grausch 

I think most people underestimate the amount of capital needed that it takes to trade successfully if trading is your only source of income. I have attached a spreadsheet of a trader making 100% per annum on a $100k account who wishes to withdraw $5k a month to live off. First example uses linear returns, i.e. compound interest at 6% per month which adds up to just over 100% per annum. The second example uses more random returns, I assumed losing months of -1% and just increased winning months by 1% per month. Final month returns were obtained using a goal seek so that annual returns would be 100%. In the second example the account will have less capital in at than it had at the start of the year. The trader returned 100%, but is still down for the year! Remember that in real life monthly returns can be subject to big swings. It would be unwise to assume no one will ever have big losing months. So, for each individual to determine whether they are sufficiently capitalised to trade full-time, anyone can just take their trading statements for the last 2 / 3 years and populate the spreadsheet I have provided with their monthly returns for that period, their current starting capital and their desired monthly withdrawals. Once that is done, they still need to have an extra withdrawal for taxes which may happen once or twice a year and perhaps consider reducing the monthly returns to add a level of robustness. Once that is done, anyone can see how much capital is needed to trade full time. In my own case, I would not consider trading full-time with less than $500k, even if I average 100% p.a. for 2 or 3 years. Even if I could survive off my capital, I want the account to grow and $500k would be the minimum for me to entertain going full-time.

Excellent post! Everyone contemplating full time trading should read your post.

My personal experience (and observations from watching others): determine how much you think you need, then multiply it by 2 or 3x. You'll always need more than you think.

teee 

I actually disagree. Size management is a very key lesson for new traders and it can only be done by practicing trading with more than 1 lot. While it is possible one find an edge by trading one lot and successfully scale up with all in all out style, the restriction on potentials and possibilities is not worth the capital saved. There is many other ways to achieve the purpose of capital preservation in the early stage: trade TST combines or trade smaller tick size contract like YM. Sent from my iPhone using NexusFi futures trading

There's no right or wrong answer, but here's my rebuttal.

Is it actually important for new traders to learn about size management? They'll be dealing with so many psychological issues that come with trading their capital at first. So why make things more complicated by adding size management into the mix.

In my opinion, you need to lay out the problems and prioritize. Psychological issues at the beginning of a trader's journey are far more important to learn and correct than size management.

In essence, having the best size management in the world means absolutely nothing if a trader can't follow his/her trading plan.

If you can't follow your trading plan, trading more than 1 contract won't fix that problem, it'll just cause you to lose more money faster.

SoftSoap 

There's no right or wrong answer, but here's my rebuttal. Is it actually important for new traders to learn about size management? They'll be dealing with so many psychological issues that come with trading their capital at first. So why make things more complicated by adding size management into the mix. In my opinion, you need to lay out the problems and prioritize. Psychological issues at the beginning of a trader's journey are far more important to learn and correct than size management. In essence, having the best size management in the world means absolutely nothing if a trader can't follow his/her trading plan. If you can't follow your trading plan, trading more than 1 contract won't fix that problem, it'll just cause you to lose more money faster.

I think we are going off topic a bit here, but I do want to quickly respond to your arguments because I personally believe coaching/training a new trader with one lot is very irresponsible.

Is it actually important for new traders to learn about size management? 100% it is important.

I don't know about you, but all my prop trader mates and myself found the day we got our second lot an eye opening day. We all found most of the 1 lot trading methodology /psychology became rather irrelevant and we all agreed on if we had the choice, starting off with even just two lots will significantly helped in speeding up our learning process.

Yes psychology, methodology and etc are important, but is the right psychology and methodology with one lot important to master? I argue not unless you are very certain you will become an all in all out trader.

Sure, size management means nothing if a trader can’t stick to his/her plan. But instead of practicing for stick to his/her one lot trading plan, why not practice to come up with a multi-lots plan and stick to it? I believe size management and discipline are overlapping topics/lessons and separating the two is rather contradicting.

The downfall in starting with more than one lot is only $$, and it can be easily solved: trade smaller value contract, join TST, or even join a prop firm.

SoftSoap 

There's no right or wrong answer, but here's my rebuttal. Is it actually important for new traders to learn about size management? They'll be dealing with so many psychological issues that come with trading their capital at first. So why make things more complicated by adding size management into the mix. In my opinion, you need to lay out the problems and prioritize. Psychological issues at the beginning of a trader's journey are far more important to learn and correct than size management. In essence, having the best size management in the world means absolutely nothing if a trader can't follow his/her trading plan. If you can't follow your trading plan, trading more than 1 contract won't fix that problem, it'll just cause you to lose more money faster.

I think teee is right. You are correct in saying that at the beginning there's so many hurdles that chucking in also size will make things even harder, especially for those, like me, that heeded the advice of star traders such as Linda Raschke saying "you must start with 1 lot".

Trouble is, when I read back FT71's comment somewhere on here that 'trading with 1 lot' is actually one of the hardest things to do, it all start making more sense.

