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The other spin on having $25K before you start is to have a reserve that you don't send the broker. That way if you bust your first $2500 you have risk capital to go back to the drawing board. It's all about money management in the end.
I learned a big lesson about money management with gambling that applies to trading way before I knew anything about trading. I was going to Vegas for the first time when I was young and didn't know anything about the the rules of the games. So I bought a book. The first section of the book was money management, not gambling technique. The guy said, "Take your bankroll and divide by 10. Only take 1/10th to the table (session money) at any one time and leave the other 9/10th in the room or with the spouse. Then take session money and divide it by 10. That is your max loss per bet. If you
lose your session money you are done for 8 hours, no going back to the table." Money management was the key to his gambling techniques.
When I started reading good trading books I was not surprised about how much time they spend on money management. Is gambling like trading? In a lot of cases, yes. You have to find your edge to beat the other guy (house or big traders). You have to be around and keep the losses small until the big streak (runner) happens. Most people lose to the house and most people lose in trading.
Make certain to do the math to keep that precious risk capital as long as possible to keep you in the game.
Andrew
PS When I go to Vegas and gamble I always beat the house. Always. It's about money management and finding your edge.
The casino has an edge on every single game. If you're an expert card counter in blackjack, you might eek out a minute edge which wouldn't mean much unless you were betting a huge amount of money at the perfect time and rarely lost. That would surely get the casino's attention and you wouldn't last long there.
If you are always beating the house, it is due to either luck or cheating. Money management will simply stall of the eventual grind of your bankroll in a casino.
The right bets in craps get you true odds (pass line odds bet for example), which is the best bet for the player in a casino because it reduces the money edge to the casino for the overall bet and the individual bet is a 0% casino edge. Why does the casino give true odds on any bet? Because most rookie betters don't know how to manage their money to take advantage of it.
The "edge" I was referring to is knowing how to manage your money, increasing bets at the right times when you are on a hot roll, being around long enough to hit the streak, and then walking away. That's the edge. Walking away when you are up. I've rolled 45 minutes at a craps table and busted the table. They needed to go get more chips from the vault. In 45 minutes my money was up 10 fold. I walked away. Most at the table stayed and gave all of their money back. I just don't do it as a profession because I don't like the smoke and I was at the table 12 to 15 hours waiting for that one streak. bleh
Search here for the words "true odds" and look at the chart at the bottom where it references house edge 0% with the Pass odds and Don't pass odds bets.
I don't want to hijack this thread so this will be may last response on gambling but I needed point out that there are bets in a casino that provide zero edge to the casino.
The original point is money management applies to many things similarly.
Initially I started out using a small time-frame chart & tried to nibble my way to the top & eventually found out that this trading style was either going to give me ulcers, deplete my account, or both. We're all different, however, and what feels like a good fit for one may be a poor fit for another. May I suggest a small SIM change - just as a test? Try a larger time-frame chart & try limiting your trades to 2 to 4 a night instead of 100. Do that for 5 days & see if there is a difference in profitability in comparison to your usual trading style. It's BORING, but seems to be paying off for me. I found myself beating my head against a wall, early on, wondering "Why isn't this working for me!!!" "I'm going to make this work!!" The trouble was "I" was the problem. Once that was recognized, then it was time to reassess and go back to the drawing board. Ego played a very large part in keeping me on the losing side. Letting go was the most difficult aspect of it all. I was sure that if I kept doing things the way that I had, that eventually it would work to my favor. Seems I was trying to bend the market to my will. Not that I'm saying you're anything like me. I know nothing about you, your personality or trading habits. Just trying to share what brought me from there/then to here/now.
I'm more peaceful now, more calm, relaxed & confident. Yes, a larger time-frame requires larger stops, but if you have a good setup & trust it & can read the signals it gives, as though you were reading a road map, then switching to a larger time-frame setup shouldn't make a difference.
Personally, I've come to recognize what Big Mike has advocated as well - trading doesn't have to be a full-time job. In other words, if you're used to working 8 - 10 hours a day, that doesn't necessarily mean you have to trade 8 - 10 hours a day. I'm coming to realize more often than not, it's to my benefit to place a few (2 - 4 trades) in the morning session & be done with it by lunch time. Once I stopped trying to trade as many hours as I work, in a week, it became more fun and ultimately more profitable. I took the pressure off of me.
Just a suggestion.
After all, it's what you learn AFTER you know it all, that counts!
I too hate comparing casinos and trading, but I do see craps as a microcosm of the trading world. While there are many strategies and approaches to craps betting - it continually amazes me how most people get sucked into the worst bets. I almost enjoy observing other gambler's behavior as much as the actual game.
Back on the topic - while it's not impossible to trade with a small account, I do believe it is much easier to be profitable with a large account vs small account. Some strategies don't lend themselves to a small account; therefore too much risk is taken. But I also believe that most people are ill prepared and as a result, they will blow out a large or small account the same.
Wizard - great advice. Imo, scalping on a sim doesn't translate to the real world very well at all. I think this is one of the reasons why many discover that live trading is less fruitful than their sim experience. Personally, I never became profitable until I learned to trade larger moves and to be more patient.
Sounds like a sensible suggestion. I have been suspecting all along that as I progress with my trading I will end up trading less and trying to capture larger moves.
I checked my trading stats for the month of August and I am actually trading far less than what I was a month or so ago. 33 trades per day for August, and as the month has gone on I have traded less. So the 100 I mentioned earlier may be inaccurate in hindsight, although there certainly were 100+ days earlier on. On those days I was fully aware that amount of trading is ridiculous, even though I was well in the black. It is just not sustainable, and probably would not work with live latency and fills.
33 trades a day is still probably too much... However I do feel very comfortable on 1 minute charts going for small moves. Most of my trades are capturing equalization in the noise. I think there is a lot more information displayed the smaller the timeframe. If a trader wanted to trade the underlying market moves rather than the short term noise, it seems to me smaller timeframes would still be useful for timing entries.
However, I like the idea of trading less. So I think next week I will give your suggestion a try. Try trading larger moves/timeframe for the week.
Twiddle,
What type of orders are you using and have you traded live with them? When I first started I was using limit orders for my SIM trading and I was scalping small moves. The limit orders do not fill in real life like the do on SIM. If the market moves through your price, no problem. But if the market touches the price you are in line behind others before your order fills. My SIM trading I found out was not realistic in the real world. Something to think about.
This is true wisdom....I suggest really taking the @Wizard's words to heart. 100 trades a night will drive you crazy AND give you an ulcer when you go live. I too started with smaller targets and have made the switch to looking for larger moves. It is boring, but we don't trade for excitement, we trade for income. If you need excitement, go out and sky dive or drive a car really fast......don't look to trading for your excitement.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
One other thing about turning a lot of round trips....commission costs will eat you up if your targets are real small. You need a high win rate just to cover your commission costs and the losses you will surely have. Looking for larger moves will reduce the commissions as a percentage of your profits and the nice thing is your stops while somewhat larger will be very small in relation to the potential rewards you will be targeting.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
I think most of us here on Big Mike's have smallish accounts. There are many who say its impossible to be profitable with a small account. I think they are 95% right. However, for many of us, its the hand we are dealt and therefore we must use it …
Its not perfect but some of the trials and tribulations of my journey are documented there. Several people have chimed in and I've found a lot of value in listening to the different perspectives there.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris