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  • #201
  • Mar 6, 2009 3:44am Mar 6, 2009 3:44am
Good morning readers,

As previously, I will try and answer questions that have come in overnight first.

Craig, I am pleased to see you in my thread - and no, I never take anything personal...unless it is personal.

Some of the posts from last night are on the right track. Don't forget, this thread is not about what is possible in terms of extremes such as compounding a $100 acc to a trillion - one poster pointed out the obvious.

It is about how small can an acc. be to still make a realistic living out of it month by month. That in itself negates the idea of growing it to extreme hi's.

And yes, of course there will be differences for each and veryone based on the terms of the individuals own financial circumstances. I am trying to provide an idea of a good compromise or average.

Coffee first, back in a moment.

H. Rearden
  • #202
  • Mar 6, 2009 4:07am Mar 6, 2009 4:07am
Quoting endroute
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...

endroute,

why not read the thread from te beginning - that would make your post an irrelevany comment.

H. Rearden
  • #203
  • Mar 6, 2009 4:19am Mar 6, 2009 4:19am
Lever 70,

Thank you for your post - the contents of which reiterate many of my main points.

H. Rearden
  • #204
  • Mar 6, 2009 5:07am Mar 6, 2009 5:07am
Quoting lever70
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 The small trader should not be looking to live off his or her profits until they can be withdrawn without adversely affecting the continued compounding of the account.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.

An entry system as your offense, a money management system as...
Lever70,

Thank you so much for these incredible words. I would have to say (for me) this is one of the best posts I have ever read in Forex Factory. I have made a copy and placed it by my trading computer . The past two years I have dedicated myself to scalping. It fits my lifestyle as well as my personality. Finally after all the study, practice, and method hopping, I settled on a system that works for me. However, I believe a trader can have a good system of scalping and still fail because of lack of discipline and/or poor money management. For instance a trader could have a very high winning percentage yet still not make any money because they let their losers run them in the ground. For me the key has been to control the losses. The winners have never been the problem, lol. Some days I make 8-10 trades while other days I may make as many as 30-40. I really try to let the market come to me and not force my will. Some days I'm a better trader. Some days the focus isn't there and I just walk away.

Thanks again Lever and best of trading to you!

Coach
  • #205
  • Mar 6, 2009 5:33am Mar 6, 2009 5:33am
Quoting lever70
So. How do we get there? Let's dispel some myths.

1. Undercapitalization.

2. Pips. Seriously, who cares? The only thing we ought to be concerned with is ROI.

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.

4. Frequency of opportunity. "Relentlessly" does not mean take every move. A small trader should be looking...
Excellent post & sharing!. This has enlighten my path to strive for
improvement(both higher TF & lower TF). Using higher TF to flow with trend (a must) and scalping the personal choice of lower TF to "relentlessly" capture the ONE(or more, everyday) opportunity so to compound our capital(w/ positive % ROI) "relentlessly" & endlessly. Dream wild & big,
if u dare!

Thanks!
  • #206
  • Mar 6, 2009 6:24am Mar 6, 2009 6:24am
Ok folks, we are slowly coming to the end of the thread.

Before starting to talk about time frames, trading with or without the help of indicators, scalping or holding for longer and other related points, a little discourse about money itself.

One poster said earlier in the thread that when he started to trade for a living, he cut down all his expenditure to an absolute minimum. There are very different (and rightly so) opinions what constitutes ' a living'. What money is in terms of buying power to one person who might work 100 hours a week with little or no real family time, might be to another person the freedom of not having to commute every day for hours to get to a work place that ultimately dominates his/her life. Having to sustain certain achieved standards of living might make trading seem a too risky alternative - especially when not knowing where and how to start.

I said, this here would be based on my personal experiences. So, in relation to the above, I have gone through a complete change. I used to have a very good annual income but lost out in my private life to a degree that many would deem unacceptable. While having a break from both, work and family life (you can guess what happened to the family part), I reconsidered my priorities. I went as far as to say that more time to live my life was worth sacrifices.

This is why younger readers will have the advantage of thinking about this aspect before making what in my personal life turned out to be bad misjudgements.

Think about what you really need - what is really important to you. If it is to have a job that involves a lot of social contact, do NOT choose trading. If you are a person that needs regular appraisal from superiors, do NOT choose trading. Should you look for a profession that bears the security of guaranteed regular income and a pension as well as dental schemes, do NOT choose trading. If you need to work in an environment where it is hard to make a mistake in, do NOT choose trading.