So my point is, it's worth, even for beginners, to try (maybe on SIM) to play with 2-3 lots to see if that makes things easier or not.

xplorer 

I think teee is right. You are correct in saying that at the beginning there's so many hurdles that chucking in also size will make things even harder, especially for those, like me, that heeded the advice of star traders such as Linda Raschke saying "you must start with 1 lot". Trouble is, when I read back FT71's comment somewhere on here that 'trading with 1 lot' is actually one of the hardest things to do, it all start making more sense. So my point is, it's worth, even for beginners, to try (maybe on SIM) to play with 2-3 lots to see if that makes things easier or not.

Where can I find the discussions you cite? They seem interesting. I am asking about the Linda Raschke and FT71 comments. I did find a cool post with charts about all in/all out versus all in/scale out more when searching thru FT71 posts - page 9 on Webinar: FuturesTrader71 (FT71) Trade Management Techniques.

I am glad we are discussing this as the amount to have can depend on how many contracts one trades.

It seems sim one, then sim scaling is the way to start since scaling can be in the back of one's mind when sim one. Then maybe start live with scaling. It can seem complicated but learning scaling would be like having another arrow, but one does have to use it effectively.

The YM seems the medium between the anxiety of the ES and the dull grind of the M6E, granted they all have their merits, but the YM seems to be the solution in terms of possible psychological comfort when starting out. Plus, starting the trading day at 2am seems a little too hardcore for me.

johny1971 

Where can I find the discussions you cite? They seem interesting. I am asking about the Linda Raschke and FT71 comments. I did find a cool post with charts about all in/all out versus all in/scale out more when searching thru FT71 posts - page 9 on Webinar: FuturesTrader71 (FT71) Trade Management Techniques.

Linda Raschke - from book Street Smarts. High Probability Short Term Trading Strategies:

Quoting 

Immediately look to scale out of your trade as the market moves in your direction. By taking some of the trade off, you are decreasing your risk and locking in profits. If you are trading on a one-contract basis, as you should if you are a beginner, move your resting stop to protect any gains.

and

FuturesTrader71 

[...] In my opinion, trading a 1-lot is much tougher than trading multiple contracts. Through Stage 5 Trading and by watching traders trade, I noticed that traders do one of the following when their account is not big enough to manage multiple contracts: There is a tremendous amount of fear and over-thinking while the market is moving Trade a 1-lot with a very tight stop while using too much leverage for their account size Trade without a risk limit for the day or defining risk per trade (after all...it is a do-or-die situation) Overtrade and do so randomly [...]

From this post

I see where you guys are coming from, and I don't want to add a rebuttal because you guys are clearly more experienced and know more than me lol.

Just thinking about it from a logical standpoint, if someone has a $6,000 account, or even $12,000, I don't see how it's advisable to risk more than 1 contract, it just seems like you'd be taking way too much risk per trade.

Although if you are scalping I guess it could work, I don't know the parameters to be a successful scalper though.

Cheers.
@teee @xplorer

SoftSoap 

I see where you guys are coming from, and I don't want to add a rebuttal because you guys are clearly more experienced and know more than me lol. Just thinking about it from a logical standpoint, if someone has a $6,000 account, or even $12,000, I don't see how it's advisable to risk more than 1 contract, it just seems like you'd be taking way too much risk per trade. Although if you are scalping I guess it could work, I don't know the parameters to be a successful scalper though. Cheers. @teee @xplorer

Don't get me wrong, SoftSoap, I did not intend with my posts to infer that one should try to trade more than 1 lot at the beginning. Linda Raschke's advice still stands IMO.

My point is that one should be aware of the fact that trading 1 lot as a longer term proposition can be tough because once you close it you're out of the trade, whereas being aware - even at the beginning - of the benefits of trading multiple lots can be helpful from a preparation point of view.

Hope this clarifies it.

It's not hard to trade multiple lots/contracts in a small acct when you're trading intraday margin.

Trading 1 contract is infinitely difficult, and super super tough to stay profitable.

We trade at minimum 3 ct, using a method that initially started with the Joe Ross Hook.

Jimmy

SoftSoap 

I see where you guys are coming from, and I don't want to add a rebuttal because you guys are clearly more experienced and know more than me lol. Just thinking about it from a logical standpoint, if someone has a $6,000 account, or even $12,000, I don't see how it's advisable to risk more than 1 contract, it just seems like you'd be taking way too much risk per trade. Although if you are scalping I guess it could work, I don't know the parameters to be a successful scalper though. Cheers. @teee @xplorer

though I stand my stance that new traders should start with more than one lot, this is coming from me, a prop trader's perspective. My strong belief of this being right doesn't make it right. I mean this is what the forum is for right? We bump our thoughts and grow as a whole =]

You are absolute right if someone has $6000, tight risk from trading more than one lot might cause psychological burden given the risk of ruin. This brings back to our topic, how much do we need? It's already well covered by most people here, more the better. And 6000~12000? One better trade that account being well awared it will be blown at one point... Trading small acounts are trading lessons and these lessons should definitely cover size management. If one cant tolerate the financial costs, there are alternatives as I suggested.

I think to be successful in trading, base capital of 250,000+ with investment of 20,000~ 100,000 as tuition fee is about right, in my opinion.





Sent from my iPhone using NexusFi futures trading