(can) small accounts make a living ?!

Ok,

The answer to our question works a bit like the dials on a safe:

they all have to be in the right place before you are able to open the door.

That is the reason why I have thrown all the different aspects into the conversation. Each of them represents a dial (or its combination) that will have to be put (in the) right (place) prior to applying the equation which has worked for me over the years.

The good thing for you is that you have a certain freedom in choosing and applying some of the 'dials' and the whole operation will still be a success.

One of the parameters you can choose is the actual method you might want to trade- and there are as I mentioned, plenty around - it is your task to find the one that fits your mentality. Most of them come completely without money-management guidelines. It is your job to apply the MM according to your needs and according to your capital.

It will also be your responsibility to identify which of the methods have the right properties to take from the markets what you need - I can only guide you by pointing out what has, and still does work for me.

It may sound daunting but please realize that most methods/systems/grails are based on the same principles: to get you in and out of the market preferably for a profit each time. (I say this with a little sarcasm attached because in my opinion, many of the methods make it rather more difficult to achieve that goal by being overly complicated)

I will most likely be through with the thread by tomorrow - early next week the latest. That does not mean I won't be answering questions after that - should there be any, of course.

I will as promised be particular about capital requirements, position sizing, money-management stops, compounding and will give some examples of how I personally enter and exit my trades.

H. Rearden

Hi all,

Can some readers tell me the following:

Their countries average annual income per person.

The corresponing income tax bracket for that income.

Here in the UK for example, its approx. £23.000 with around 27% tax.

Thank you.

H. Rearden

Where I live 2008 average income would be 8 080 eur and 23% tax.

We are in the far end of European Union, lol.

That said I need approximately 31 000 eur to maintain my lifestyle (in case I want to pay the income tax, lol).

U.S. $37500
http://www.success-and-culture.net/a...ome.shtml#data

25% on taxable income (after qualified deductions). http://www.moneychimp.com/features/tax_brackets.htm

Hi Piccolo,

Thank you for the information.

You are well above the average where you are - never mind about it....I am just trying to establish some common ground for the average reader.

H. Rearden

MysticFX,

Thank you as well - that might be all I need. Unless we have people from asia or australia on the thread.

H. Rearden

In 2007, in the U.S. the real median earnings of men who worked full time was from $43,460 to $45,113. all things being relative, that's my house payment.

Looking forward to hearing more from you H. Reardon.

Hi,
I am not arguing here, just think your physician analogy is a poor one.
Here is an analogy I prefer, as it pertains to physicians, and other professionals (Traders)
My wife is a physician, and earns a nice six figure income. But lets look at what she had to do, to get to the point she is at today.
After 12 years of basic education (I am not sure how the educational system is setup in the UK), she attended 4 years of college. In college, she had to maintain excellent grades just to be considered for admission into Medical School. Medical school, here in the States is 4 years, so far that's 20 years of education. Upon completion of Medical School, she had to apply for, and be accepted into an internship program ( like an apprenticeship ).
Depending on specialty, then a 3 to 5 year residency program. That brings us to about 24 years of education.
So what makes some people think, that they can earn a living in a few years, in a field they did not know existed 6 months ago?
Are there exceptions to this? Of course, there are exceptions to everything. I also feel, that someone entering the field later in life, bring with them a certain amount of life experience that can drastically reduce the learning curve.
To succeed at this, you have to be passionate about it. You have to be willing to spend thousands, and thousands of hours studying charts, fine tuning risk allocation and money mgmt. You have to accept, that you will learn more from your failures, than you do from your victories. Stay humble! Success breeds overconfidence. Overconfidence leads to being humbled by the Market
I realize, that I may be rambling now, so I will stop. Maybe pick it up in the future.

Mystic,

I completely agree about the length of time it can take to become professional in any field - that is not the point I was trying to clarify with my comparison to the doctors. I was merely saying that with any business, once you are professional, you need to have a belief and trust if you want to take it to the level of self-employment. That's why I referred also to the notion of a 'private' rather than to a public hospital where the employed professionals don't really have to worry about the workload that may come in every day/month/week.

My thread has not the purpose to quantify the lenght of the educational processes involved in becoming a successful trader - it is more inclined to identify the possibilities of trading as a small everyday business.

