A Trading Experiment

I'm not convinced that it is as simple as needing money to make money. If you need an income whilst you are doing it then it probably is impossible as it is practically impossible to turn $100 in to say an income of $50K within one year. If you don't need the system to provide you with an income in the early years then it is quite feasible to turn $100 in to $1m. The only variables are the quality of one's system in terms of annual return and how aggressive you are prepared to be on the leverage factor. The degree of aggression you can afford before it sends you broke is totally dependent on the likely drawdowns of your system - the lower the drawdowns the more aggressive you can be, and the level of aggression dictates how quickly your profits grow.

Theoretically it doesn't matter whether you are trying to turn $100 in to $200, $1000 in to $2000 or $500,000 in to $1m the scenario is EXACTLY the same -> will a bad period (drawdown) send me broke before I recover and move ahead.

The equation can be easily spreadsheeted, but I know that a system that can make 25% annualised return with a max drawdown of 2% and a 15:1 leverage factor does not send you broke and should double it's profits every 18 weeks or so. With a system as described above in a few years it is theoretically possible to turn $100 in to $1m. Now whether you have the patience, determination and psychological strength to do it - that's the really hard part !!!

it seems richp has got the jist of what it is about ... just to clarify I have placed no timeframe on this one ... and I don't plan to over-leverage (whatever that is) ... but will concentrate on the appropriate gearing (for those that have read BWILC).

Akuma99 - you questioned what over leverage means. This is a critical issue. Unless you have the holy grail of trading systems you will need to leverage to achieve large sums because without it you will die before you can achieve your goal. Now if your historical max drawdown is say 5% of face value (say around 600 pips on eurusd) and you trade with a 20:1 leverage factor when the inevitable max drawdown occurs again (or worse) you will go broke because you were over leveraged ! This is beacuse 20*5 = 100 implying that 100% of your capital is gone ! Even with only a 2% max drawdown and a practical 15:1 leveraging your max drawdown will be 30% of capital which is probably about where most of us can withstand before losing faith and pulling the plug. Mathematicians have long established that mkts are well known to be normally distributed with fat tails - in plain english this means that you will experience small drawdowns for most of the time but the tsunami will occasionally occur and that when it does you cannot afford to be wiped out beacuse it's one shot and you're out of the game. In summary then, it is therefore imperative to know your system's max drawdown and not to be overleveraged when it occurs because it is going to happen at sometime on your path from rags to riches !

no
u need money as a start only !!!!
after this if u find trading method to earn more that losing u will win


~Walid

Well I guess we will soon find out ... the experiment begins:

http://tradingexperiment.blogspot.com/

I assume the lack of updates to this thread and your blog means yet another
low capital start up experiment has failed... I just wish people would play these experiments out till the end regardless of success.

Hi Tristan, that is a fair assumption, however this time it is not the case, the lack of update was due to me just getting out of hospital yesterday after close to a month there, I will be getting things back on track shortly

Jeez, AKuma, I hope you are ok now... Well wishes... Scott

well I have been diagnosed with cancer unfortunately, so im on the road to recovery, but all is going well .. look forward to getting back into the swing of things

Thats harsh Akuma, but it's good to hear things are going well. I will follow your experiment with great interest. Good luck with everything!

Hi Akuma,
I am very sorry to hear you have been unwell. I wish you a full and speedy recovery.
Take care
Antra

Cancer The most horrible word going around these days, anyway I wish you the best and hope you recover fully.

My best wishes go with you, you know how much help you've been to me in the past, so I offer the only thing I can; my wish for a full recovery and many more posts

May God protect and cure you Akuma

Really sorry to hear your news but great to hear that you're recovering well.

Kind Regards
Steve

Thanks all for the well wishes, I remain positive and Im sure it is something Ill beat in the long run. At least it will give me more time on the markets

Hang in there man. It's gonna be alright.

Akuma many get well wishes from me. My great friend just battled cancer and is now in remission. You WILL beat it. Take care of yourself and stay positive like you are. Many prayers for you.

Fast and Speedy recovery
Michael

Hi Akuma,

Sorry to hear about the ordeal. Best wishes to you! Pray that you will have a speedy recovery!

Ken