 winners out of 14 trades so far (with a 10 dollar stop loss and 10 dollar profit target) It is crazy to think if I would scale that up to a 2% risk per trade related to my account size (~$6000) I could have made more than 50k in the last two weeks.

Obviously I'm not naive and 14 trades are obviously a much too small sample size but even with a meager 60% success rate I would be looking at a substantial amount of extra income.

So I guess I'm rambling a bit and I'm not really sure what I'm asking here to be honest other than maybe: Is there an inherent "edge" in having a larger account size and if so what is it and how can it be exploited.

Thanks in advance

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  #3 (permalink)
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eric5544 View Post
I'm scratching my head for a while on what to do with my money which I had under professional management for a while but without too much success (<5% return per year). I'm not sure what the average account size is of people reading this forum but my sense is that with ~300k I'm probably in the upper percentile so my question is what kind of advantage a (relatively) large account size has in trading apart from the obvious of providing more protection against a quick blow-up.

I'm drawn to the idea of day trading and have spend the last couple of month educating myself and recently started to back test a few strategies as well as starting to take "test" trades with tiny risk in Forex (1 lot on Eur/USD). Surprisingly I got 13 winners out of 14 trades so far (with a 10 dollar stop loss and 10 dollar profit target) It is crazy to think if I would scale that up to a 2% risk per trade related to my account size (~$6000) I could have made more than 50k in the last two weeks.

Obviously I'm not naive and 14 trades are obviously a much too small sample size but even with a meager 60% success rate I would be looking at a substantial amount of extra income.

So I guess I'm rambling a bit and I'm not really sure what I'm asking here to be honest other than maybe: Is there an inherent "edge" in having a larger account size and if so what is it and how can it be exploited.

Thanks in advance

Please don't jump into daytrading, only to lose a substantial amount of your account. You have far to small of a sample to make any kind of judgement about your approach.

To be honest, your account is not that big, and it offers little edge in itself. You have more than a decent starting point for trading intraday (if that is what you wish to do), and you could have a small long-term portfolio on the side.

300k is also enough to be able to live off swing or position trading, if you're any good.

The biggest advantage you have, is that you have enough cash to not rush into anything, and to be able to give intraday trading a try - without a lot of the psychological stress traders with small accounts often suffer from.
But even 300k can vanish fast, if you don't know what you're doing...

I would advice spending the next months trying to develop a valid approach, and testing it rigorously....

Good luck!

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  #4 (permalink)
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eric5544 View Post
Is there an inherent "edge" in having a larger account size and if so what is it and how can it be exploited.

If you were to trade systematically, a large account size gives you the big advantage of being able to trade multiple, uncorrelated systems at the same time (or trade the same system in multiple markets), which reduces your drawdowns giving you a smoother equity curve. Smaller accounts are more limited in the diversification they can achieve because they don't have the account size/margin required to trade as many different markets/systems at the same time.

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Don't go into daytrading.

Swing trade, with 1 lots. Trade the daily chart with large stops.

My account is >300k USD and trading this way, enabled me to make >20% p.a.

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  #6 (permalink)
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Bit further

I am going to go a bit further than the other people that posted and beg you not to start day trading. This might be one of the biggest mistakes you can make.

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With a large account, you could manipulate certain instruments short term (those with small bid/ask size), trigger other people's stops and earn good profit - leverage it to the max


just kidding

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  #8 (permalink)
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eric5544 View Post

I'm drawn to the idea of day trading and have spend the last couple of month educating myself and recently started to back test a few strategies as well as starting to take "test" trades with tiny risk in Forex (1 lot on Eur/USD). Surprisingly I got 13 winners out of 14 trades so far (with a 10 dollar stop loss and 10 dollar profit target) It is crazy to think if I would scale that up to a 2% risk per trade related to my account size (~$6000) I could have made more than 50k in the last two weeks.

Hi Eric,

You need to think of the other side of the coin. What if you loose 10 trades in row? Thats $54,000 with a 2% of capital risk. The last 7 years of steady gains @ 3% growth can be wiped out in a couple of days. Are you ok with that?

As a beginner, and based on your account size, I would suggest not risking more than $200 to $500 on any one trade until you learn the ropes.This may not give you the extra income you are looking for but it will save you from loosing a half of your account when you hit a bad streak. And trust me you will hit a bad streak. Everyone does.

Food for thought: most professional traders on wall street risk less than 1% of their capital on any one trade. Some risk 0.5% or less. This is how they stay in business for a very long time.

SD

nosce te ipsum

You make your own opportunities in life.
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  #9 (permalink)
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Thanks for all the replies.

What I don't understand is the large number of replies trying to discourage me to pick up day trading. It seems to me that day trading is the best way to limit risk and to accumulate a large enough sample size to determine if a particular strategy has an edge or not. In particular in todays market it seems to me that swing trading or holding positions even longer term is incredibly risky given the current economic climate (the last few days are a good example).

I think that if you have an edge (and with now 14 out of 15 winning trades I think I might at least be on to something) the key is to employ that edge with limited downside risk as often as possible to overcome short term draw-downs.

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eric5544 View Post
Thanks for all the replies.

What I don't understand is the large number of replies trying to discourage me to pick up day trading. It seems to me that day trading is the best way to limit risk and to accumulate a large enough sample size to determine if a particular strategy has an edge or not. In particular in todays market it seems to me that swing trading or holding positions even longer term is incredibly risky given the current economic climate (the last few days are a good example).

I think that if you have an edge (and with now 14 out of 15 winning trades I think I might at least be on to something) the key is to employ that edge with limited downside risk as often as possible to overcome short term draw-downs.


Because chances are you will lose your 300k. Especially if you think you have an edge with only 14 out of 15 winning trades. You might have an edge but 15 trades is not enough. 14 out of 15 sounds fantastic but is way to small of a sample and will most likely not hold up over the long term. I don't think you should stay away from daytrading. But I would take 280k of your 300k and put it where you can't get to it and trade with 20k as you learn. I would also backtest and forward test for the next year before you even attempt to go live. There is a reason 95% fail as traders. Of those that don't fail but become successful many if not most probably had an account blowout along the way. Your account size could be a liability because makes you feel like you are safe. 300k is not a large number for this arena and can be easily lost. Finding an edge is only part of the equation. There is so much more and it is not learned overnight.

If odds hold true you have a 95% chance of losing your 300k. Think of it that way and approach humbly with extreme caution. Don't not pursue it but pursue it the right way.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; August 4th, 2011 at 02:46 PM.
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