I would never try to induce anyone to take on the markets without the necessary experience - I am the best example: I trade for a decade successfully, but for almost half a decade before that I was bleeding money in the learning process.

H. Rearden

Very nice indeed.
This is my take too.

Venezuela
As to January 2009, average annual income per capita was $12800.
Yearly income below $56300 is exempt of declaring.

Tax bracket is 6% (the lowest bracket) up to $21500 of net taxable income.
Investments are exempt.

Ok,

Thank you all for your contributions today, as well as for the average earnings data. I will incorporate that in tomorrows posts.

Maybe there will be enough time to get to the final stages within the next few days, maybe even earlier.

We are getting close to 200 posts and I intend to not let it grow much beyond that from my side. The reason being, if someone other than you at a later stage wants to read up on our topic, he/she will be more inclined to do so on the basis of having to read through approx. 200, rather than a thousand posts.

Don't forget, there is a myriad of material on the web and there is only so much time in a day. Besides, the passionate of you should rather go and work on improving your abilities than hanging around for too long in forums.

Once I am done here, I will be gone - there is no other reason for me to stay any longer than necessary to complete the thread, and there should be no need for you to stay any longer than necessary to get the idea. Maybe I am sounding a bit too forward by saying that, but I cannot imagine that you would want to choose spending a great deal of time reading about other people's success or failure rather than to work on your own (hopefully) success story.

There is nothing wrong with the occasional read of an interesting post here and there, but from my experience hanging around beyond that, arguing with others about petty issues that most often have no positive impact on your own development as a trader is not the way forward.

Learning by doing got me where I am.

H. Rearden

I just want to say thank you for this approach, It has me on the edge of my seat, not because, I think its a holy grail, because its based on the opposite assumptions of most of the people that Ive met involved in forex.


** small account** high lots as possible (on high leverage)&low pips
** large account** small lots (on low leverage) & lots of pips required

I am looking for a happy medium. I had the person that introduced forex to me blow 60,000 usd of my money with the (high lot low pip) mentality

then i blew 20,000 usd all on my own when 1 mini lot and 6hrs of trading only got me 20usd. Naturally my mind set was if that 20 pips had been 20-50 mini-lots then...... yeah that worked


I am in the cabinet manuf. business in the usa, looking down the barrel of a recession possible depression. My company has done well over the past yrs. and I believe that it is time for me to get out while there is still time.


I have gotten so involved in trading due to the first loss i had that even though that money is gone I have fallen in love with the markets and would love to think that I could possibly do this for a living.

my thought is that if I could make a living off of 50,000 usd @ 10% per month. Then I would try to produce twice that # with 5x that amount.


Im sure this is a typical newbie post. but I do believe that with all the avail. info, the right instruction and determination the learning curve can be expedited.

One other thing , do you recommend a mentor?

IF THE STUDENT IS READY THE TEACHER WILL APPEAR !!

I DID IT AND YOU CAN TOO !!

PRICE ACTION AND VOLUME SPREAD ANALYSIS IS ALL YOU NEED
(I learned that after a long journey...)

A LITTLE HINT FROM THE OTHER SIDE OF THE THAMES.........
(Called the city.....)

HAPPY TRADING

BERNHARD

P.S. MR. Rearden I hope you reach a lot of people here....

That magic number you are all waiting for does not exist because it is different for each person and their respective circumstances. Can you grow a small account into a large account absolutely! Can you do this in a month or 2; for most people the answer would be no way. Can you make a living trading a 5K account - yes you can it's not easy but it can be done. There are plenty of trading approaches that allow you to do this, you don't have to listen to the FF windbags that tell you you have to trade daily/weekly charts to make pips with a 100 pip stop loss.

you don't have to listen to the FF windbags that tell you you have to trade daily/weekly charts to make pips with a 100 pip stop loss.[/quote]

yeah. but i bet your odds of winning would be better if you stuck to the longer term and trade with the trend.

This question has a straightforward answer. A small account, if traded properly, can become an big account from which you can then live. The small trader should not be looking to live off his or her profits until they can be withdrawn without adversely affecting the continued compounding of the account. This means defining, in advance, a capital target at which withdrawals will commence. This target will differ for every trader depending on his or her expenses and lifestyle choices.

