cash balance in a trading account

Everyone trades in different ways. I am more of a black and white rules based trader so my questioned are designed to look at your objective side. For example if you were to say you take profits when your up 5% and take losses when your down 5% I can build some context around that with my philosophy. If you want to define these numbers in black and white terms I can add to the discussion. Placing a stop at 5% or 10% wouldn't fall under my philosophy and would make it very difficult for me to understand your trading decision making process.
As far as Dividends its pretty much a zero sum game in the short term. (You may come out ahead over long periods of time due to a 53% positive market drift) Its a zero sum because the stock value lowers by the amount of the dividend and the options also price in the dividend.
 
Thank you for continuing this discussion. Once again, this is a learning process for me.The main purpose of my question is to determine realistic strategies under real market conditions in a real trading account.

Let's use your example of 'take profits when your up 5% and take losses when your down 5%", and run with that. What can you add to the discussion?
 
With a profit target and a stop loss well defined you need to have an edge. If you can pick a direction then you will make 5% more than you will lose 5% thus make a profit. Many traders believe they can find an edge by picking a direction using fundamentals or technical analysis. If you can find an edge by picking a directional then I just laid out the basis for a successful plan.

I happen to be in the camp that believes nobody can pick a direction better than 50% of the time (Except for market drift which means stocks tend to rise 53% of the time fall 47% of the time)

My edge is trading a non directional range. I trade based on the premise that markets are cyclical. I use my understanding of options to sell premium and make adjustments. I also use something similar to stops or another way of saying that is that I define my risk.

My experience is that trading around dividends doesn't provide an edge. That's not to say someone hasn't been able to find one but I haven't seen it. The markets are very efficient.
 
Your reward would be twice your risk however the probability of losing would be twice your reward. In other words you would make 2X more for each winner but you would have 2X more losing trades. This all adds up to a zero gain without commissions factored in.
 
If I am reading all of this properly, in the long haul it boils down to zero sum if the all trades are thoughtful and reasonable. This a factor of a 50:50 chance of choosing direction correctly.
 
Yes. Remember this is my opinion after 23 years of trading. Others have other opinions. Based on my experience I recommend learning about options in order to create an edge.
 
Robert Modd said:
As far as Dividends its pretty much a zero sum game in the short term. (You may come out ahead over long periods of time due to a 53% positive market drift) Its a zero sum because the stock value lowers by the amount of the dividend and the options also price in the dividend.
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Question for you sir:

For his $50,000 account, a 53% drift translate into $1,500 per year. So, with a round trip trade costs ~$10 (his #), he can trade 150 times a year and breakeven, or about 3 trade a week.

Another way to look at this, with a + - 5% band for 150 trades each costs ~$10 with a 53% probability of wins, can he made $?

Appreciate your comments.
 
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