Trading is lonely profession without guarantees, without real-world social contact, without anyone telling you that you're doing a great job when you lose, without a guaranteed income, where the ability to admit when you're wrong and doing something about it means more than anywhere else in any other regular profession.

You need for some strange reason to love and have passion for a profession that expects you to act against your own human instincts of hope and fear - most seasoned traders know that this is one of the most profound pieces of knowledge to survive the markets. You have to to be passionate but you cannot let emotions get in the way of your rational and objective thinking - its the most paradox job in the world - where the words could, would and should have more impact on your life than eating drinking or sleeping.

Back soon.

H. Rearden
  • #207
  • Mar 6, 2009 7:50am Mar 6, 2009 7:50am
Quoting H. Rearden
Ok folks, we are slowly coming to the end of the thread.

Before starting to talk about time frames, trading with or without the help of indicators, scalping or holding for longer and other related points, a little discourse about money itself.....................................................

Great post Rearden!

Trading might be the simplest way to make money in the world, basically just two type of orders-buy or sell, two direction of the price-up or down. Yet trading is one of the hardest skill to master. I believe that becoming a trader develops a person, because as you mentioned one have to overcome his weakness and self deception in order to survive in the markets. Also as a business it gives a lot of freedom, trader is limited only by his ability.
Looking forward for more interesting posts about your expirience.

Ronin
the worst horse can be the best one
  • #208
  • Mar 6, 2009 8:24am Mar 6, 2009 8:24am
Quoting radiantchild
Would you say it is possible to "make a living" with an account of about $8K-$10K? By that "living" I mean at least $1,5K/month -- quite good amount where I come from. Of course I know everybody's way is different, but I've found that one of my problems with trading education is inability to come up with some realistic expectations. There are so many trading educators that say the same old thing -- "you have to have realistic expectations", but I don't see they really give at least a vague picture of what those expectations could be.

Again,...
The truth of all truths is that a realistic expectation is anything above STD money market / bonds / savings account rate. As long as you are NOT losing money you are doing fine.

FX should not be thought of a method of making a living unless you are trading OPM and collecting performance fee, etc.
Quoting H. Rearden
Trading is a lonely profession...

H. Rearden
Yes, too lonely for me. At one point my girlfriend used to compete with my charts (lol). that's no longer the case as i mostly use 4h -> daily charting

But have anyone here ever thought that these GURUS who teach FX via video CD's / DVD might not make the bulk of their money from trading?

They have the knowledge and that is what they sell. Many of them gave up on trading years ago and realise that this is a more reliable way to profit and still maintain a social life.
100% of traders are losers. Just that some win more than they lose!
  • #209
  • Mar 6, 2009 8:24am Mar 6, 2009 8:24am
Quoting Ronin
Great post Rearden!

Trading might be the simplest way to make money in the world, basically just two type of orders-buy or sell, two direction of the price-up or down. Yet trading is one of the hardest skill to master. I believe that becoming a trader develops a person, because as you mentioned one have to overcome his weakness and self deception in order to survive in the markets. Also as a business it gives a lot of freedom, trader is limited only by his ability.
Looking forward for more interesting posts about...

Not trying to be rude but to lift up the mood... baccarat is easy too in that case... muahahaha
i'm a trend grid trader.. i only manage to get 2% ROI a month.. sobsob...
  • #210
  • Mar 6, 2009 8:42am Mar 6, 2009 8:42am
Thanks for the posts people - much appreciated.

One of those ultra-annoying moments just happened where I had written a full post and it disappeared after pressing the 'submit' button.

So, patience please - I will have to re-write now.

H. Rearden
  • #211
  • Mar 6, 2009 8:56am Mar 6, 2009 8:56am
Well, since you decided to bring math into it---please consider the following hypothetical:

1) A great trader has a system that wins 55% of the time p=.55
2) The trader wants to be 99.9% sure that he will win a trade (100% is not possible) DC=.999

How many trades must be placed to be 99.9% sure of a win?

N= log(1-DC)/log(1-p)

N= 8.7

The hypothetical trader above must place 8.7 trades to be 99.9% confindent of a win. Probability has nothing to do with it---it is about degrees of certainty.

So, to answer the original question---yes it is possible---but very, very,very, very..... unlikley. It is more likely to take a small account and increase it exponetially (using compounding) to a large sum. Then withdraw that large sum and live off the 5% intrest. This scenrio is also unlikley, but you have a better chance than to try to make a living for 20 years in forex with a 10K account.

All the best to you in your forex quest!
  • #212
  • Mar 6, 2009 10:17am Mar 6, 2009 10:17am
Sorry for the delay.

