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Minimum starting funds to learn to trade


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  #101 (permalink)
 
Massive l's Avatar
 Massive l 
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DaxyMcDaxFace View Post
Hi Massive

Apologies, but combining both statements (which you did), you are suggesting exactly what i said.


Ok, i have tried to qualify my response below.

Lets agree to disagree.
-----------------------
hi @artemiso

explicit: statement of fact.

implicit: 'suggesting'....is an opinion, which i am trying to say as polite as possible, is incorrect, as is yours, sorry. At best you are making a sweeping statement - provide me the research you have done then that will add value. To counter, theres thousands who have and are doing well starting from small accounts.....albeit poss blown a few times. What follows hopefully explains more....

@deaddog

This is your opinion. Prop traders start off with an account balance of 0. So we may be talking semantics, but noone has mentioned it so far.

To add: prop firms i have worked in, your account is built from your pnl, from day 1, ie its 0. I know plenty who have made millions starting from 0. And they only ever keep in trading account 100k max to qualify for better profit share deal, their limits are based on prev performance, and day targets are 5-20k - which makes the % return per day discussion moot as there is a whole load of other stuff to account for....eg the prop firm are putting up 1/2 mill perhaps to facilitate the trader. Leverage etc.


Happy to discuss further.

Rgds.

Nothing more than my opinion. Your opinion is based on a prop firm where a trader starts out at 0. Okay...I guess that works as well. Cheers.

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  #102 (permalink)
 
jakobe's Avatar
 jakobe 
Atlanta, Georgia
 
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I feel like this question is subjective on the instrument you are trading. For me, I trade the mini nikkei225. With the low tick value and liquidity it provides a very low risk market to trade. I'm still a beginner and learning things but I feel comfortable with a 5k account starting out trading only one contract and limiting myself to two trades per session.

However, for most of you posting here you're probably trading the e-mini s&p .. that requires a much larger account to be successful. Still though, you have to know what you're doing to be successful... regardless of account size that skill set comes first.

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  #103 (permalink)
davidtaylor
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jakobe View Post
I feel like this question is subjective on the instrument you are trading. For me, I trade the mini nikkei225. With the low tick value and liquidity it provides a very low risk market to trade. I'm still a beginner and learning things but I feel comfortable with a 5k account starting out trading only one contract and limiting myself to two trades per session.

However, for most of you posting here you're probably trading the e-mini s&p .. that requires a much larger account to be successful. Still though, you have to know what you're doing to be successful... regardless of account size that skill set comes first.

A trader's leverage ratio and the volatility of the products they trade is more important than account size.

Lower leverage products: QM M6E YM

Lower volatility products: ZF FGBM (If you want to cry, FGBS and ZT)

If you trade lower volatility or lower leverage (relative to account size), your risk per trade/day/week will be much lower and therefore your risk of ruin, and ability to survive much higher.

Other issues with higher leverage and volatility is that the bigger % swings in your account will make losses emotional, and make you base decisions on P&L, not the markets. It also forces you to have tight stops and therefore limit the ways in which you can trade. It inevitably pushes you towards scalping, for the accuracy and tight stops, even if this isn't really what suits your personality, knowledge, skills or where you'll be successful. Having either very big risk per trade, or very tight stops, isn't a great proposition, especially if you're trying to build capital and confidence.

Just my opinion. I've attached a risk of ruin calculator I found online in case anybody wants to play around with it.

0_Risk_of_Ruin_Simulator.xls

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  #104 (permalink)
 
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 wldman 
Chicago Illinois USA
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jakobe View Post
I feel like this question is subjective on the instrument you are trading. For me, I trade the mini nikkei225. With the low tick value and liquidity it provides a very low risk market to trade. I'm still a beginner and learning things but I feel comfortable with a 5k account starting out trading only one contract and limiting myself to two trades per session.

However, for most of you posting here you're probably trading the e-mini s&p .. that requires a much larger account to be successful. Still though, you have to know what you're doing to be successful... regardless of account size that skill set comes first.

Yes, subjective. I think you have to have adequate capital to be able to trade properly sized positions with enough risk tolerance to stay in the game through some frequency of consecutive max drawdowns. There are often hard rules, one set of which I will outline here if any single person types do it. (hate typing to myself) Truth is, I bet that the typical fio member that is actually trading, as opposed to playing a video game, has no knowledge or regard for these elements.

Anyone that wants to could take a calculator to a common popular risk approach and reverse engineer what an appropriate amount of capital would be. In my experience the "rules" for risk and position sizing "evolve" as determined by an individuals ability and good or bad sense. There would be all kinds of viable opinion on that. Personally I would push position size and decrease risk per contract as I made money. That is to say I'd trade bigger when I was winning. I paid a ton of money to learn that you do not trade bigger or average in when losing. Instead when I had losing trades I started to review the tactics (timing and reasons for entry) but I followed the logistics (risk protocol).

