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  • #361
  • Mar 23, 2009 1:23pm Mar 23, 2009 1:23pm
Money4Nothing,

Thank you for your post.

I am glad you pointed out what you did. It cleares up one very important factor: that your trading confidence should be based on sound money/risk management (and not how big a bet you can put on without creaming your pants).

As long as you adhere to your parameters (whatever yours or anyone else's may be), it does psychologically not matter what your 'pip-value' represent's in real cash.

If you know the in's and out's of the method (e.g. in our test-account the risk limit, the position size, etc.), then why would it cause havoc in the head? If the account was $1million (instead of $10K), the pip-value would be $500 and the loss-limit per trade would be $20.000 -- with the same trading rules, expectation as well as frequency of opportunity, the outcome of the account on a daily, weekly and monthly basis would not change.

So, there would be no need to get stressed about putting on a trade with a pip-value of increased size, since logically, the trader's risk is exactly the same. If one starts getting scared to put bigger money on the table for no apparent reason, then trading is the wrong profession.

H. Rearden
  • #362
  • Mar 23, 2009 1:30pm Mar 23, 2009 1:30pm
Quoting Money4Nothing
I understand what you are saying about dollars and pips but do not agree 100%.

When trading, if one focuses on the pips rather than the dollars then they are less likely to "freeze" when the lot size rises....
There are certainly two sides to this coin. I like to refer to it as P and L shock. When moving from a small account to a large account, it should be done in increments, thus conditioning one's self to seeing the larger P and L figures.

My experience was dumping a meaningful amount into my fx account and going from 3 or 4 dollars/pip to 50 or 60. Imagine that first Geppy trade of 5 standard lots whith a spread of 8 pips and the trade immediately goes 20 pips against you --on top of the spread. Even if you are well within your risk parameters, it can be unsettling.

I think it's best to think in terms of dollars, as that's what we're trading for, but we need to condition ourselves to trading larger lots by making that move in increments.
  • #363
  • Mar 23, 2009 1:37pm Mar 23, 2009 1:37pm
Not a bad thought, Billflet -

Needless to say that it happens only on very rare occasions in my exerience that a person who trades a relatively small account (of lets say $10K), is suddenly faced with a million dollars and the resulting possibility of being able to trade 500 bucks/pip.

I would suggest that of those traders who are in the category of $1000+ per pip, made it there in what you described as 'increments' and not overnight. (wonderboy miracles excluded, of course)

H. Rearden
  • #364
  • Mar 23, 2009 1:50pm Mar 23, 2009 1:50pm
One addition to what is being said here:

A lot of people I worked with came to me in that situation and what has helped them (and me in my beginnings) was the following notion:

This market does really not care where you put a position on, what your size is, where your stop is, or what your expectation is for any trade (I exclude CB's here).

With that in mind, one can concentrate on the decision making process without getting nervous about any of the above.

Watch the price, make decisions - whether for $1/pip or $1000/pip....the criteria (i.e. where to enter/exit, MM, etc.) for each trade has to remain the same (according to your model).

H. Rearden
  • #365
  • Mar 23, 2009 2:27pm Mar 23, 2009 2:27pm
Actually, you have to decide what your goal is: Income or Growth.

If it is growth, then you are trading more and more lots as your account grows.

If it is income, then you are trading less and less lots (as a percentage of your account) as your account grows or trading for less profit/lot:

If you want to make $400 a day and you trade $10/pip then you need to net 40 pips.

If you want to make $400 a day and you trade $40/pip then you need to net 10 pips.

If you want to make $400 a day and you trade $100/pip then you need to net 4 pips.

After a point, you can shift from growth to income.
TRO
  • #366
  • Edited 4:01pm Mar 23, 2009 3:46pm | Edited 4:01pm
Quoting Money4Nothing
Actually, you have to decide what your goal is: Income or Growth.

If it is growth, then you are trading more and more lots as your account grows.

If it is income, then you are trading less and less lots (as a percentage of your account) as your account grows or trading for less profit/lot:

If you want to make $400 a day and you trade $10/pip then you need to net 40 pips.

If you want to make $400 a day and you trade $40/pip then you need to net 10 pips.

If you want to make $400 a day and you trade $100/pip then you need to net 4 pips....
Aren't you neglecting the fact that each of your suggested 'pip-values' depends on a different account size? It is in my view completely irrelevant what any of us want to make per day - instead it is very relevant how large or small your position size is according to your base capital.

