Effective Trading Strategy for < $25K Accounts

Originally posted by base-hitr

This seems awfully conservative. Initial margin is much lower than 12k on the ES & NQ
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Yes, it is conservative. That is how I have to trade. My goal is to be trading tomorrow, next year, and in ten years. Its the only way I can ensure that this will happen. I might not get lucky and have 20 contracts on when the market runs 100 points in a day, but I can't rely on luck. For beginning and undercap'd traders, I can, in good conscience, only recommend a conservative approach. Knowing when to "put the pedal to the metal" is something that only comes from experience, so a beginning trader should not rely on being able to do this. The fact is if you trade 1 contract for every $4500 in your account, you have a high risk of ruin, even if your system or method has a positive expectation.


Trading the NQ, with a 5 lot, an unexpected 30 pt pop past your stop loss would be a loss of $3k wider than you expected. While certainly a painful attention getter and not something you want to absorb on a regular basis in a $25k account but a type of thing that may occur only 2-4 times per year.
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I don't scalp the minis, so a 20-30 point loss for me is not uncommon. Its just a part of the system and I accept it. So, for me, I can not take overleveraged positions. Again, this has to be determined by the trader and what the method will allow. That is why I feel it is very important to try and test your ideas as much as possible before risking a small account on it.

If you are an experienced futures trader, then please ignore everything I've said and do what is working for you. While there are guidelines for beginners to follow, there are no hard and fast rules because we are all different. I know it seems counter to most traders, but I hate risk and try to eliminate it as much as possible. For me, its a necessary evil.

Good trading,

Kirk
 
GATrader

Isn't there a third alternative? Buy puts in MSFT when you believe it as topping out AND after you have checked that premiums are low by historic standards. That's the way I used to do it years ago and in that order of research. But I rarely trade options these days so I may not understand the modern game.
 
WarEagle,

OK, I gotcha. We have totally different perspectives since I'm a discretionary intraday trader who rarely holds even into the final hour while you are a system trader with a longer timeframe.

My post had in mind the trader who has experience day trading big cap stocks (with an eye on futures) who was not new to trading but new to trading futures.

BTW, anyone who wants to try their hand at daytrading futures with minimal risk (I'm talking paper trading) may want to check into
http://www.pfgbest.com/simulated_trading/index.asp or
http://www.jackcarl.com/papertrading/papertradingmain.html

I think they run $30/mo but I have not actually tried them so have no more info about them than what you can find on the web sites. I'm not sure how realistic the fills are with them but its probably more accurate than paper trading NYSE stocks.

Of course I doubt that any fills on a breaking news type spike would accurately reflect market conditions but the ordinary intraday trading simulation may be helpful.
 
There are a lot of good comments in this thread ...

Simulated trading the eminis are a great way to start out before risking real $ ...

Try www.pfgbest.com -- their simulator is great. Hypothetical 50k account and it will remember your positions overnight. Free for 30 days, then something like $30/month after that.

If you daytrade only the eminis, find a good firm with low daytrading margin. For example, try www.daytrade4less.com. Their sp emini rate is $1k per ctx, min $2.5k account. Their r/t best rate quoted to me via phone was $8 inclusive.

I haven't tried them personally, but if you open an account with them, tell them Rich sent you ... they will reply with a perplexed "Who is that?" :-) (lol no affiliation)

Good trading!
 
To Dufferdon.

That's what I mean by initiating trades basis underlying market decision as opposed to initiation based on option premium levels.

Outright put buys could be offset by selling the lower strike on the puts, which somewhat protects the position from an implied vol implosion during the period you are holding it.

Your point about vol levels is well taken because if I buy it cheap enough relative to its history, I might not even bother with the sell leg. So yes, that is indeed the 3rd way.

I will try different approaches and see what , if any works.
 
About how much money you should have per E-mini contract ?

Well depends entirely on your style.

If you are a scalper you can start out with a much lower amount
then someone who is swingtrading intraday.

Just make an estimation of your biggest expected drawdown in POINTS

if you don't have a mechanical system.

For a scalper 10 points reserve should be enough so that's 10*50

=500 ,-$ reserve : required capital 4000 +500 = 4500,-$ per contract


For a swinger that keeps stoplosses of 2.5 points , 25 points should

do it , that's 1250,-$ ; required capital 4000 + 1250 = 5250,-$ per
contract.
 
I am using the PFG Best simulator at the moment, and have been very pleased with it. Though, as I have not yet traded for real, I cannot say whether it is accurate or not, it does seem to very quite a bit on fills (from 1 second to about 20 seconds), and therefor I assume provides some accuacy in that aspect. I have not been trading during any major news breaks yet though (have only been using it for a week now). And it does seem to be much more real that paper trading (try as I might, I could find a way to reset the account after a bad loss :)). It certainly has given me a much more accurate view as to the emotions of trading than simply paper trading. And there are no excuses, if the program screws up, or I walk away and forget to set stop, close the trade etc., I'm stuck with it, no coming up with excuses as to why it shouldn't count. I would definetly advise this for new traders over paper trading (which as many have said, and I now agree, is of little use). I am also writing down my trades as well, so that I may keep notes on each trade as to what I did right/wrong on each trade. And beginning this week I think I will begin printing the charts and trades to keep with each day to better track my progress.

I plan on starting with about $6000, and trading one NQ mini. Does this sound like enough? I plan to trade for about 10-20 points, with a 5 point stop. And I plan only to preserver capital and learn, making money is far down on the list at this point, so if there are any suggestions as to the best system or rules to follow to do this I would appreciate it.

Also, is there a limit I should set for a number or percetage to lose in a single day? As I said, preservation is by far most important, so I would rather quit early for the day, study my mistakes, and not worry about losing to much, than hold out and try and make it back. Adhearing to my 5 point ($100) stops without exception, would $400 be good? And conversely, is there a limit I should set for making gains, then losing a portion of them (i.e., make $300, then lose $200, keep playing or quit and keep profits?).

Thanks,
Ben


p.s. As many people continue to advise, getting the trial on tradingmarkets.com is very useful. I all the lesson saved, so would it be wrong to offer to just send this to other beginners? As that is what they would likely do anyway. Or would that be wrong toward the company? I would still recommend the trial to see the rest of the site in any case, let me know your opinions though.
 
You can still daytrade without $25k, but with not margin buying power.

Pattern day traders are subject to a minimum equity requirement of $25,000. Accounts with less than $25,000 will be restricted to trading only on a cash-available basis.

This means if you have $20,000 you can daytrade all day with $20,000.
 
>This means if you have $20,000 you can daytrade
>all day with $20,000.

Not with any of my brokers (MB, IB, Protrader)

JB
 
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