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  #105 (permalink)
 
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 wldman 
Chicago Illinois USA
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Risk, Net Liquidation, Volatility, Position Sizing along with Products Traded are all considerations that are interrelated and important to determining chances of success. Here is an outline of a popular and very successful approach that was implemented in the early 1980's.

1) Create a volatility based constant percentage risk position sizing algorithm...one that normalizes the dollar volatility by adjusting position sizing. So positions that move a large dollar amount are typically fewer contracts than ones that move less in dollars. This means that different trades in different markets tend to have the same chance for a particular dollar gain or loss. This is/allows appropriate "diversification" across futures markets. So an account should be big enough to trade different sized positions across markets...how many dollars, I'm not sure. If you are crafty, you can build an algo that does all kinds of assessments across the field of items you trade. Getting programing help with this is why wldman came to this forum...still looking.

So what do you use for volatility and the dollar volatility adjustment? Easy and numerous solutions, but here is a simple, clear and effective way. Start with ATR, specifically a 20 day exponential moving average of the true range. NOTE that I am using a Day time frame, that is extremely rare here in the forum as a day seems like an eternity for most of you guys. This is why every secret is safe....someone will immediately ask, will it work on 3 minute, what about 144 tick etc. Yes, just adjust your periodicity on your ATR calculation to 20 bars on whatever secret chart you are in love with. When you do the calculation on the special secret chart you will discover a CLUE, that is a big clue. Go back to the 20 DAY exponential MA but don't lose in your mind the frequency of trades increasing over shorter and shorter periodicity. The account has to be big enough to hang through some shit if you are serious.

Okay, you need to determine the dollar volatility represented by the underlying markets ATR. Simple enough, take the numerical value for the 20 DAY exponential moving average of the product and multiply that by the dollar value per handle of the product. This is your "market dollar volatility".

I'm doing this from memory, so bear with me and ask if something sounds stupid. So, back to account size...and this was a professional trading group (established). The rubber is going to hit the road here. To create a "unit" divide 1% of the account value by the market dollar volatility number. If you are trading a single market your maximum units is 3.

So that would take care of one element of risk, the position sizing. If someone provides the ATR value for what they trade we can plug it and move to the next measure of risk. Right now I have to throw some crust and bake a pizza or two.

If anyone thinks the discussion points matter just say so and I'll finish the next part of the idea...like I said, no point in typing this for the wldman.

Dan

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  #106 (permalink)
 
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 Big Mike 
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grausch View Post
These types of threads always tend to go that way. No one wants to hear that they have insufficient capital and most people believe themselves to be more lucky or good than others - @Rory mentioned the specific name for this recently, but since there were no pics, I can't recall what it's called. Think it was something like the Kruger-Dunning effect, but my ability to use Google also seems quite bad right now...

If someone is undercapitalised, it generally stems from having too little access to money and trading is seen as a way to increase their money. I mean Richard Dennis turned $400 into $100 million, Ed Seykota $5k into $15 million and Michael Marcus $30k into $80 million. However it does not mean that I or any other trader can accomplish that same feat. Accepting that a dream is unrealistic is difficult for most - it was for me! It touches on emotions we quite often don't want to face.

Saving up to be properly capitalised was probably one of the best moves I did, but still does not guarantee success at trading. It merely means I can survive longer.



Mike



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  #107 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
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There is no real right answer but below I share some suggestions for ways to think about the problem, and at end I'll provide my opinion:

1. Look at what tracked systems require as a minimum. Most systems require around 7k-10k. This will yield a suggestion for the minimum required to trade a given market.

2. Futures are unique in that they have fixed point multiplier, high leverage, and low friction. The best trading instrument for most traders will be variable multiplier, high leverage, and low friction. The fixed point multiplier means that it is not always possible to set a stop loss as large, in terms of market % movement, as you might like.

One way to think about it is to look at the average daily range in dollar terms. This will show where the most lucrative markets to trade might be. Second you need to think about what type of stop loss you would need to trade a certain daily range with a certain precision and accuracy and how many trades you will make. Say a market has a $1000 daily range and you figure you can call it up or down with about equal risk then you'd need a minimum of $500 stop loss per day. However, this would only yield a single trade. So, we might build in some buffer and figure for $750 stop loss. You take that number and then you figure out what the probability is of having some run of losses of that max size. From experience, I know that most systems that work will rarely have more than 12 consecutive losses. 750*12= $9000. Finally, you figure in a realistic loss point for an aggressive account, we'll go with 35% yields around 25k. Another way to do it is to figure it from the perspective of realistically most traders won't be comfortable losing more than around 3% to 5% per day but it depends on the probability of experiencing a maximum loss. If the probability is very low then some traders might be willing to risk a very high % of the account.

But let's go with 4% which is very aggressive but would still allow for 5-6 maximum loss days in a row. If you want a $750 daily loss limit then your account will need to be around 19k-- round up to 20k. This means to be able to risk $750 per day and not risk over 4% of your account you would require a 20k account.

