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Trading small (sub $10,000) accounts
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Trading small (sub $10,000) accounts

  #1 (permalink)
Elite Member
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Futures Experience: Beginner
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Trading small (sub $10,000) accounts

Hi all,

I recently started reading "High probability trading" by Marcel Link. So far the book seems good.

The book places a lot of emphasis on not being under capitalized and implies trading with less than say 25k to 50k would be very difficult.

I have seen this echoed here by a lot of people, and it is clearly true.

However, having said that I wonder the following things:

a) Can it be a worthwhile exercise trading a small account when you are a beginner, just learning the ropes, using small positions sizes and managing risk fiercely.

b) Through selective trading and good risk management is it possible to be profitable with a small account with reasonable (I.E small) profit goals?

To expand on b; an example might be only trading with the trend, on a pullback when the price action has started resuming in the trend direction. Stop placed just below the lowest pullback point in order to kill the position if it turns out to be a reversal. This would allow a tight stop while giving a decent probability of a gain.

I realize this is a simplified example, but I am sure you get what I mean.

Being super selective in which trades you take may allow you to have the tight stops you require while still giving you the chance for profit.

I am very much a beginner at this, have been sim trading for about 3 months now, and plan on going live next month with a 5 - 10k account (part time after work). I expect to lose most of this, or at least be extremely happy if I can break even in a year. But I may hold off if the experienced among you truly beleive this is a bad idea.

Any thoughts appreciated.

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  #2 (permalink)
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  #3 (permalink)
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If you need the money or can't afford to lose it all without any remorse whatsoever, it's a bad idea.

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  #4 (permalink)
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Zoethecus View Post
If you need the money or can't afford to lose it all without any remorse whatsoever, it's a bad idea.

While I obviously would not like to lose it, I am prepared to see it is "tuition", and It won't affect me too badly financially.

I just feel as if I need to trade live as the results I am getting in sim feel unrealistic. I need to learn how it truly affects your psychology, how live trades fill, what my latency from Oz is like and how I need to factor that into my future trading etc.

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  #5 (permalink)
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Twiddle View Post
While I obviously would not like to lose it, I am prepared to see it is "tuition", and It won't affect me too badly financially.

I just feel as if I need to trade live as the results I am getting in sim feel unrealistic. I need to learn how it truly affects your psychology, how live trades fill, what my latency from Oz is like and how I need to factor that into my future trading etc.

Your tuition, if you care to continue after losing the initial stake, will be in mutliples of $10K.

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  #6 (permalink)
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Zoethecus View Post
Your tuition, if you care to continue after losing the initial stake, will be in mutliples of $10K.

So you suggest starting with a large account even if one is a complete beginner?

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  #7 (permalink)
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FWIW I started with a 10K account. Year 1, before commish, I was breakeven which I considered a victory. After commish, it was an $8K account. Call it tuition or whatever, but my return was -20%.

From Link, to Elder, to Chan, etc etc all suggest a minimum $25K. Elder describes it as flying a plane. The lower your capital to start with, the closer you are flying to the trees. Lose a bit of altitude (drawdown) and you are toast.

This is purely opinion here but if you are trading futures with 8 tick stops intraday you are probably trading noise and unless you have a quantifiable edge you won't last long. If you are doing equities you need a minimum $25K in your account if you do more than 3 R/T per week.

Perhaps equities interday (ie no day trades) is worth looking at? Do some math first. Define your risk, apply it against the basket of instruments you are considering, and work out what is the minimum capital required to trade each instrument.

If you really do have a plan, it will tell you how much your minimum capital per trade is. If you don't have a plan and start with something simple like "3 times overnight margin plus 20% per contract" you will get an idea of what the capital requirements are.

FYI Link's second book is Trading Without Gambling and is a decent follow up to his first.

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  #8 (permalink)
Market Wizard
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Twiddle View Post
Hi all,

I recently started reading "High probability trading" by Marcel Link. So far the book seems good.