In order to trade $10/pip, $20K acc. size is necessary with the for the thread suggested formula of 0.05%.

To trade $40/pip, $80K would be the acc. size and to trade $100/pip, $200K would be necessary.

Only with the backing of the above mentioned acc. sizes would the trader be able to withstand a minor retracement with sufficient confidence.

By the same token, if one has an account of $200K, the average daily profit should be in the region of $1000 (0.5%).

So, whichever way you look at it, what you pointed out has not much to do with growing an account or trading for a regular income (purpose of the thread).

You cannot simply alter your pip-values based on the assumption that you can achieve a specific target. If what you say is correct, then all existing MM rules would be superfluous. Just because you put on bigger lots, does not make the trade less risky - in fact, by shooting for a small amount of pips with large lots, you increase your risk (if your acc. size does not stack up to the lot size).

H. Rearden
  • #367
  • Mar 23, 2009 8:15pm Mar 23, 2009 8:15pm

You cannot simply alter your pip-values based on the assumption that you can achieve a specific target. If what you say is correct, then all existing MM rules would be superfluous. Just because you put on bigger lots, does not make the trade less risky - in fact, by shooting for a small amount of pips with large lots, you increase your risk (if your acc. size does not stack up to the lot size).

That was my point at all.

You are correct, TP has nothing to do with the risk. But the smaller the TP, the more likely it will be achieved.
TRO
  • #368
  • Mar 24, 2009 4:09am Mar 24, 2009 4:09am
Quoting Money4Nothing
You cannot simply alter your pip-values based on the assumption that you can achieve a specific target. If what you say is correct, then all existing MM rules would be superfluous. Just because you put on bigger lots, does not make the trade less risky - in fact, by shooting for a small amount of pips with large lots, you increase your risk (if your acc. size does not stack up to the lot size).

That was my point at all.

You are correct, TP has nothing to do with the risk. But the smaller the TP, the more likely it will be achieved.
M4N,

It is funny how we people sometimes tend to say the same things over and over again - just presenting it in a different package.

I would like to add one aspect to the 'small' targets idea.

There is a huge difference in aiming for a 'target' and taking a profit. I know a few real scalpers (and you won't usually find them in the retail community), who take just 1 pip each time they trade - but because of the nature of their business, they can't afford a 2, 3 or higher bid/offer spread. So, they all trade futures (fx, bond or equity), with a frequency as high as 500 trades/day.

What I am trying to say is that I was trying to refrain from propagating one specific 'trading system' in the thread - except to show my personal approach in line with the aim of the discussion that it is possible to make a living from a relatively small amount of capital.

This is simply a good base to work with all kinds of methods - it is realistic, safe if used with discipline and can be scaled upward to quite some extend.

And with scaling comes the possibility of growth - which is subject to another discussion maybe. If anyones base capital is big enough to operate in the way described here and leave parts of the profit untouched (because they are not needed to pay monthly bills), then by all means, grow your account.

H. Rearden
  • #369
  • Mar 24, 2009 6:27am Mar 24, 2009 6:27am
Hi H.Rearden !

Regarding the risk per trade I suggest the following leverage :

Account size in US$ Pip value in US$

1000 0.1 $
10000 1.0 $
100000 10 $

With this leverage you could lose 100 pips on a trade and your account is only down 1% !!!
(=> This is veeeeeeeeery important for your confidence especially as a new trader !!!)

So you need 50 daily pips for a daily gain of 0.5%

If you take 2 trades per day its achievable.

I found this leverage (also called gearing) in the book of Dirk du Toit
(Bird watching in lions country).

By the way one should concentrate on max. 2 currency pairs !!

I know it sounds veeeery conservative but we all know that
capital preservation is king !!!
(I think Paul Tudor Jones has mentioned it in the past)

Happy trading

Bernhard
  • #370
  • Mar 24, 2009 6:48am Mar 24, 2009 6:48am
Hi Folks !

For your viewing pleasure I've attached a compounding table.
You can change the account size and the daily gain.

It shouldn'tbe a serious advise how to trade but only give a psychological
picture what compounding can do even with only small daily gains !!

Happy trading

Bernhard
Attached File(s)
File Type: zip Compounding_Table.zip   320 KB | 678 downloads
  • #371
  • Mar 24, 2009 6:48am Mar 24, 2009 6:48am
Quoting behof
Hi H.Rearden !

