some thoughts I had on my train ride from Tokyo to Takayama
Mission Impossible: Trading a small account into a big one
I am a strong believer, and have seen it on many new traders, that trading a small account of less than 5.000k profitable over the long run isalmost impossible. You might get a few good months but in the end, you will never succeed in this business.
Why? The problem is not the system but the psychological aspect. Many traders start out with an account of around 2000 USD. With sound money management you can risk 1,5% per trade and will maybe et an average of 1,5 times your risk. In absolute numbers this equals a risk of 30 USD and a potential profit of 45 US. And let’s say your winrate is around 50%, then your expected outcome on any single trade (with a 1,5% risk and an avg TP of 1,75 times your risk) is 7,5 USD. There are endless ways to make more money than this with less effort and stress.
When trading a small account the majority of traders start overtrading, risking more than they first wanted to, widening stops and adding to losing positions. If you only have 30 USD at stake, widening your stop a little when your position runs against you, doesn’t make a big difference financially – it’s less than one night out at the local pub. Opening a new position when your trade runs against you, but you are convinced price will shortly turn, seems like not such a bad idea when only risking another 30 USD. And “oh, this doesn’t meet my usual criteria but it looks like it’s going up – I am going to take the trade here, it only costs me 30 USD if it goes wrong”, might be a scenario many of us have experienced.
The danger lies in ruining your trading style – in fact, any of the described ways to mess with your trades will make you a consistently losing trader. Nothing of that is something any profitable trader, that makes a living of trading, will ever do. Trading is a business and sound money-, position- and risk- management are the cornerstones of any pro trader.
That’s why I suggest to new aspiring traders, after they have proven on demo that their method works, to fund a ‘big’ account. Sometimes that means you cannot go live JUST YET. When I wanted to fund my first real money account, I was still a student without any savings. So I got 2 jobs besides university and saved every penny I made to fund my first reasonable account 18 months later.
I hope you understand my point here. If you made it to this forum and this thread, I am assuming that you plan to make living, or at least add to your current income, from trading at some point. But then you need to treat this as a serious business, which it is.
Mission Impossible: Trading a small account into a big one
I am a strong believer, and have seen it on many new traders, that trading a small account of less than 5.000k profitable over the long run is
Why? The problem is not the system but the psychological aspect. Many traders start out with an account of around 2000 USD. With sound money management you can risk 1,5% per trade and will maybe et an average of 1,5 times your risk. In absolute numbers this equals a risk of 30 USD and a potential profit of 45 US. And let’s say your winrate is around 50%, then your expected outcome on any single trade (with a 1,5% risk and an avg TP of 1,75 times your risk) is 7,5 USD. There are endless ways to make more money than this with less effort and stress.
When trading a small account the majority of traders start overtrading, risking more than they first wanted to, widening stops and adding to losing positions. If you only have 30 USD at stake, widening your stop a little when your position runs against you, doesn’t make a big difference financially – it’s less than one night out at the local pub. Opening a new position when your trade runs against you, but you are convinced price will shortly turn, seems like not such a bad idea when only risking another 30 USD. And “oh, this doesn’t meet my usual criteria but it looks like it’s going up – I am going to take the trade here, it only costs me 30 USD if it goes wrong”, might be a scenario many of us have experienced.
The danger lies in ruining your trading style – in fact, any of the described ways to mess with your trades will make you a consistently losing trader. Nothing of that is something any profitable trader, that makes a living of trading, will ever do. Trading is a business and sound money-, position- and risk- management are the cornerstones of any pro trader.
That’s why I suggest to new aspiring traders, after they have proven on demo that their method works, to fund a ‘big’ account. Sometimes that means you cannot go live JUST YET. When I wanted to fund my first real money account, I was still a student without any savings. So I got 2 jobs besides university and saved every penny I made to fund my first reasonable account 18 months later.
I hope you understand my point here. If you made it to this forum and this thread, I am assuming that you plan to make living, or at least add to your current income, from trading at some point. But then you need to treat this as a serious business, which it is.
Learn from yesterday, live for today and hope for tomorrow.