3. Calculate what you need to make from trading to make it worthwhile. The median salary is around 50-60k in the US. Next, you would calculate backwards to find out what you'd need to exceed that in order to grow your account and so forth. A reasonable number for most people is going to be somewhere between 55k and 140k. The point is once you can make more money trading then doing anything else you could do then you are successful. We'll go with a middle road estimate of 60k--which is a going to be a bit low for many. But, you need to add some funds to that for account, so we'll go with 70k. Next, you determine what type of return you need to make 70k.

Next you need to figure out a return level to produce the 70k and a shortfall return rate, as well. Given an equal probability of making or losing money and DD rate for any given year of 30% then that implies about a 30% return possible. Some could do more and some less. But, that would yield an account size of 233k. If a trader is willing to risk 50% to make 50% then we take 70/.5 = 140k. So we have an estimate of between 140k to 233k.

4. Calculate what you think you could return for a given daily risk level. Forget about drawdowns. Let's see what we could make risking 1k per day. In this scenario, we'll imagine we can make some percentage of that at high probability. Let's shoot for 25% per day on 1k risk. What is the implied return rate? 60k. This is within the bounds. Next, what is the minimum account size. Method 1, take max daily risk and multiply by 12 = 12k. But we might want to add 5k to add that for margins/etc. So that yields 17k and an implied return rate of 3.5x or 350%. Next, we might want to go with the 3% to 4% max loss per day. The suggested account size is similar in the 25k to 33k range.

5. Cash flow principle. Let's say basically a trader stands to make about as much as he or she stands to lose in a given month but that a good trader will tend to make versus lose money. In this case, in order to hit the lower bound of 60k/year you basically need 5k to trade. But, you must be able to replenish it every month. So you need a discretionary cash flow of 5k. At start of every month, your goal is to make 5k. If you lose then you limit your losses to 5k per month and reload 5k the next month.

6. Percentage of contract size. Find the true nominal value of a contract. It looks like if I didn't make a mistake the ES is worth around 112k and next you determine some reasonable minimum percentage of the nominal to have. 50% or 2x leverage yields 56k. So, if you want to be able to put on a trade at only 2x leverage you'd need at least appx 60k.

Conclusion of analysis:
It is possible to trade very selectively/conservatively with a very small account of only 5k to 10k. However, an account that small will not allow for any mistakes or experimentating both of which are needed for discretionary trading. So, if you trade with less then 10k then you are more likely to be successful trading a system.

Account sizes in the 25k to 33k do allow for an elite level trader to make significant returns. But, they do not allow for any shortfall. Beyond that, many very solid/good traders as defined by a return rate of 50% would only be making 12k to 17k at this level which is hardly a living.

The analysis suggest for maximum and long term success account sizes in the 140k to 230k would be beneficial. It is also possible to figure given that most jobs will top out at under 200k and most at 140k-150k and a return rate of say 25% that if you have an account size of 600k that it might be difficult to make as much money doing anything else besides trading. If you take an average of all account sizes you get 100k. If you take 10k, 25k, and 140k then you get 58k. This might suggest if you are between a really good and elite level trader or have performance that ranges from good to great that an account size of around 60k would be desired.

But, all of this analysis also assumes the trader is willing to risk this money. Realistically, most people will not be comfortable risking all of their savings. So, you might figure that to trade without excess fear that the 60k would need to be around 50% or less of total savings or between 6 months and 2 years of savings rate (i.e. either the trader will be risking less than 50% of his nest egg or be able to replenish within a couple years the account).

But you can learn to trade on the simulator. So you really don't need any money to learn to trade but might not do you much good. Just like, you can learn a lot of stuff without getting a degree or whatever but you might not be able to effectively use, i.e. in terms of getting a job.

There are a lot of advantages of having a larger account such as being able to size up winning trades. That is to dynamically increase the leverage without exceeding a certain maximum leverage level for the account. Also, the frictions from frequent trading will be lower on a larger account. I do think that having at least a 50k-60k account size would give someone a lot higher probability of being successful because it allows trading multiple contracts and also placing a single contract, i.e. if the daily risk limit is $1000 or average range is 1k, and still being at a very low leverage level. I.e. a 1k swing would be 2% at that level.

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  #108 (permalink)
 
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 Big Mike 
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Continuing this discussion with a new poll:

How much money do you need to successfully trade futures?

Total votes: 1062
 


Mike



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  #109 (permalink)
 
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 deaddog 
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Big Mike View Post
Continuing this discussion with a new poll:



Mike

Define successfully?

"The days when I keep my gratitude higher than my expectations, I have really good days" RW Hubbard
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  #110 (permalink)
 Babool 
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deaddog View Post
Define successfully?

I second that. What is successful ? Not blowing out your account ?, breaking even ? , making a 100 bucks a day ?, a 1000 day ?, etc... ? The question so general that practically any answer on the list could suffice.

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