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
The following user says Thank You to eric5544 for this post:
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....
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.
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.
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
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.
The following user says Thank You to Silver Dragon for this post:
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."
I dont think we are trying to discourage you from trading but rather encourage you to learn what you are doing before risking large amounts of money.
You have not experienced the emotional torture of losing a large amount of money. Right now it easy because you have won a large number of trades with a demo account or risking a small amount of money in a live account. The feelings are much different when you have lost 14 of 16 trades. Fear and doubt revenge trading come into play which causes a person to make stupid decisions and lose even more money.
There is no edge in having a large account size and 300k is not a large account anyway. An actual large amount of capital loses edge from liquidity and market impact concerns.
Not being under capitalized is not an edge, it is what you should be doing. Playing a sport without a broken bone is not an edge, you shouldn't be playing with a broken bone to start with.
I don't understand the mentality of discouraging people from trading, it strikes me as naivety on our own possibility of blowing up.
Most people posting here won't be trading in 5 years either. That is just the way it goes, may as well take your shot.
I agree that Psychology is in fact key. As an example during the one "bad" trade out of my 15 trades so far I did not respect my mental stop but instead averaged down. The result was that I eventually broke even on this trade but I still consider it a loss as I broke all my trading rules.
My current plan is to keep trading with small amounts of real money but slowly increase the amount I put on the line over the next few months. That does mean that most of my money will just sit in my bank account collecting dust but I don't feel too bad about this in todays market.
The following user says Thank You to eric5544 for this post:
It doesn't matter if you are day trade or swing, just make sure you trade the bare MINIMUM contract(s) on your plan until you really know what you are doing.
When I started with the market in 2003, I was up 50% in less than 3 months, only gave back all in less than 1 months. Since then I have been bleeding money every year. It only until recently I finally think I "get" it and found that I was wrong all these time by avoiding day trade.
I agree with "taking your shot" rather sooner than later. I have spend the last 6 months reading book and forums, looking at charts and backtesting strategies. It is different when you are actually starting to trade and the time spend in every trade feels 10x as valuable as the time purely researching even if the risk is limited.
The following user says Thank You to eric5544 for this post:
There is little edge in money if you don't know what to do with it. But having more certainly can open up more opportunities... You can trade various strategies on uncorrelated instruments for a smoother equity curve, e.g. You can launch a HFT/Market Making firm... Not that this is relevant to this situation...
But as you mention, you can easily have too much capital and it will result in diminished returns. I also agree with your negative sentiment towards the naysayers; how are they to know if this is a potential star trader or not...
It saddens me to see a lot of incredibly naive people throw away their hard-earned cash on worthless systems, though...
I really like the idea of trading in uncorrelated instruments instead of putting all eggs into one basket. I think this is something I wil explore more going forward.
Apart from that I wonder if very short term scalping based on price action becomes more viable when putting more money on the table like going for 1 or 2 pips per trade but putting a couple of hundred lots on the line on every trade. Of course a strategy like this needs to be heavily tested and when trading a couple of million dollars liquidity might become an issue.
The following user says Thank You to eric5544 for this post:
I always think this is nonsense but my very first trade was buying physical silver for 6 bucks an oz. I sold out for over 100% profit but it is interesting to consider that I must view the markets different than someone who started in something else with silver at $38.84 spot as I type.
I'm more than glad I didn't listen to people who told me to be careful..But then again, I can't imagine anyone lasting if you listen to anyone else in this game.
My default is that everyone is a fool besides me. From my years of study of great traders is the only mindset that works.
On a more technical side there is minority game theory mathematics to back up such ideas.
I'm not sure if this is what you are getting at but whenever I hear this "95% of all traders fail" line than I view this as encouragement given the fact that in my experience beating the vast majority of people in anything is really not that hard with a bit of effort (I apologize if this comes across as arrogant).
At this point I side with the swindlers though. IMO if the retail trading community stood naked, there would be no retail trading community because it is 90% swindlers.
I will always love gold/silver trading, would love to enter that business and make a valid expensive news letter but it is 99.9% swindlers and will never improve.
The swindlers and fools though are what make a community, I have no interest in just talking to EV+ traders. If that was even possible I would feel obliged to feed them false information as part of the game.
Psychology wise to me there is one thing to remember. If you didn't start young, you can not become a grand master in chess no matter what. Trading is actually much easier than that. You just have to bust your ass because no one really starts learning to trade as a little kid like in chess.
I started with a 300K account and ended up with about 85K at the end of the day!
I tried trade following systems like Zulutrade and lost about 85K on that site. Zulutrade is criminals, FOREX brokers are criminals so 1+1 criminals = double your losses... "Oh, the trade didn't close because of your broker" "What, they said that, well, they didn't send it correctly" etc.. etc...
I lost about 25K trying to time the bottom, getting scared etc..
I lost the rest martingale (thinking I had discovered the secret).
300K can vanish in the blink of an eye... The # of 0's doesn't matter and in my opinion you are better served limiting your account to say 10K for 2 years and seeing if you can grow it into 50K etc..
This is a long term journey, if you realize that and are not greedy (like I was) then you will keep your money. We have no incentive to tell you not to do it, but do it right.
It would suck to read a post from you in 6 months after losing 85K and saying, "How do you think I can get this back etc.." then another 6 months later, 150K down.... Ouch..
Something you may not understand that I didn't and that most people won't share with you right off the bat is that a system may work for a good while. You will make 15% a month with little sweat... You will think you are a freakin genius! Then you will add to your account and kablooom. You are down 20% after 2 weeks trading (real story for me) which has wiped out 10x what you made the previous 6 months testing (walking forward) live.
Then, the velocity changes, the instrument picks up a different characteristic that you didn't notice (because you are new to trading) and all that jazz...
Once you get a year or two of good 'philosophical' education along with some time just watching the charts, then start live trading but small. Then, focus more and more on psychology and you will become better.
Take this with a grain of salt from someone who has been on the road for a little over 2 years (techinical trading) and is not profitable live. Good luck and I truly hope you aren't like me where you have to lose money to learn a lesson.
Gosh, remind me not to do business with you. haha...
I am going to teach my kids to start trading at an early age. I will probably teach them some basic programming focusing towards C++/C# and will let them watch the charts for homework. I will then do their schoolwork for them. haha....
The following user says Thank You to bluemele for this post:
