Hi to everyone. I would just first like to say that i love this site and it is very informative in every aspect.
I have a couple of questions
Not very many. Remember, this is a site primarily frequented by new traders.
- Is it possible with the right training, discipline, and time given to make a living with a mini account i.e. starting with $10000
Think about that math of what you would need to accomplish. Say you would require even just $20,000 from your trading to live on. That means you would have to make 200% per year to make enough to live on, and that’s before taxes and other expenses. The number of traders who make even 100% per year consistently is a very, very small fraction. Is it possible? It is. Is it likely? No.
Focus on growing your account. Think about making trading your primary income source later.
I agree with Rhody. With $10K, try growing your account slowly. Odds are against you that you will make 20-30% returns monthly. If you try, you’ll find yourself over leveraging yourself and taking too much risk. That’s my opinion.
Good luck on whatever you decide!
I have to agree with the others here. You don’t want to be in a position where you are pressuring yourself to make x amount per month and end up putting on bad trades as a consequence, forcing it so to speak… you can get started with 10k, but it would be very important IMO to have another steady stream of income to go along with whatever you may make from trading…
I going to ‘throw the cat amongst the pigeons here’ (go ‘easy on me’ with the ‘bows and arrows’):
I going to make a ‘profound’ statement that ‘flies in the face of all that’s good’:
I’m starting to believe that the reason a lot of people fail is because they trade TOO LITTLE of their account!!!
No before you start ‘arming yourselves’ let me explain:
Right up until about a month or two ago I was buying one lot here and one lot there and was not making any REAL money at all (even although the system I’m using now is working very well for me) which ultimately just leads to frustration. Now before I go on here I must just mention that although I’m quite a few $K ‘down’ (OK well maybe more than just a ‘few’) because of my ‘antics’ last year I do know WHY this happened and I can tell you that frustration, coupled with the constant ‘pressure’ to make enough money to ‘pay bills’ at the end of every month, also contributed to me making ‘idiotic’ trading decisions (OK there is a lot more to my ‘demise’ than that BUT I’m just mentioning factors ‘pertinent’ to my statement above).
I base my statement above on this from ‘New Concepts In Technical Trading Systems’ by J. Welles Wilder Jnr.:
[I]’(1) Don’t margin more than 15% of total capital on any one commodity.[/I]
I Don’t margin more than 60% of total capital at any one time.’.[/I]
Now it’s funny that this came up because I was sitting here not too long ago and had a single position on Soybeans which almost immediately turned to a nice profit (yes: it could have turned to a loss too but I’ll get to that). I had a look at my ‘situation’ and then thought to myself: ‘but I have MORE than enough capital to have at least 5 positions on Soybeans at any given time in keeping with Wilders’s money mangement rules so why am I messing around with a single position’. I now (can and do) trade 5 lots / contracts at a time and I don’t know if it’s just because it’s Soybeans or what but it’s really no problem to make 25% or 30% (or more) in a day. I’m still within ‘the rules’ and if the positions went against me my stop and reverse point is close enough to NOT be breaking the other ‘risk reward’ rules as are generally accepted by everyone (OK, admittedly, I’m now prepared to go to 5% whereas the ‘rules’ say no more than 1% to 2%).
What I’m actually trying to say is this: trading TOO SMALL or TOO CONSERVATIVELY can be ‘a negative’ as well i.e. what’s the point of trading a $100 lot of anything when you have $10K in your account? At the end of the day your profits are in no way going to be proportional to your capital!!!
So my answer to the question:
Is it possible with the right training, discipline, and time given to make a living with a mini account i.e. starting with $10000
is a very definite and resounding ‘YES’ BUT (there is always a ‘BUT’ isn’t there): just READ the words used in the question i.e. ‘the right training, discipline, and time given . . .’. Those words are ‘the key’ NOT how big or how small your account is.
OK - I’m going to ‘duck’ under my desk now!!!
dpaterso,
I understand what you’re getting at but how would you apply this to forex? What I’m getting at is, if I have a $10,000 account how many lots would you recommend? Even though my system seems to be working I’m not sure I should be buying more than one lot.
Thanks for the help,
Max
Hello,
I’m just saying this (according to Wilder):
Let’s say that you have $10 000 worth of capital and let’s say that a single lot of ‘something’ will cost you $500 i.e. the margin requirement for a single lot is $500. According to HIS money management ‘rules’ you COULD be buying 3 lots at $500 each instead of just one lot AND furthermore (all lot costs or margin requirements being equal between instruments for the sake of explanation) you could be trading a further 3 instruments with 3 lots of each. In other words: you could be trading 4 different instruments at the same time with 3 lots per instrument. On the figures above you would not be margining any more than 15% of your total capital on a single instrument AND you would not be margining more than 60% of your total capital at any one time allowing ‘room to move’ (this being, of course, dependant on your leverage which is a whole other ‘story’)!!!
I get it now, that makes sense. Thank you!
No problem.
I have been through the process where you’re sitting with a huge capital balance and making ‘miniscule’ profits and there is no good reason for this. What it DOES manage to do, however, is frustrate ‘the living sh*t’ out of you which inevitably leads you to take trades when there really was no ‘set up’ or valid signal and, of course, losses result. It also makes it a whole lot easier to take profit. I know that sounds ‘strange’ BUT it’s a whole lot easier to close out a position early if it’s showing a $1K profit than it is to close out a position that’s showing a $5 profit. You’ll tend to ‘hold on’ to the $5 trade ‘until the cows come home’ hoping that it will turn to $5K but it never does. On the other hand (especially if you’re working toward a goal or have bills to pay every month) it’s easier to set your sites on X amount every day and close out when you’ve reached that goal. I think it helps you to ‘wait’ for the right ‘set up’ and results in you really only taking the ‘primo’ trades as opposed to taking every single trade where there is only a small ‘hint’ and ‘hope’ of profit.
I suppose it (once again) comes down to the ‘all important’ ‘psychology of trading’. Master it: and the sky is the limit. Discount it: and you’re ‘done for’!!!
Unless, of course, you’re in the position of having to make $xxx today or you’ll need to drawdown from your small base account balance to pay the bills. That kind of pressure will ruin your trading, and probably give you hyper-tension to boot.
Well here’s another point of view…
First decide what kind of risk you want to take per trade. I recommend about 2% for a 10K balance. The amount of lots you can trade depends on what you think your average stop loss (in other words your risk per trade) will be with your system.
Then divide your avg. stop loss by your %risk target. You then get a dollar amount that you should have per minilot traded. Here’s some examples:
25pip stop losses = 1 minilot for every $1250 you have
50pip stop losses = 1 minilot for every $2500 you have
100pip stop losses = 1 minilot for every $5000 you have
2% is still on the risky side, so you might want to substitute another value into the formula. Hope this helps you. It can help you decide on your lot usage whenever you change your risk target, stop loss average, or account balance!
I just want to add that what I said above doesn’t mean that you can’t take more than one trade at a time. So you could by all means be risking more than 2% in TOTAL, just not on a single trade. If you have 5 trades open (assuming they are diversified), then this is no different than taking 5 trades one after the other, risk-wise. Make sure you aren’t going to be margin called before your stop losses are reached though, that’s important to watch too.
But beware, some pairs are highly correlated so you could be essentially doubling your risk without realizing it.
Hey listen, akeakamai,
I’ve been meaning to post to thank you for YOUR insight and calculations. Great stuff.
I don’t stick to the 2% rule but it’s because the system that I use does not use stops as such so I cannot simply just say to myself ‘OK well my stop loss must be set here in accordance with the 2% rule’ for the simple reason that I will only know at the end of the day (at the close) whether I should be placing an order to stop and reverse or not.
Anyway, be that as it may, that’s my problem, and the way that you have worked it out and presented it is ‘first class’ especially for new traders.
Edit:
I’m actually so glad that this thread was started because there are MANY people under the wrong impression that you only TRADE with 2% of your capital at any one time AND THAT IS WRONG!!! I also thought this when I first started after reading the threads on babypips and after a while it just did not make sense to me i.e. let’s say you had a $5K account so now you’re only trading with $100 of that amount and I started thinking to myself ‘what is the point of this for crying out loud’!!!
lol I totally agree with you, I think the 2% risk thing is just a rule for people to stick to cause sometimes money attracts us and we get carried away, rules are always good but if you have a good ummmm brain? you should be able to tell how much risk should you put in that gives you the best chance of wining and the lowest chance of loosing… lol
Your position size should come from testing of your system and your risk tolerance. That’s basically it. Anything else really is arbitrary.
This is a forex trading calculator used in excel. this is what i use to help discipline myself for what lot size i trade.
Yeah I totally agree, that’s what I was trying to get across with my formula. The variables are avg. stop loss (as figured by your system) and your risk per trade target (your risk tolerance). I just wanted to give the new traders out there the next step in applying these ideas in their own trading.
I’m also in favour of a drawdown limit. A certain percentage you can lose before you stop trading, and really take a step back to see what’s going wrong.
In January, I went over my drawdown limit (of 25%) a little bit, and worked things out over the next week. I came back with a longer-term plan, that made more sense for me, and it’s been working pretty good so far.
I agree with that in theory. The problem, though, is that the drawdown limit must be based on what testing of your system has shown to be the type of drawdowns seen. For example, if you have a system which frequently draws down 10% and you set your shutdown point at 25%, that’s probably good. If, however, you set your drawdown point at 25% and the system regularly drawsdown 30% or more, then chances are you’re going to stop trading at exactly the wrong time.
I guess it would be more applicable for people without systems, or without systems that use stop losses. I think dpaterso had a system like this that he mentioned, for instance.
Hello,
Yup: you are right. For the most part Wilder’s systems do not use stops ‘as such’ i.e. a ‘stop loss’ is actually a ‘stop and reverse order’ AND THEN ONLY AFTER the price has reached a certain point at which time you would then place the stop and reverse order ‘a few ticks’ (I actually hate that phrase i.e. what is a ‘few’ ticks?) above or below the high or the low respectively. The reasoning behind this is that ‘most times’ (I quote Wilder here) the price will reach this point and then turn around again and I can certainly vouch for this behaviour of late. The obvious thing to watch with systems like these is NEVER to overtrade your account!!!
In another quote he ‘sums it up nicely’ for me:
[I]‘Most traders have experienced the frustration of using very close stops and being continually stopped out. They then realize that all these small losses often consume - and sometimes exceed - the occasional large profit’ (J. Welles Wilder Jnr. on ‘The Trend Balance Point System’ from ‘New Concepts In Technical Trading Systems’.[/I]