Undercapitalization

[Handle123]

Quote from oldtime:

It is my contention that the number one reason for failure is undercapitalization

If you eliminate lack of discipline, fear, greed and all the other things they talk about on the psycho forum

that leaves you with the problem of capitalization

I believe the number one reason is lack of education and that is only achieved with years of study and trading. I have meet many in my time that started with millions and blew it all cause lack of study.

I believe in my heart if you have a well backtested method, start with 5k and day trade the ES, it should be way enough to start one's career in our field. And if you blew $1500, you should close down your account and do mutual funds. Most will think this is untrue, but if you can't control your account, save the years of unhappiness and do anything else, it is long process to become very good at this cause of the constant changes within one's emotions. You have to be smart enough to form outstanding rules and dumb enough to be able to follow them flawlessly. You have to trade as if you don't care about the money and just concentrate on not taking a losing trade, at least this is how I do it. I take many plus one tick trades and a few full target trades.

 

[oldtime]

for instance, how much would a guy need to trade just one ES contract?

I know if it was me I'd want at least enough to survive my stop getting hit 40 times in a row.

 

[oldtime]

Quote from Handle123:

I believe the number one reason is lack of education and that is only achieved with years of study and trading. I have meet many in my time that started with millions and blew it all cause lack of study.

I believe in my heart if you have a well backtested method, start with 5k and day trade the ES, it should be way enough to start one's career in our field. And if you blew $1500, you should close down your account and do mutual funds. Most will think this is untrue, but if you can't control your account, save the years of unhappiness and do anything else, it is long process to become very good at this cause of the constant changes within one's emotions. You have to be smart enough to form outstanding rules and dumb enough to be able to follow them flawlessly. You have to trade as if you don't care about the money and just concentrate on not taking a losing trade, at least this is how I do it. I take many plus one tick trades and a few full target trades.

do you take those 1 tick profits when they get hit? Or only after you realize that's probably all you are going to get? And then, do you take them on the way down, like a stop?

 

[Specterx]

Developing a working trading method which can be implemented in practice, day after day, requires years and many thousands of hours of deliberate training (by oneself or a mentor/coach), just like becoming a top golfer or chess player. Most 'traders' get nowhere close to this level before dropping out, either because they run out of money (not just trading capital, but living expenses) or because they never employ a suitable training/improvement regimen - and therefore never really get better regardless of how many years they hammer away.

I wouldn't say these people failed because they were 'undercapitalized' so much as they badly underestimated what they were getting into, and weren't even remotely emotionally or financially prepared for the challenge.

There are doubtless some traders with profitable methods but no capital, and there are many avenues open for them: borrow from friends/family, bank loan/mortgage, prop firms, seed-capital ventures etc.

 

[Handle123]

Quote from oldtime:

do you take those 1 tick profits when they get hit? Or only after you realize that's probably all you are going to get? And then, do you take them on the way down, like a stop?

There is actually several reasons I will take a one tick profit. I use a number of "rules/reasons" why I would need to change regular target to one tick based on time, if trade hit my stop but didn't engage volume trigger to make it a market order, price pattern that shows a slowing of price based on smaller "thrusts" or changes between pivot points, 60 minute/daily trendlines, reversal signals. I very very seldom ever target one tick originally as my target.

Unless I see by watching Dome volume I am not going to be able to get out with one tick profit, I get out at breakeven, but rather let others pay for the commisions. It doesn't happen often, but I do recall days where I have placed 20-30 trades and getting one tick on all of them, even one tick profts do add up.