Let's crack on.

FX-Petra, I beg to differ on your last point.

I will start with another business analogy: if you are a greengrocer or garden tool shop, your starting capital is the deciding factor in terms of how much stock you can buy - invoice factoring would be the concept of leverage in trading. So based on what your margin requirements are, you can assume trading.

Now, I have asked earlier in the thread for people to have a look at their countries average annual salary per person before tax (to simplify it slightly). The UK and US are quite similar according to official publications - both around £27.000 ($37.000).

The amount of days spent by the person earning that avg. income is around 240 days. (365 days, less 104 days of weekends, less 20 days holidays)

Divide £27.000 by 240 days and your avg. daily profit target is £112.50, or £2250 per month.

Although that number greatly differs from one individual to another, this thread is about 'small' accounts and that is why I am using approximation to average earnings. It is important to know that when talking about achieving the percentages I will show, that with an increasing capital base the ratios do NOT apply in the same way. (that is for example why funds will have a smaller chance to achieve the same high returns than a small account - but they know that they don't need to either - they make up for it by their sheer size - a return of 10% in one month on 10K is still 10 times less than 0.1% monthly return on 10 million)

My point being that one should not compare the two - they are based on completely different operating parameters.

Now, whatever your monthly 'take-home' money is (in accordance with your personal needs - and I am still talking about the group that falls in the avg. income category), it should represent approximately 10% of your starting (or trading) capital. So, if you want to draw 1000 per month of your currency, your account value at the start of each month should be 10 times that.

While your trading results will fluctuate, i.e. one month you will make only 600 another you will make 2000, at the end of each month the account will be reset to what it was.

Furher to this and by definition, you will not be able to grow the account if used as per the idea of making a regular living from it - IT WILL NOT GROW!

That also excludes the notion of compounding: the risk will be limited to always 2% (not to the pip) of the starting capital per trade - even if your account has grown to 108% by the third week of any month. The same goes for position size (per pip value) - it has to stay constant. With the right position size, there will be no need to run bigger positions - which would be an increased risk. The risk needs to stay constant.

I will talk about ways to approach the market in connection to the above in a moment.

H. Rearden
  • #213
  • Mar 6, 2009 10:54am Mar 6, 2009 10:54am
interestng eagerly waiting for your input...


V
  • #214
  • Mar 6, 2009 11:03am Mar 6, 2009 11:03am
Ok.

For some readers, the content of my previous post may turn out to be disappointing - but rather than seeing it like that, try to take something positive from it: many retail brokers are advertising in the tone of 'open an account today for as little as $400 - be your own boss yadayada'... and so on.

Having been in the same position as many of you, I can tell you from real experience that this is only a way to get your money (or business as they like to call it) - nothing else.

I will repeat what are a very important considerations in trading: everything is relative

1) your capital relative to what you can realistically achieve with it

2) your risk per trade relative to your starting capital

3) your position size relative to your risk

4) your mental state relative to your position size

5) the frequency of opportunity relative to your trading time frame

etc., etc.

While trying to be rational and objective, it is very easy to lose sight of any one of the above points at any given time. It is therefore important that any approach of the markets takes this into account by knowing precisely those relationships, i.e. the method you are choosing provides you with enough opportunities (every month), the risk per one of those opportunities does not exceed limits, you can have losing trades without damaging the account, if you have losing trades, there must be enough opportunities (again) to provide you with the possibility of recovery.

H. Rearden
  • #215
  • Mar 6, 2009 11:07am Mar 6, 2009 11:07am
Quoting H. Rearden
Sorry for the delay.

Now, whatever your monthly 'take-home' money is (in accordance with your personal needs - and I am still talking about the group that falls in the avg. income category), it should represent approximately 10% of your starting (or trading) capital. So, if you want to draw 1000 per month of your currency, your account value at the start of each month should be 10 times that.

Doing 10% a month on average consistently, on the long term is an exceptionally hard task, and even the best traders i've seen around here, like jacko (who has averaged 57%, according to himself), have averaged about 50% per year.

But yes, if you're talking about smaller accounts, it may be possible, although i wouldn't advise anyone to withdraw 10% of their accounts every month. I don't think they would be able to keep it up for very long.
freedom
  • #216
  • Mar 6, 2009 11:12am Mar 6, 2009 11:12am
Quoting equilibrium6
Doing 10% a month on average consistently, on the long term is an exceptionally hard task, and even the best traders i've seen around here, like jacko, have averaged about 50% per year.