So. How do we get there? Let's dispel some myths.

1. Undercapitalization. One of the biggest myths of trading is that we need a certain "minimum" capital amount to avoid overleveraging ourselves and trade effectively. This is simply not mathematically true. A $100 Oanda account can be sized to the penny. For instance, if you decide on a 20-pip stop loss, you can trade a size of 1000, or 10 cents/pip for a 2% loss. This formula works the same way with $100 or $100,000. The amount of money makes no difference at all.

2. Pips. Seriously, who cares? The only thing we ought to be concerned with is ROI. In other words, percent. If you are risking one to two percent on a trade, you should be looking to make at least that amount in profit. A small trader should NOT define his or her goals by saying "I want to make 20 pips a day." Rather, the trader should aim to grow the account by a certain percent every day or week. That amount can be satisfied by even a small number of pips. Don't think you need to be a pipmaster to do this. This leads to overtrading, and ultimately, disaster. A small trader wants to make lots of pips due to impatience. But you must be patient.

3. Only trade higher timeframes. Yogi Berra said, "It's tough to make predictions, especially about the future." And the more of it there is, the harder it gets. Predicting what a pair will do in 24-48 hours? Kinda hard sometimes. 24-48 minutes? A tad less hard. A small trader with a day job has a limited amount of time to trade. This trader needs to do one thing: compound. And do so relentlessly. Some of you will disagree, but I submit that the most effective technique for doing this is disciplined scalping. The key is to have an entry system to find your opportunity, and a money management system so you can calmly take it. Certainly you can use the higher timeframes to gauge the underlying trend, define support and resistance, etc. But trades can be sized rationally so that you can achieve your compounding target quickly. I do not think scalping is any more or less difficult than longer-term trading. It is a matter of knowing the market you're trading, which takes time and practice. But this knowledge is necessary no matter what timeframe you choose.

4. Frequency of opportunity. "Relentlessly" does not mean take every move. A small trader should be looking for the ONE opportunity that will yield the necessary % to compound the account for THAT DAY. When this target is achieved, trading should cease. Seriously, you have your 1 or 2%. Cut the BS already, take your profit, and STOP. If you look to trade every move, you're going to lose. Greed and hubris set in quickly, as do revenge and desperation. Relentless compounding means boringly setting out to do the same thing day in, day out, much like that day job you're trying to free yourself from. The market does provide many opportunities during the day, but you only need one. Wait for it, and set about your trade in blase, disciplined fashion. Then do it the next day. And then the next.

An entry system as your offense, a money management system as your defense, a % target as your exit strategy. And the discipline and sheer tenacity to trade and also stop trading. Put aside the greed, forget about the puny size of your account, and apply yourself. It works.

Some great advise here. I'm a true believer in the KISS method (Keep It Simple). Proper money management and self discipline are key.

I like to use S/R Lines and Moving Averages and that's about it. I just try to be patient and wait for the best moment to enter and then exit with a proper ROI with-out being greedy.

Cheers

here's a thought:
if you start with just $100 and consistently make over 10% a month, then after around 20 years of trading you would have one trillion dollars.
Bill Gates only has a net worth of about 50 billion (probably much lower now) and he is the richest man in the world.
no single man in the world has a trillion dollars...

that being said you can look at the results of the "professional" hedge fund firms.. they make something between -5% and 5% on average monthly.. sometimes even they have 2 losing months in a row (like -0.2% and -1.3%)

moral of the story: don't set unrealistic goals. see my sig for reasoning


P.S. oh and i see people here posting about trying to make 100+ pips daily... pips don't mean shit, one guy's one pip might be equal to your 1000 pips.. people should be talking in terms of ROI percentage, not # of pips made..
but then you might say "oh but EUR/USD moved 100 pips in my direction and I banked on that" yeah well it also changes risk appetite, so really pips don't matter.

When making these comparisons one often forgets the issue of 'capacity', hedge funds cannot trade the same way as the private trader because of the huge size at which they trade, so the comparison is erroneous. However, the general gist of the post is correct, one should not get carried away, the best private traders I know average about 7%-10%. Whatever you gain, you stand to lose.