When does one start trading big
- Thread starter saxon22
- Start date
It has to do with the Theory of Constraints...
You can only handle upto what your weakest link can handle. Oftentimes, the weakest link is the trader's own perceptions.
Next up is the Marginal utility of the next dollar is very slim for most successful traders. The trouble, risk or trading one more contract isn't worth the potential $ that it can make.
Next up is the Liquidity issue, I know it shouldn't be a big issue on huge markets like the S&P, but not all traders like to trade the S&P. It is also easier to catch quick moves with huge gains with a little smaller size.
You can only handle upto what your weakest link can handle. Oftentimes, the weakest link is the trader's own perceptions.
Next up is the Marginal utility of the next dollar is very slim for most successful traders. The trouble, risk or trading one more contract isn't worth the potential $ that it can make.
Next up is the Liquidity issue, I know it shouldn't be a big issue on huge markets like the S&P, but not all traders like to trade the S&P. It is also easier to catch quick moves with huge gains with a little smaller size.
The weakest link theory is intriguing, but if one is successfully trading and making money let say trading 20 contracts, then logically his perception would be that his system is working, and therefore it should not matter that much if the order is for 20 or 50 contracts. It is like driving a bus with 20 passengers, would it matter if there were 50 passengers? The bus is the same, the road dos not change and the driving skills required are already present.
Your second point is interesting as well. I mam sure it does not matter that much if one is trading let say 20 contracts and then move to 21, or 22. The difference is small. However, how does one then move on to the next level??? I see a lot of people making a couple of hundred $$$$a day and that is it. The ceiling is never pushed higher. I m not stating this out of greed, but I cannot grasp the logic behind it. It is like buying a car and then driving it no faster than 30 mph. Not pushing the envelope and not trying to get to that second level. How does one trade like Lescor for example? And why more do not trade with numbers like Lescor? Is it because people become so comfortable in their zone of trading 5 contracts, or is it because to achieve Lescor's level is so hard that many simply cannot?
For the sake of discussion, and my own interest let us assume that most big dogs dabble in liquid markets. So 100 contracts for ES should not be an issue. What I find intriguing is your contention that it is easier to catch quick moves with huge gains with a little smaller size. I agree that in a fast paced market it is easier to purchase or unload a smaller block of contracts. However, I think that by the same token by trading large blocks of contracts (50 or a 100 at the time) one does not have to try to catch large movements in order to make decent profit. Case in point: let say my plan is to catch 1 point on ES trading 100 contracts. probability of getting that one point is greater than to catch 2 or 3 points. So why would I risk my capital of let say 20 contracts to ty to catch 2 or 3 points, if I could put 100 for 1 point and catch that 1 point (which should be easier than catching 2 or 3 points). It looks to me that bigger size + smaller gain = easier and more frequent profit then smaller size + longer exposure to the market + less probability of getting 2 or 3 points = less profit and more exposure to the market forces = higher probability of a disaster (that is trade not workingand going against you).
Disclaimer: I am still learing and trying to find my space under the trading sun, so please go easy on me.
the only point you can trade size is when everything in your bones is screaming a onesided runaway trade.
the implied risk from your understanding of what your trading approaches zero, then extreme amount of leverage can be taken.
but also understand, the point when you start thinking you are a god is when most blowups occur.
even with that implied trade, with extreme leverage the market should not retrace, and your stop loss should not be hit. At this point is when stops should be definitely used. Otherwise you risk setting your trading career back a few years from loss of accrued profits.
the implied risk from your understanding of what your trading approaches zero, then extreme amount of leverage can be taken.
but also understand, the point when you start thinking you are a god is when most blowups occur.
even with that implied trade, with extreme leverage the market should not retrace, and your stop loss should not be hit. At this point is when stops should be definitely used. Otherwise you risk setting your trading career back a few years from loss of accrued profits.
I think everything must be progressive.
I mean, when i started i had the wrong thought that if i'm going to trade and im sure about my strategy why i just trade the max available buying power instead of just 1 or 2 contracts.
I know i was stupid and i found out with time that there is a reason why we must increase our orders size when we are ready to.
Today i know that the best is to change the amounts depending on the situation (volatility, expected target, hour of trading that we are, historic accuracy of the trade we are going to take) and sometimes starting filling a few contracts to "feel the market" and then came up with the big weapons.
Besides, we have to get use to the amounts we are dealing with.
Its common for a newbie to take huge size (relative to his own profile, of course) and then get mentally blocked for the huge amounts he are dealing with. A real trader must know the worst scenario according to his strategy and be comfortable with and know the best possible scenario and feel like its normal if happen (don't freak out if the best scenario shows up).
Of course this is the theory, the key is if we have what it takes to do it on the ground.
good night
I mean, when i started i had the wrong thought that if i'm going to trade and im sure about my strategy why i just trade the max available buying power instead of just 1 or 2 contracts.
I know i was stupid and i found out with time that there is a reason why we must increase our orders size when we are ready to.
Today i know that the best is to change the amounts depending on the situation (volatility, expected target, hour of trading that we are, historic accuracy of the trade we are going to take) and sometimes starting filling a few contracts to "feel the market" and then came up with the big weapons.
Besides, we have to get use to the amounts we are dealing with.
Its common for a newbie to take huge size (relative to his own profile, of course) and then get mentally blocked for the huge amounts he are dealing with. A real trader must know the worst scenario according to his strategy and be comfortable with and know the best possible scenario and feel like its normal if happen (don't freak out if the best scenario shows up).
Of course this is the theory, the key is if we have what it takes to do it on the ground.
good night
Well, many people could probably scrap 50.000 to open up an account and do 100 ES contracts. naturally, I am talking about those who are educated and already have decent profession. I think that a large number of traders who are successful have at least a sound college education and could come up with necessary funding to do trading with large numbers. What I am trying to say is that 50 grand is ... a price of a decent car and definitely achievable.
Granted, first one has to be able to make profits consistently with 1 or 2 contracts and then slowly move to 5, 10 and so on. The question is why so many do not achieve that Olympic status of 100 contracts?
