Quote from EricP:
If this is true, and you are seeking to survive (and ultimately become successful over thelong haul), then keeping risk at a minimum will be the way to do it. High leverage is certainly the least of your needs now, IMO.
well, i've been agonizing over this for the past few days. at first i was very comfortable with my decision to mainly trade the ES, then had a blow to my confidence when i was told by my friend i'd lose everything by doing that, but i'm now returning to my original position.
eric, you're right that high leverage is the least of a beginner's needs. i would argue that is because of the inherent recklessness with which beginners trade. in other words, if i had initially jumped in to the ES six months ago i would have probably blown out quickly because i employed a losing strategy that did not account seriously for risk management, and did not require an understanding of potentially destructive scenarios. part of my trading plan will be to have an awareness of not only how i can profit, but even more of how i can lose. for example, worst case scenario with one contract of the ES is that i lose more than 400 points due to some catastrophe that my stop didn't catch. it can't get worse than owing my broker on top of a complete blow up, but how likely is that? if i were to lose that much on one contract in one day then something went terribly wrong with the world and i probably would have lost everything no matter what market i was trading. i realize the worst-case should not be forefront of my concerns but it was an interesting point. no, what's most worrisome is the aggregate small losses or carelessness that yields one large loss quickly. those are scenarios i will study when planning trades and are the losses i will mainly try to avoid.
while trading the SPY would certainly reduce risk, and i did say my goal is to merely survive, survival includes profit. by survive i did not mean "maintain" my account. i've already done that. by survive i meant profit enough that i am net even or positive after monthly expenses. some months i could be slightly net negative after bills and that's fine, i just need to be offsetting bills to some degree.
i'm not trying to return 500% on my $20k account, but i think it's possible to return 50%. turning $20,000 into $30,000 is much more possible by day trading 1 contract of the highly leveraged e-minis than 100 shares of the SPY. for anyone to make $10,000 from now until the end of the year (roughly 225 trading days i estimate) would require a proft of $44/day or approximately 1 pt of the ES. *consistently* pulling 1 point out per day on average is a lot harder than it sounds, but with an ATR of about 25 points very doable.
contrast that with the daily ATR of the SPY which is only about $2.30 right now, and in the last year it's max was about $4. trading 100 share lots i'd have to consistently catch about 20% of that range daily in order to come close to the same potential profit of catching 4% of the ES daily range. as a daily average that seems very unlikely.
as a disclaimer, i'm not trying to convince readers here that i'm doing the right thing. i believe that with my knowledge and skill level i'm not trying for too much, but i'm open to the possibility that perhaps i am and that's why i am posting here. if my logic or math is wrong, if there are risks i'm overlooking or unaware of then i reckon someone here will be kind enough or perhaps find delight in pointing out such errors. eric, you have been very generous and kind and i do appreciate it.
loose guidelines for a plan coming soon...