But yes, if you're talking about smaller accounts, it may be possible, although i wouldn't advise anyone to withdraw 10% of their accounts every month. I don't think they would be able to keep it up for very long.
I understand your view - but making 10% on a monthly basis without compounding based on the correct position size relative to frequency of opportunity is less hard than making 120% per annum compounded. Especially in light of the fact that you would most likely choose a completely different approach system/method wise.

H. Rearden
  • #217
  • Mar 6, 2009 11:43am Mar 6, 2009 11:43am
Dear Mr. Reardon,

I do not disagree with your reasoning and capital requirements. I differ in that it is not possible to do what you are trying. (When I mean not possible, I mean probabilites approaching 0, but never 0 itself). Please think about that number of 8.7 trades to produce a winner with 99.9% confindence. That means that once, in a thousand trades, there will be a string of losses that exceeds 8.7. What is that number? No way to tell...maybe 10, 20, or 30, or more. My personal worst has been 17 losses in a row. The point is, if you trade long enough, it will happen--this is a statistical fact. The only way to make a long term living in Forex as a trader is to have enough capital to withstand your string of losses and still have enough capital to pick up where you left off, making your daily living. Keep in mind, 1000 trades is not that many. If a trader makes 10 trades a day he can expect these bad losing streaks to occur at least twice a year.

My conclusion is this: Any small trader attempting to leverage his account high enoungh to make a monthly living will be wiped out by market volitility and normal staistical variance. It may happen in the first week, or it may take 2 years, but the numbers will catch up to you sooner or later. While the numbers are still against you, it is more likely that you could make a large amount of money in the short run and then get out---or take that large amount and continue to trade at maximum 10:1 lerverage. This is the approach I am taking.

Finally, let me say I know most people do not like math, especially when it contradicts what they believe. Please consider the proliferation of Forex bucketshops and ask yourself if these business could continue to exist if people were making steady income from them. It is counterintuative.

As always, I wish you the best in your endeavors.
  • #218
  • Mar 6, 2009 11:46am Mar 6, 2009 11:46am
I will list below my own parameters, which I have employed successfully for many years trading accounts with a starting value of US$10.000 (not traded for growth but for income)


I was forunate enough after losing for many years prior to finding my bearings, to make what I would call 2 lucky strikes in a row. I bought gold in late 2002 around $290/oz and kept most of it until late 2005 when the price went above $500/oz. I took some of the sizable gains from that in late 2004 and bought google for around $130 and closed that around $450 in early 2006.

It was complete agony in terms of keeping my hands off the accounts - at some point during that time, I wouldn't even watch the news because I did not want to hear where the prices were except for a monthly statement from my broker. I was tempted every day to swich over to the charts.

The profits enabled me to run 2 methods parallel, one fully mechanical model that is built for growth, (I take a little bonus from it if the year-end result is above avg. which is about 40%) - the other is based on what I am trying to convey in this thread.

Although the acc. size is bigger than it used to be, I still follow the same parameters:

max risk per trade: 2% of constant acc. base capital (not to the dollar or pound of course)

max draw-down per day: 4% of constant acc. base capital

indiv. position size (per pip value): 0.05% of constant acc. base capital (one unit per trade)

That is more or less all of it. The only other variation I apply at times when I feel it is warranted is to split a unit in half to push the trade.

H. Rearden
  • #219
  • Mar 6, 2009 12:01pm Mar 6, 2009 12:01pm
Quoting FX-Petra
Dear Mr. Reardon,

I do not disagree with your reasoning and capital requirements. I differ in that it is not possible to do what you are trying. (When I mean not possible, I mean probabilites approaching 0, but never...
Dear FX-Petra,

I am not trying to but have done it for many years - without disputing the statistical relevance of what you are pointing out, each month is a closed data set with an avg amount of trades, winners and losers. Trades in the model (unlike in my mechanical approach) are based on low risk entries which makes a huge statistical difference to mechanical based models that take an open ended approach in the trading sequence. The distribution of winning vs losing trades is indeed as you mentioned in your first paragraph.

I have tested many models on statistical viability with large enough data sets to come to the conclusion that there is always a possibility that those models fail - unless they are operated like a white-box - with adaptive input and change of variables according to changes in volatility etc.

H. Rearden
  • #220
  • Mar 6, 2009 12:27pm Mar 6, 2009 12:27pm
It's easy to make a living off a small account...all you gotta do is over leverage the crap out of it! (check attachment)

I would've never had the balls to take trades like that if it were real money though. I started a real $10,000 account recently but I'm definitely going to build it up a lot slower and safer with good risk management.
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