The book places a lot of emphasis on not being under capitalized and implies trading with less than say 25k to 50k would be very difficult.

I have seen this echoed here by a lot of people, and it is clearly true.

However, having said that I wonder the following things:

a) Can it be a worthwhile exercise trading a small account when you are a beginner, just learning the ropes, using small positions sizes and managing risk fiercely.

b) Through selective trading and good risk management is it possible to be profitable with a small account with reasonable (I.E small) profit goals?

To expand on b; an example might be only trading with the trend, on a pullback when the price action has started resuming in the trend direction. Stop placed just below the lowest pullback point in order to kill the position if it turns out to be a reversal. This would allow a tight stop while giving a decent probability of a gain.

I realize this is a simplified example, but I am sure you get what I mean.

Being super selective in which trades you take may allow you to have the tight stops you require while still giving you the chance for profit.

I am very much a beginner at this, have been sim trading for about 3 months now, and plan on going live next month with a 5 - 10k account (part time after work). I expect to lose most of this, or at least be extremely happy if I can break even in a year. But I may hold off if the experienced among you truly beleive this is a bad idea.

Any thoughts appreciated.

I have absolutely no idea where people get off telling you you can't trade profitably unless you have $25K - $50K. HorseFeathers! What do they expect you to do - trade 100 contracts at a time? All you need to trade with Mirus / Zenfire (considering they have $500 margins) would be a minimum account - starting with 1 contract and building from there.
That means with a $25,000 account, you could (not that I would recommend it!) trade 50 contracts at a time ($25,000 / $500 = 50)

Don't let these people dissuade you from trading a small account. To margin-trade stocks? Yes - because of the SEC day-trading rule - you would need $25k to do that - but not futures! Besides, the 60/40 rule regarding the tax man and futures is much more attractive than the taxes on day trading stocks. My 2 cents? You trade a LARGE account when you are a beginner & you will SOON have a small account! Practice, practice, practice, read & absorb as much as you can, then practice, practice, practice some more. Don't jump in the deep end of the pool until you can swim in the shallow end. It's that simple. You don't need 50K to start out. In fact, I'd advise against it. I've known those who did have that much to start with & lost it all. If you're going to lose, it's much better to lose $2500 than $25,000!

a.) First of all, if you are not profitable, consistently, SIM trading, there's absolutely no reason to go live.

b.) That's a good start!

Get all your ducks in a row, SIM trade for as long as it takes to become CONSISTENTLY profitable, then CONSIDER going live. If you have a down day - go back to SIM & stay there until you've worked out the bugs. Rinse & repeat.

After all, it's what you learn AFTER you know it all, that counts!

Last edited by TheWizard; August 26th, 2010 at 12:17 AM.
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  #9 (permalink)
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TheWizard View Post
!

a.) First of all, if you are not profitable, consistently, SIM trading, there's absolutely no reason to go live.

Yes!

A quick follow-up on my commish math. Let's say you average 1 trade a day in Year 1. That's 252*$5 or 12.6% of a 10K account. You would need to make a 15% return PA to break even.

If that was a $50K account, a 2.5% return PA is break even.

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  #10 (permalink)
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TheWizard View Post

a.) First of all, if you are not profitable, consistently, SIM trading, there's absolutely no reason to go live.

b.) That's a good start!

Get all your ducks in a row, SIM trade for as long as it takes to become CONSISTENTLY profitable, then CONSIDER going live. If you have a down day - go back to SIM & stay there until you've worked out the bugs. Rinse & repeat.


The issue I have at the mo is that my sim trading is consistently profitable, but I do not know if it would be technically possible live. I trade very small profit target and stop loss and sometimes make over 100 trades in a night (say 2.5 hours trading).

I don't know if the latency to the broker or real liquidity would kill my trading style, so that is why I want to go live with a small account, trading only one contract. To learn how it is like to trade for real, and from there I can evaluate whether my style is just not possible and how to adjust etc.

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