+1
The dollar amount doesn't matter for retail traders (they will never exhaust liquidity), but it does matter for their utility curve (a lot!)
smaller size makes you a better trader?
- Thread starter brokerboy
- Start date
+1
The dollar amount doesn't matter for retail traders (they will never exhaust liquidity), but it does matter for their utility curve (a lot!)
Of course.
To make BIG money, you have to take BIG positions (or big positions relative to your capital) and the risk/pressure that comes with it.
Seems unlikely that traders would trade well enough with big money until they are very confident in their methodology and discipline.
(I recall reading about a guy who'd made terrific returns trading Fidelity Select Funds... they ones with hourly pricing. When asked how much of his capital had been used in that trading, he said, "3%... the rest was in money market funds."
Years ago in the U.S. Investing Championships, there were categories from $5,000 to $500,000... and later, in another contest called MMVR, $1 Million to enter. Of course the percentage returns were always higher in the smaller categories.. as you can be almost reckless with small money where you would not be with big money. I always thought an interesting category would have been, "All Of Your Mother's Money"..)
N
nailedanother1
I agree that size is irrelevant. Obviously the more money you have the quicker you can make more of it but it does not determine whether you will make it or break it. One just needs to do simple math to decide his leverage and SL and TP.
I agree that size itself is not as important as is size to account. Not just for psychological or stress reasons either. If you are risking a large % of your account or heaven forbid going "all in" on each trade you are going to blow your account. It's not a question of "if"....it's "when". Risking 1% to 2% of your account per trade is IMHO the way to go. It leaves you room to have a bad streak without decimating your account while still leaving room for good growth rate. Keeping with the 3x1 RvR ratio means when you get a streak of wins you are making up to 3% to 6% of your account each trade. The key to choosing the right size is using a predetermined proper % of your account you are willing to put at risk. I say "predetermined" because you should set this % upfront before even starting to think about trading and what ever you choose STICK WITH IT. Don't raise the % for what you think is a "sure thing" and don't lower it for something you think is too risky. If it's too risky for your % then don't make the trade...period.
Food for thought: if you only risked 1% of your CURRENT account per trade you could lose 50 TIMES IN A ROW and still have roughly 77.8% of your starting balance left!!! At 2% per trade you would still have roughly 60% of your starting balance left. Now, if you have 50 bad trades in a row you are doing something wrong but at least you didn't lose all of your money to figure that out.
Absolutely agree. Keep the risk within 1-2% boundaries myself (or even less, when not sure about market or particular setup) and change notional position size to fit this risk amount literally every time.
Such an approach allows to minimize losses when in a bad streak and effectively compound winners when things go well.
Such an approach allows to minimize losses when in a bad streak and effectively compound winners when things go well.