Regarding the risk per trade I suggest the following leverage :

Account size in US$ Pip value in US$

1000 0.1 $
10000 1.0 $
100000 10 $

With this leverage you could lose 100 pips on a trade and your account is only down 1% !!!
(=> This is veeeeeeeeery important for your confidence especially as a new trader !!!)

So you need 50 daily pips for a daily gain of 0.5%

If you take 2 trades per day its achievable.

I found this leverage (also called gearing) in the book of Dirk du Toit
(Bird watching in lions country).

By...
Hey Bernhard - I was reading through what you wrote and a 1% risk is a great idea for capital and money management. However, reading through I get the idea that you are only hoping for .5% profit/trade. Alarms started going off in my head - you are risking twice as much as what you are making - your MM is "upside down"

I risk 1% of my account/trade - but ONLY if I have a relative "edge" to make 2-3%, if not, I don't take the trade. If I only get .5-1% and risk 1%, it only takes 1 losing trade to wipe out my profits. I hope I understood you correctly and am not going off on this tangent with no proper cause.
  • #372
  • Mar 24, 2009 6:57am Mar 24, 2009 6:57am
Quoting bgin2end
Hey Bernhard - I was reading through what you wrote and a 1% risk is a great idea for capital and money management. However, reading through I get the idea that you are only hoping for .5% profit/trade. Alarms started going off in my head - you are risking twice as much as what you are making - your MM is "upside down"

I risk 1% of my account/trade - but ONLY if I have a relative "edge" to make 2-3%, if not, I don't take the trade. If I only get .5-1% and risk 1%, it only takes 1 losing trade to wipe out my profits. I hope I understood you...
Hi bgin2end !

Of course you're right
The risk/reward ratio should be minimum 2:1 and I only enter a trade, when
all signs are signaling, that the trade could go so far.
So patience is also veeeery important !!!!
By the way I only use mental stops because I got some painful lessons in the past.....

Regarding my previous trading example my mental stop is 20 pips on a 5 min chart (EUR/GBP and USD/JPY)
for a daily gain of appr. 50 pips (2:1 ratio).

Happy trading

Bernhard
  • #373
  • Mar 24, 2009 7:10am Mar 24, 2009 7:10am
Bernhard,

Thank you for contributing a sensible approach.

50 pips (although achievable) can be quite a task - depending of course on the market as well as how one might go about it.

I agree of course that with small position size, mistakes that inevitably happen are not as severe - but overall, there is a fine line between over-sizing and under-sizing relative to what a trader can realistically achieve on average on a daily basis.

It is as bad for a trader to trade too 'small' (with regard to position size) as it is to trade too large.

Risk has to be taylored appropriately, not only relative to account size but also relative to reward.

A trader who aims for 5 pips a day (I dislike the whole pip notion as explained previously - but for the sake of it I am using here), has to set the risk in terms of position size of course differently then the trader who aims for 50.

Again, some approaches will have to be discarded because the individual trade risk (on the downside, i.e. stops) are not warranted.

But we are drifting again into 'system' territory. I would like to point out that (and this goes especially for newer traders) when constructing your own 'method' of trading (or in some cases you want to take over someone else's), make sure you take a look at money-management and position sizing before you look at getting that 'super-system' going. Again, many so called systems are not compatible with every conceivable amount of capital.

For example, long-term models such as R. Dennis' 'turtles' need a great deal of capital as a prequisite since the associated drawdowns during the application of the model are at times quite severe. The rule of thumb is: the higher the reward you are aiming for, the more risk you have to be willing to take.

That is purely for the reason that time plays a significant role in the reward-to-risk ratio. While a trader (and I am talking averages here) needs to be patient enough for profits to materialize, during that time, his exposure to the adverse move is the greatest - and the longer it takes, the higher the risk.

Of course there are trailing-stops but I am talking about the period of time BEFORE the trade gets really off the ground - which happens more often than not.

H. Rearden
  • #374
  • Mar 24, 2009 8:13am Mar 24, 2009 8:13am
Quoting behof
Hi H.Rearden !

Regarding the risk per trade I suggest the following leverage :

Account size in US$ Pip value in US$

1000 0.1 $
10000 1.0 $
100000 10 $

With this leverage you could lose 100 pips on a trade and your account is only down 1% !!!
(=> This is veeeeeeeeery important for your confidence especially as a new trader !!!)

