the beauty of levels, the beauty of small accounts

Hi all

very pleased to start this thread, after many years as "just" FF reader.

first of all, why this new thread:
- I will benefit from public accountability
- I will benefit explaining and sharing my strategy: somewhere I read that "teaching" (or trying to ) is the best way to master a topic!
- a traders group with a similar approach should benefit every participant: it's kind of compound effect on multiple ideas and contribution

why this title:
- my strategy is based on levels: good levels are the kings of charts and I want to be their knight
- small accounts is not an attribute of my strategy, are also part of my strategy! (and then will see why)

what I will do:
- I'll share setups as they occur in my trading sessions, explaining why I want to enter the trade, and then... if I finally get triggered, how I managed the trade and what is the output
- I'll share not only my technical strategy, but also, or above all, key parts of my plan --> position sizing strategy, trading process/routine, trade reviews

what I expect from the thread:
- questions: I will happy to answer to your questions, objections and doubts, because these answers will let me explicit ways of thinking at the moment just... let's say "automatic" --> I see a setup that I like, I trade this setup, I know the main reasons why I trade the setup, but it's for sure better if I'll try to figure out and write down the specific features that I like in the setup!
- ideas: scanning markets for new ideas and patterns is a key part in every strategies, and it's quite impossible to find every good setups available during trading session! so, if we trade a similar approach and sum up our findings... I think we should benefit from more opportunities :-)

hope to speak with many of you soon!

dave v. samuel

Interesting thread, why, because I use the same strategy. I count levels and from there I know my direction. What level would you say EURUSD is in at eh moment?

this is my chart at the moment in eurusd;

interesting this zone where the price is right now: many touches in the last 2 days.

I'm still evaluating if I'll make business on this level: let's see the reaction out of the level

dvs

ok, let's go more in detail about the second part of the title: "the beauty of small account".

I was used to trade risking a standard amount in every trade.

At some point I realized that I'm missing a key part of every successful trading strategy: the power of position sizing/money management! I had never exploited the power of fixed fractional method, or fixed ratio and so on!

What a shame: I was focusing only in technical knowledge and missing so much value from position strategies!

You know what I mean? well... let's see with a little example.

Consider a strategy that barely stay on top of the game:
- win probability: 53%
- win/loss relation: 1
- equity: 10K

ok, now let's consider two different position sizing scenario:
- R=2% of 10K (200$) for every trades
- R=2% of equity (fixed fractional method)

As you can see with the attached results (source: equitycurvesimulator), in the first case it's likely that we finish (after 100 trades) with a 15% performance, while in the second scenario we should have an avg performance of 35%, more than double, let alone the outlier of distribution: 150% vs 60%.

That is not all: if you are able to raise up the fixed fractional percentage, you end up with even more surprising results! And what do you need in order to raise the percentage? Well, let’s see…
- high win probability --> if not, the likely drawdown will erase your equity
- psychological stability --> it’s not easy to risk 5% of your capital every trade

I had no problem with the first requirement, but I completely lack the second
I worked on a medium size account: 40/50K --> so, with just 2% fractional percentage, was almost 1k R for any trade! well... is a big chank of money for me, so I suffered psychologically and I trade very poorly!

I overreact to any loss, I skip pattern because of fear, I didn't respect any rules of position strategy and bet different size for any trade: it's a continuous pain!

Until I realized the beauty of small accounts: with an account of, let’s say, 2k, I completely erased worries and pain, and above all, I could raise the risk amount --> from 2% to 5%.
I ended up profiting with absurd performance on equity but not because I became Livermoore… just because I let compound did the eavy work!

please, think about this story, and let me know what you think!

dvs

let's start to share a couple of trades taken yesterday.

1. audusd
this is a level that I was waiting since friday; there is a big thrust candle that breakout on wednesday and a perfect come back with a vertical move yesterday. I liked very much the pattern, but maybe I managed the trade poorly --> I raised the stop loss (originally set under the thrust candle) after the 3 green bars after the entry --> so I was shaken out with the following spike for a -0.1R output.

2. gbpjpy
this trade work almost perfectly! there was a kind of VCP pattern, clear break and perfect retest --> I entered with limit order on the level and I had just a couple of pips of drawdown --> then straight to the target (next level).

This morning I entered two more trades, eurusd and audusd: at this moment are both in drawdown --> hope I don't have to write about a total -2R this evening

was afraid to report a -2R day and that's it

both trades yesterday ended with a full stop loss: however, I followed my plan so no regrets!

both pattern were in my confort zone, but every pattern, even the most effective, could end with a loss!

focus on the next trade!