[MightyMouse]

Originally Posted by Gabe2004 »

Watching some people who I know are making a decent living trading (more than 100K/year - is that enough?) I would say that you don't need more than 50K in your account to get there; many times even less than that.

Gabe

It depends on how you trade. If you are taking trades that have $350-$750 of risk per trade and you want to keep the risk at about +-2% of your trading capital then you need about $25,000 of trading capital for every contract you trade.You don't need to have it all in an account, but that is the amount of trading capital that you'll need to trade 1 contract. You can do the math for any other size risk you take.

[Kiwi]

Agreed mouse. The maths is simple

If you get 2 trades per day
And trade 250 days per year
Thats 500 trades per year
with the $100,000 account

So if you risk 1% per trade and your return on risk is 25% (so thats a 1.25 expectancy or, every time you risk $1000 your average out come is a $250 win).

If you don't compound (grow with accumulated income) then you would earn:

500*250 = $125,000 pa

Risking 2% doubles that. How much you risk will depend on your win rate (and thus your probability of getting a large string of losers). For longer term traders I'd reckon a 45% win rate should risk about 2%; a 35% maybe 1.5% and an 66% win rate perhaps 3% to keep the same risk of ruin. But, for day traders the impact of shocks, errors or other acts of god and yourself is higher so I personally halve the risk figures (1% for a sub 50% strategy and 1.5% for a 66% plus strategy). Kelly's formula can be used to get an idea of the types of numbers - but be conservative because you can't trade if you run out of money.

[BlowFish]

Originally Posted by Kiwi »

If you don't compound (grow with accumulated income) then......

If you don't compound you are not maintaining risk, you will actually be reducing risk as time goes by (obviously). This is likely to make it difficult to make a living (as per the title of this thread) if your starting capital is small.

You need to put money at risk to make more money.

Sure reduce risk over time but not at the exclusion of slowly increasing the bet size. You need to grow your account size, people do tend to be underfunded but that need not be a deal breaker provided you have an alternate revenue stream. You need to manage the risk you are comfortable with probably reducing it somewhat (% wise) as your account grows. Finally when your account size and risk parameters are where you need them to be you can think about taking a salary. Of course nothing wrong with giving yourself little bonuses for reaching milestones but obviously they will set things back a little.

No different to any other startup really. You can't expect to plunk down 5k, increase turnover, and pay yourself a salary all at once.

When I say 'you' it was more in reply to MM's original point btw.

[MightyMouse]

Originally Posted by BlowFish »

If you don't compound you are not maintaining risk, you will actually be reducing risk as time goes by (obviously). This is likely to make it difficult to make a living (as per the title of this thread) if your starting capital is small.

You need to put money at risk to make more money.

Sure reduce risk over time but not at the exclusion of slowly increasing the bet size. You need to grow your account size, people do tend to be underfunded but that need not be a deal breaker provided you have an alternate revenue stream. You need to manage the risk you are comfortable with probably reducing it somewhat (% wise) as your account grows. Finally when your account size and risk parameters are where you need them to be you can think about taking a salary. Of course nothing wrong with giving yourself little bonuses for reaching milestones but obviously they will set things back a little.

No different to any other startup really. You can't expect to plunk down 5k, increase turnover, and pay yourself a salary all at once.

When I say 'you' it was more in reply to MM's original point btw.

Basically, I am underfunded. And it is very difficult to grow an account as fast as I want to when volatility slows down.

[BlowFish]

Originally Posted by MightyMouse »

Basically, I am underfunded. And it is very difficult to grow an account as fast as I want to when volatility slows down.

Yes, to use an old cliché you can only take what the market offers you. That needn't be a problem provided you can support yourself while you grow the account. Just out of interest how fast do you want?

Compound growth is a fearsome thing and while it might seem slow at the beginning it will quickly hit 'critical mass'.

[MightyMouse]

Originally Posted by Kiwi »

Agreed mouse. The maths is simple

If you get 2 trades per day
And trade 250 days per year
Thats 500 trades per year
with the $100,000 account

So if you risk 1% per trade and your return on risk is 25% (so thats a 1.25 expectancy or, every time you risk $1000 your average out come is a $250 win).

If you don't compound (grow with accumulated income) then you would earn:

500*250 = $125,000 pa

Risking 2% doubles that. How much you risk will depend on your win rate (and thus your probability of getting a large string of losers). For longer term traders I'd reckon a 45% win rate should risk about 2%; a 35% maybe 1.5% and an 66% win rate perhaps 3% to keep the same risk of ruin. But, for day traders the impact of shocks, errors or other acts of god and yourself is higher so I personally halve the risk figures (1% for a sub 50% strategy and 1.5% for a 66% plus strategy). Kelly's formula can be used to get an idea of the types of numbers - but be conservative because you can't trade if you run out of money.

It's a matter of style/preference. I can't take a trade with a stop a few ticks away which if you want to employ that trading strategy you mentioned, you need to do larger larger size and tight stops and you need to be very accurate

If you are risking 4 ticks to make 5 ticks, taking into account commissions and 1 tick of slippage, at 60%, you'll net about 28 cents a contract. So, that means you need to trade about 1000 contracts to earn that 250 a day. At 50% the strategy is a loser.

If you risk 8 to make 10, then your net after commissions and a tick of slippage is $17.78 per contract at 60%. So you need to trade somewhere around 15 contracts to earn $250 a day. At 50% that strategy is a loser.

I am calculating these with a $4.72 per contract in commissions and $12.5 per tick.

I am not that accurate so my trades are considerably different and require more capital per contract to trade.

[DugDug]

and then there is the alternative of trying to take just one or two trades only every two-three days in order to try and make the money.
eg; which is harder to do - both strategy wise and mentally - make $1000 per week, or make $200 per day.
Electronic local (on this forum and his own blog) makes to me the fantastic point of aiming to be CONSISTENTLY PROFITABLE first - after that it makes things much easier.
yes, yes there is risk of ruin, underfunding issues, but these definitely become less of an issue after achieving the consistency???

On an interesting side note, a few weeks ago i was in a hotel in the US and saw the hotels menu from 1966. Not much had changed in terms of the style of food, but the prices were interesting, and why inflation and growth of the trading account is so important if you wish to make a living out of trading over the long term, and be able to do it 20 years down the track.
Price examples went from coffee 20c, to $2, main meals (two courses) $4.50 to $40....iel roughly a ten fold increase.....so think how much a cup of coffee may be in 40 years, especially if you are 20-30 years old now......scary.
point being - if you cannot grow the account as well as make a living on it - ultimately you end up going backward in real terms.

[BlowFish]

I am not sure what you mean by "I am not that accurate"? (by the context I guess you use larger stops?) Do you have a positive expectancy? If not it dosen''t matter how much capital you have. The figures in your previous example are barely profitable that is why they do not work, not because of under capitalisation.

Let me put it another way If you can extract about a point a day from the markets consistently (over the months) you will be able to pay yourself pretty much what you like in about a year. Obviously if your starting account size is not rage enough to trade 1 contract then you can't play.

You should probabbly not adjust stops and targets based on account size! Sure account size might determine the size of swings you focus on but you should pick stops and targets that work best for your approach (I favour market structure). Adjust position size to control risk. If you can not afford a 1 lot then you need to raise more or to look at another instrument (maybe spyders or something).