How do you deal with big numbers?

Smart Money · Nov 12, 2009

A hypothetical question. Suppose you use a method where you made 2% profit every day and you started with an account of $10,000. So on your first day, you made $200. Using the rule of 72's, after 36 days, you were making $400 a day. Another 36 days later, you're making $800 a day, and so on, and so on.

(note: no, this isn't my account size and this isn't how my numbers run...this is hypothetical)

Anyway...there would come a point where you'd be saying to yourself, "man...this is a lot of money on the line here". Maybe you built up to where you had a $1,000,000 account and you were making $20,000 a day.

How can you get to the point without getting a little bit cautious? How do you maintain your edge as the numbers get bigger and bigger?

Do you think of the numbers in terms of percentages? How do you stay detached frm it? How do you maintain the balance to keep yourself from jumping out of a good position too early because in your mind you've made "good profit"?

Also, I'm just curious about scalability here, but how big of a market cap do you need on a stock to where a purchase or sale of $1,000,000 worth of stock doesn't create wierdness in the charts? How do you get around it?

TIA,

SM

drcha · Nov 12, 2009

I can't even answer this. It's hard to divorce myself from thinking about losses. I always think about what I can lose. I don't spend a lot of time thinking about what I can make, except to decide whether the percentage return that's possible or feasible is adequate compared to other alternatives.

AyeYo · Nov 12, 2009

Quote from Smart Money:

How can you get to the point without getting a little bit cautious? How do you maintain your edge as the numbers get bigger and bigger?

It's all about the ticks (or pips for the forex guys). Don't look at the actual dollar figure, just manage your positions based on ticks/pips. It could be for $1 or for $1,000,000, doesn't matter.

bat1 · Nov 13, 2009

In order to keep going your going to be trading larger and larger blocks of shares
which gets harder and harder to do.

illiquid · Nov 13, 2009

You need to loosen yourself up, and basically sacrifice the mentality you had when making 3 figures a day in order to get to 4, 5 etc. Much like moving up limits in poker. Sometimes you just know you're ready but nothing really comes together until you finally take the plunge and let your old self (profits) go in order to find your new level. Can you imagine your most profitable day so far becoming just routine or even "break-even" in your mind some time in the future?

That being said, usually the trades that make 3 figures are not the same ones that will get you 4 or 5 anyways, so the mental change needed usually comes with the territory. It's always been a bit painful for me to push to that next level, given that I thrive on volatility, and most would think me pretty insane given some of the swings I go through. But for me that's what was needed in order to train my mind to focus on the trade rather than the p/l, and be "numb to the numbers", so to speak.

bigb · Nov 13, 2009

simply,

If you were to build your account up in this smooth equity curve matter, mentally you get "used" to the numbers as you make more. When you start making only a couple hundred and dream of how crazy it would be making a few thousand, by the time your making the few thousand and up your numbified by the numbers and they become just that, numbers.

Now if you were use to making only a couple hundred and tried jumping up to a couple thousand in profit immediately, you may have some shock value.

Trading futures trading a million to make 20k in a day would have zero liquidity issues and should have no effect onyour edge. Most important point, don't pay attention to your p/l when your trading. That should be the last thing you pay attention to after you develop a good risk program.

Smart Money · Nov 13, 2009

Quote from bigb:

simply,

If you were to build your account up in this smooth equity curve matter, mentally you get "used" to the numbers as you make more. When you start making only a couple hundred and dream of how crazy it would be making a few thousand, by the time your making the few thousand and up your numbified by the numbers and they become just that, numbers.

Now if you were use to making only a couple hundred and tried jumping up to a couple thousand in profit immediately, you may have some shock value.

Trading futures trading a million to make 20k in a day would have zero liquidity issues and should have no effect onyour edge. Most important point, don't pay attention to your p/l when your trading. That should be the last thing you pay attention to after you develop a good risk program.

Great answers guys! I really appreciate it! BigB's response above really hits home because that is where I am now. I have a new way of doing things that is about 10 times more profitable than was I was doing before. Its got me a little weirded out. But if I can get used to it, and it grows slowly from here (as I suspect it will), then what you say will be likely true...I'll get used to it.

Thanks also for the size issue. I had ideas for spreading out by doing multiple trades in multiple instruments with the same effect, but I was wondering if I'd hit a wall before I got where I wanted to. I guess I gotta just keep reminding myself that the markets are immense.

SM

peilthetraveler · Nov 13, 2009

Quote from bigb:

. Most important point, don't pay attention to your p/l when your trading. That should be the last thing you pay attention to after you develop a good risk program.

Agree...Looking at your profit/loss will freak you out and cause panic or greed to set in

spindr0 · Nov 13, 2009

Quote from Smart Money:

Anyway...there would come a point where you'd be saying to yourself, "man...this is a lot of money on the line here". Maybe you built up to where you had a $1,000,000 account and you were making $20,000 a day. How can you get to the point without getting a little bit cautious? How do you maintain your edge as the numbers get bigger and bigger?

Do you think of the numbers in terms of percentages? How do you stay detached frm it? How do you maintain the balance to keep yourself from jumping out of a good position too early because in your mind you've made "good profit"?

You should be cautious every day. But in perspectiive, a 2% drawdown is 2% regardless of the size of the position. Trading involves losses. Every position doesn't win. But if you're making good money, like I said, 2% is 2%.

As your confidence grows and the profits accrue, the numbers get bigger. It's evolution. Dance with the one who brung ya to the dance but always remember to dance near the door.

spindr0 · Nov 13, 2009

Quote from Smart Money:

Great answers guys! I really appreciate it! BigB's response above really hits home because that is where I am now. I have a new way of doing things that is about 10 times more profitable than was I was doing before. Its got me a little weirded out. But if I can get used to it, and it grows slowly from here (as I suspect it will), then what you say will be likely true...I'll get used to it.

Not only will you get used to it but if you trade long enough, you won't react like a deer in the headlights when the sh*t hits the fan. When that happens, you've made psychological progress.