Money Management
- Thread starter SProbability
- Start date
Yep, that should be enough to trade 1 ES, NQ, or YM with low-risk entries.
-FastTrader
Jessie,
That brings me to the question - can a 'new' trader/investor turn his small stake (say $7.5K) into a princely sum, by risking only 2% per trade.
... or is there indeed truth in the words - "the ONLY way to make a small fortune, is to have a big one'?
2%-4% rule sounds about right for when your accounts actually small. However, lets say your trading with 500K in your account 2% is 10K per trade. So Lets say I wanted to buy QCOM at 41 and set a stop at 40 with a target of 44 I would buy 10,000 shares. Max loss 10k vs expected gain of 30K. Would Cost 410000K buying power to hold 10k shares at 41 per share. Now let me say that would be super silly. The truth is that I trade with 500K and for a trade like that I would look to buy no more than 2500 shares and be happy with making 5K profit even if it took a week to do it. Meanwhile that only uses up 10% of my overnight buying power and 5% of my intraday buying power. Furthermore, I would have about 2-3 other trades humming along during the week as well as employing different daytrading moves intraday. My rule of thumb then is I try not to lose more than 1/2 of a % of my equity per trade in my account. You have to be realistic...with a 500K account my goal is to make about 20K per month on average. Now I dont try to do that by forcing trades it just smoothes out to that over the year. 20K per month is 240K per year and a very nice salary to make at any high end corp job you can find. Now if I "fail" and make 120 k per year which is 10K per month I'm still happy but thats still once again a very nice corp salary. How do u build your account to a 500K after tax amount while all the while your eating your seed corn via bills etc family? Let me say it "AIN'T" easy! (You have to gross over 1.5 million is how u do it) There are many techniques out there TA and TA Fundy combos. I know many of them and the ones that work the best. If your interested further I will post them for anybody interested. I have been trading for over 10 years successfully , the last 5 years I have traded exclusively as a full time job, and I know this is a lonely business and would have no problem helping others along their way. Good Luck to all.
There is definately some truth to that. Academia also states that in order to be a "winner" you have to start with at least $100,00.00...........oooooooohhhhhh!!! Now how many traders have that??? Anyway, Sprob is right its VERY difficult turn that small amount ($7,500.00) into a small fortune. Even the "TURTLES" methodology suggest an account size of $100k. Now I know they don't come out right and say it but by mere speculation and that fact that they emphasize diversification accross markets..............I dunnnooo but I don't see how you can do that with $7,500.00???? Now I know some will argue that Richard Dennis started out with a mere $400.00 and turned it into $400m in about 20years. But thats not the norm.
Finally, The reason why the deep pocket trading will beat the small fry is simple...............
Case study: ABC system has a max drawdown of $12,000.00 and a max profit @ $125k.........lets say it also has a 30% accuracy rate. Thats a WHOPPING 70% of the time its losing money. By the way did I mention that this is a trend following system???
How da hell is the $7,500.00 going to compete with $100k account using the same 2% risk rule???????.
As you can see by the above there is no way that the small fry can withstand the drawdowns..........Well I guess he just can't afford to trade this system??? Now that's a shame!
...thank you for your kind and most generous offer. Would you please post anything you feel comfortable sharing, especially TA based? Thanks and best regards. - Mike
No problem Seth ARB I will answer in public. Without a doubt the years of 1997-1999 were much more profitable than years 2000,01,02. That goes without saying we were going parabolic to the upside during the mania. With an environment like that anybody's returns per year would be supercharged and mine were as well. During the start of what we know now to have been a brutal bear market starting in March 2000 my returns per year have been very good. I have probably grossed between 2000-2003 (midway) about 460K gross. I purchased a 3 bedroom apt in Manhattan over a year ago as well and gone on many trips etc etc. basically my account has grown slightly but I am mainly eating my seed corn due to high living expenses. However this is my lifestyle choice (as well as my wifes). I trade short as easily as I trade to the long side only but only when the overall market conditions warrant it. My trading philosophy has always been "SEE THE BALL HIT THE BALL". Never over think trading..its hard enough as it is. The base of my pyramid so to speak that solidifies all my trading decisions is that I trade in the direction of the overall trend of the Dow, Spx and Comp. I trade where the money is flowing day to day or week to week. Why make it any harder? I trade mainly equities with a little dabbling in the Eminis recently and only because I realize it is silly to hold 5000 qqq and tie up money when you can just hold 5-6 naz emini contracts instead for a fraction of the capital. Now through the years I have seen many different types of markets and many things come and go but the one thing that remains the same is that we are just trading against people. I think the best traders and trades are made when you are in tune with the stock all that means is being able to read the other players at the table (aka stock). It is a game of Probabilities and losses are part of the business. I get no more emotional over a loss than I do over a win. I know when I'm a hot streak that eventually I will turn cold and give back some. I just know that through years of trading that I have a rising equity curve and with my experience and Money Mgmt skills I know how to never be taking out of the game unless I decide to quit by my own free will.