I'd like to have a discussion on what the minimum starting funds are for someone to learn to trade?
Your answer doesn't have to be in terms of dollars, it could be in terms of percentages or however you want to express it. But the question is, how much money is enough money, realistically speaking, that someone needs to start with in order to really have a shot at being successful?
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The following user says Thank You to Big Mike for this post:
Sounds good, but I would want to add the following:
The risk $ per trade is obviously dependant on your method and with that the absolute value of the 0.5-1% risk. This basically means that the method and account size have to match, and you cannot on a proven method cut the risk in half and still expect the same (positive) results.
You should also be able to maintain that proper risk management after a serious (eg. 30-50%) drawdown.
Also very important would be the maximum anticipated drawdown of the system traded.
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The following 2 users say Thank You to vvhg for this post:
Is the question "how much to learn how to trade"? Or how much to be successful"?
I think they are two different questions.
The answer to the first on is easy. $500 open a forex account and trade tiny lots and learn what it feels like to lose money and how to deal with proper position sizing, trade management and all the other things you need to learn.
Once that is done and a trader has confidence they can trade larger size, then I say at least $20,000 to make sure they are trading appropriate size for the account and proper risk management so that each trade does not exceed a realistic risk threshold.
At this point, I think the more the better.
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The following 2 users say Thank You to PandaWarrior for this post:
My opinion is much more relevant to Forex than anything else. For futures, the short answer is don't touch them until you can trade profitably with micro/mini forex or CFD Indices if available. If you started with futures then I think you really a need ideally 25k to start with.
I think the key is % risk as has already been mentioned. 1-2% maximum per trade, with no more than 5% in live trades at anyone time. It is the concept of money and risk management that are important, not the actual dollar amount.
Starting with $1000 in a FX micro account is a reasonable . This means risking in a single trade a maximum of 2% which is $20, which in general (depending on pair) would represent about 200 pips of risk. With 2 micro lots this equates to roughly a maximum stop loss of 100 pips. This is a reasonable amount of room for 4 hrly / Daily trades.
If you are successful, with a single trading system for a significant period, 6 months or so, then you could look at working with $10,000. The money management and risk parameters would remain the same, just you would be risking $200 per trade etc.
Of course, before all this, one should demo trade for a long period. How long will depend on the how seriously the trader treats the demo account. If unrealistic risks are taken in demo and you are profitable, it is highly likely that you will blow up your account with real money.
Small steps....Demo....Micro.....Mini......Standard lots. All of which should be traded with the same risk management parameters as described for micro.
The following 3 users say Thank You to Stocktastic for this post:
What is most you are going to risk on any one trade? (has to be 3% or less)
Do you have a strategy that fits the 3% or less rule?
What is your account minimum? This should be calculated on the smallest account size needed not to exceed 3% of capital on any one loss. Using 6e as an example; if your stop is set up to lose a maximum of 200 dollars then the minimum account size needs to be 7000. (7000 * 3% = 210)
How many consecutive losses would it take before you have a margin call or reach the account minimum? This is a important question. A trader should be able to lose >30+ trades in row before your account blows up. For example, my strategy allows me to lose 80 consecutive trades in row
Applying those question to 6E:
What instrument are you trading? 6E
What is the tick value? 12.50
What is most you are going to risk on any one trade? (has to 3% or less or account capital) $200.00
Do you have a strategy that fits the 3% or less rule? Yes
What is the required margin (for futures) 5,400 on MB trading. Used overnight margin.
What is your account minimum? 7000. Using the 3% rule as explained above. (7000 * 3% = 210)
What is the minimum consecutive losses your account can endure before hitting a margin call or account minimum is hit ?(should be >=30) 50
Minimum account value = (maximum loss per trade * minimum consecutive losses (>=30)) + Margin or Account Minimum (whichever is larger)
(200 * 50) + 7000
Minimum account value: 17,000
edit: I did not include commission or slippage in the calculation. This should be added to your maximum loss per trade.
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Last edited by Silver Dragon; December 9th, 2011 at 05:36 PM.
The following 14 users say Thank You to Silver Dragon for this post: