Trading misconceptions about account size?

B

Bakinec

I see a lot of posts by different people stating that it's impossible or at least very hard to survive on an account less than 5K.

Let's take mini futures as an example (that's what I trade).

I've traded everything from stocks to options to bonds to futures since I began trading two years ago at a prop and then for myself. I've lost probably about 30K in this time period.

I settled on mini futures, as it's the best instrument for small fish like me in almost all respects.

I currently net $150/day when averaged for the last three months. I started with an account size of $1,000, and still trade only one contract with a $500 margin (TF/ES/ZN). My plan is simple - tight stops with 1/4 r/r, and daily limit of 3 stops or 6 trades. I adjust my trade according to price, and if it's green, I set the stop to at least break-even, sometimes a small profit.

If I hadn't had to pay off debt every month, my account would be $10,000 right now.

According to all the aforementioned posts, I must be a liar, because no one can start with a small account and return 1000% in three months.
 
Depends on the future I'm trading. If it's TF, I usually set a 5-tick stop ($50). If it's ES, 1 point ($50). For ZN, 3 ticks ($45).

I adjust them according to s/r levels I see on the chart. But usually, if a previous level is too far away, I simply pass on the trade as the risk would get too big.
 
Another peeve I have is about posts I see sometimes stating that entry is not as important as exit. WHAT??

To translate that logically into trading... it means that either the person doesn't set stops or sets them far away (either being a big risk).

Furthermore, it means that the person somehow is able to determine when to exit, but doesn't know when to enter. Do I need to explain what is wrong with this picture?

It irritates me to see all these "common sense" bits thrown around that don't even make any sense.

Can someone here can explain to me how exit is more important than entry, without taking on significant risk, and to lay down the logical foundation behind being able to determine exits properly without being able to do so with entries?

Thank you.
 
Quote from Gubinec:

I see a lot of posts by different people stating that it's impossible or at least very hard to survive on an account less than 5K...
More...

Usually those you're talking about are basically saying that a "newbie can not trade for a living" via a 5k trading account.

Simply, they are not talking about a veteran profitable trader that decides he/she will trade a 5k account on the side of their regular trading account. In addition, they are not saying a newbie can not make profits.

Yeah, if you have no debts or very little debts, living at home with mom & pop or living in a low rental apartment...you can survive on $150 profits per day for awhile. However, eventually you will have a drawdown or blowup trading day (it will happen)...can your trading account survive in that you can continue trading as if nothing had happen. Only time will tell.

Regardless, congrats on the consistent profits the past 3 months.

150 per day x 5 = 750 per week x 4 = 3,000 per month x 12 = $36,000 per year in profits

Many folks that are unemployed would love to have that income.

Mark
 
I hear you G, and I understand your peeve about entry vs. exit. However, I don't believe that this statement was meant to diminish the importance of the entry over the exit, as much as it was meant to emphasize the critical importance of determining where one exits.

You are absolutely correct in your assessment of the critical importance of the entry point. But one needs to remember that, the decision to enter the market, by and large is a single decision. However, there are multiple decision points that must be made to determine the proper set of chart points for one to establish their exits. There is the initial risk exit, the trailing exit, the profit exit, the target exit, and the emergency market exit.

Therefore, it’s 1 decision versus potentially 5 decisions. I believe this is the reason behind the statement.

BTW- Wrbtrader is right on. The account size only becomes a critical factor when weighed against the experience level of the trader. Most any seasoned professional could basically start trading with the bare minimum required to open an account, and still be around years later, never once having added funds to maintain the account.
 
Quote from wrbtrader:

Yeah, if you have no debts or very little debts, living at home with mom & pop or living in a low rental apartment...you can survive on $150 profits per day for awhile. However, eventually you will have a drawdown or blowup trading day (it will happen)...can your trading account survive in that you can continue trading as if nothing had happen. Only time will tell.
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I agree with you to a certain extent. I do still have a 20K debt that I'm paying off as much as possible, but I have to disagree about having a blow-up day. The way I trade, I don't wanna jinx it, but it's highly unlikely that I will blow my account, unless I have a very unlucky streak.

Most people will probably laugh if I tell them I trade trend-line breaks on 133-tick and 512-tick charts without as much as checking news or consulting any indicators or techniques, but it's much better than having had to spend $3,000 on "magic" Wave59 products as a foolish noob and then blowing a 6K account with its "esoteric" techniques.
 
Quote from Gubinec:
----it's impossible or at least very hard to survive on an account less than 5K.
----I currently net $150/day....
----for the last three months.
----I started with an account size of $1,000....
----still trade only one contract....
----tight stops....
----1/4 r/r....
----daily limit of 3 stops or 6 trades.
----I adjust my trade according to price....I set the stop to....sometimes a small profit.
----one can start with a small account and return 1000% in three months.
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1) To be financially undercapitalized is "tough" because there is less room for error, you have to really be "right" on the market. There's not much room between $1000 and $0.
2) $150 per day on a $1000 account is a 15% daily rate of return. You have to generate eye-popping rates of return just to merely break-even after paying bills and expenses.
3) The past 3 months have been reasonably calm. You could have easily been blown out during the Flash Crash or if you fall into a random "cold streak" with your method.
4) Risk/reward ratios are random and arbitrary. You can't take "comfort" in them, especially if you are engaged in speculative trading. One "freak" trade can wipe you out but your method could become good again, without you in the market.
5) You have to work "harder" if you're scalping for small profits. It can be like using a thimble to fill a pail with water.
6) Keep doing what you're doing but realize how potentially precarious your position is. :cool:
 
Quote from KDASFTG:

You are absolutely correct in your assessment of the critical importance of the entry point. But one needs to remember that, the decision to enter the market, by and large is a single decision. However, there are multiple decision points that must be made to determine the proper set of chart points for one to establish their exits. There is the initial risk exit, the trailing exit, the profit exit, the target exit, and the emergency market exit.

Therefore, it’s 1 decision versus potentially 5 decisions. I believe this is the reason behind the statement.
More...

True, when trading multiple contracts, but the decision-making process you described, while it makes sense, doesn't always work-out that way in real life. Either the position goes green, and you close half of your position, and leave the other half, or you don't. There's not much else to do when trading, and the posts I've seen make it out to be a whole science. While it may be a science with hedge funds and the like, this forum is mostly made up of small, individual traders, for whom the logistics of trade management simply don't present more than 2-3 options, unlike the said posts try to make it out to be.
 
Quote from Gubinec:
----Another peeve....
----stating that entry is not as important as exit.
----translate that logically into trading....
----the person somehow is able to determine when to exit, but doesn't know when to enter.
----explain what is wrong with this picture?
----Can someone here can explain to me how exit is more important than entry....
----lay down the logical foundation behind being able to determine exits properly without being able to do so with entries?
More...
1) You can be level-headed and "detached" when determining an entry. You may think you are in "control".
2) After entry, your mindset can become different. You can be "hanging on" every tick in the market. The market has "control" of your account now.
3) The exit determines the trade outcome, profit OR loss.
4) The entry is known with certainty, not the exit.
5) Too many traders can get stubborn with losses and have to eventually accept a "bad" exit.
6) To focus on trading your method and not obsess over each trade can keep you out of bad trades. This is beginning to get too circular and repetitive...... :)
 
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