So you need 50 daily pips for a daily gain of 0.5%

If you take 2 trades per day its achievable.
Hi Bernhard, HR & everyone,

Bernhard, you and I seem to be on a similar path. My personal aim is a nett 20 pips per day as I personally find the psycholgical pressure far less than aiming for high pip returns each day. My trading system or method (never sure what to call it) which I am not going to go into, generally allows me to achieve this during my first couple of hours of trading (I start usually at 7am GMT) I will generally exit a trade once it is showing 20 pips profit unless it is one of those that just doesn't stop, in which case I will take the extra pips.

I am based in the UK so I actually spreadbet as it's tax free, and now with a much larger account, which took a lot of getting used to. I have attached my own interpretation of a growth/income spreadsheet which some of you may find useful (my thinking behind it is also written in there)

I'm sure some may not agree, but it seems to work for me, so just thought I would share.

Good trading guys
Attached File(s)
File Type: zip 5% growth to get rich slowly £2k account.zip   9 KB | 492 downloads
If it is to be - it's up to me
  • #375
  • Mar 24, 2009 8:25am Mar 24, 2009 8:25am
The first hurdle is to become profitable, where it's $1 per pip or $100 without that your doomed from day 1, so stick to $1 or ever $0.1 pay less to play.

Then when your over all profitable, trade as many lots as you can take without caring too much about draw down, your profitable right so whats the issue.

So with a small account, crack the first hurdle then just keep scaling up your lots sizes likely on the side of caution so less and less risk of blowing your account as you go and basically eventually they'll be printing money just for you

Small account Value £200, $1 mode.
>£300 $2
>£600 $3
>£1200 $4
>£2000 $5
>£4000 $6
>£8000 $7

Thats my scaling up plan, $2 being 0.66% and $7 being 0.08%, so nearly 10x's harder to blow the account at >£8000 and $7.

Obviously with losers back scale if dropped below!!

Just the Hurdle to crack
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #376
  • Mar 25, 2009 12:04pm Mar 25, 2009 12:04pm
forget about pips per day

trade what you see when you see it

watch your energy levels

and look at your average win/loss after the fact

this thread is pointless and delusional

in order to make 10% to live from you need a trading capital that is worth 1 year of your income. not exactly small..

so the answer to this threads question is NO
  • #377
  • Mar 25, 2009 12:17pm Mar 25, 2009 12:17pm
Quoting piccolo
forget about pips per day

trade what you see when you see it

watch your energy levels

and look at your average win/loss after the fact

this thread is pointless and delusional

in order to make 10% to live from you need a trading capital that is worth 1 year of your income. not exactly small..

so the answer to this threads question is NO
I have personally done it twice in my life.

Once starting out in the trading pits in 1981 with just $2,000 trading capital, I managed to grow well into seven figures within five years while still living off the income, and again in 1994 after my stupidity in allowing a partner to embezzle most of my wealth. It cost me my business, my house and my marriage, but I was able to do it again.

I'm not saying it is easy because it is not, but I am saying it is possible.

GREEN PIPS to All.
  • #378
  • Mar 25, 2009 12:53pm Mar 25, 2009 12:53pm
Quoting piccolo
forget about pips per day

trade what you see when you see it

watch your energy levels

and look at your average win/loss after the fact

this thread is pointless and delusional

in order to make 10% to live from you need a trading capital that is worth 1 year of your income. not exactly small..

so the answer to this threads question is NO

It really depends on what you define as small - for some people one annual salary from the job they are trying to get rid of, is a 'small' price to start another business.

I have done it for years and will carry on doing it for many more (given that I will stay mentally and physically fit to do so, of course)

Day 18 out of 22 trading days in March and the 10% target reached without great efforts and plenty of excess time to write my papers for the university.

H. Rearden
Attached File(s)
File Type: doc Interbank FX Mar09.doc   229 KB | 482 downloads
  • #379
  • Mar 25, 2009 12:57pm Mar 25, 2009 12:57pm
Reardon,

Are there occurrences of losing complete 2% for few consecutive days and still meeting the monthly target, in your experience.

Thanks for your time.

TS
Haste not to Enter AND Haste not to Exit !-TradeStar
  • #380
  • Mar 25, 2009 1:04pm Mar 25, 2009 1:04pm
Tradestar,

There are some occurrences (this month was one of them) where I hit my daily limit of (-4%) - and still, the amount of opportunities is great enough to always come back.

Don't forget that I am trading this account very relaxed - one could achieve better returns with more effort.

H. Rearden
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