Capital Requirements Question and Other Stuff

[Unflappable3838]

Newbie here. Please welcome me with open arms, encouragement and advice.

Been part time day trader (two days a week while I work from home) for a couple months with good overall success. Made the blunders that's been mentioned here but have been able to limit the losses. A voracious reader and have enjoyed studying the materials.

Thinking about giving myself six months of cont'd part time day trading and if my success continues, I may take the leap to full time trading. I have a mindset that I wanted to throw out there to be dissected. Looking for feedback. I've always been one to throw my opinions out there but very willing to be corrected.

I like simplicity. The sophisticated systems that I've seen here are intimidating and mind boggling. If I can develop a good trading pattern by spotting good positions based on stock volatility, macro-economic conditions and the pattern of the stock using generally accepted indicators, I should expect to ID the correct trend seven times out of ten. I'm thinking to key to success is to not accept a losing position. Giving myself little (say .5%) margin to maintain a losing position limits the losses. I'll be getting out of many positions that would turn out to win but I'm willing to give that up. My motto so far has been to let the market give me what its going to give me. I'm resolute that I won't force a position. Afternoon trading tends to challenge my "system" as I'm thinking I can take the one last profit to cap off the day. So for me, the challenge has been the psychology more than the technical. Fortunately, I consider myself mentally disciplined and tend to be very decisive and deliberate.

Big question I have is capital. If I decide to go full time, I want to make certain I have the right capital in order to give me the best chance to succeed. The more I have, the fewer ticks I need in order to meet my daily profit goal. Is it generally accepted that $300-500k in buying power is enough to insure a six figure income if I'm moderately successful and can get a .5 to 1% average daily return? And how difficult will it be to obtain that type of average daily return?

I know the general answer is "maybe' or "expect to lose your shirt". What I'm looking for is whether these dynamics cause you to shudder or if your first thought is...ok, sounds like he may be on the right track but here's what I suggest.

Not that it matters necessarily but I'll share...a big reason for this possible change in occupation is to spend more time w my three small boys. No, I don't see this as part time, but would enjoy being able to pick them up from school at 4pm instead of rolling in a 7pm, tired and exhausted.

Appreciate all replies.

 

[rathcoole_exile]

by buying power, i assume you're talking about using leverage ?
What's the actual amount you will have in your trading account ?
If you're looking at forex, with 100:1 leverage and think that $3,000 gives you $300,000 buying power which will somehow produce "a six figure income", then I'd say it's totally unachievable.
But just for clarity, explain what you mean by buying power please ....

 

[Unflappable3838]

by buying power, i assume you're talking about using leverage ?
What's the actual amount you will have in your trading account ?
If you're looking at forex, with 100:1 leverage and think that $3,000 gives you $300,000 buying power which will somehow produce "a six figure income", then I'd say it's totally unachievable.
But just for clarity, explain what you mean by buying power please ....

****************************************************************************
Say $150-200k cash and the rest in margin.

 

[rathcoole_exile]

if you risk 0.5% of your cash balance per trade, that's a risk of $1,000
let's say you have system that wins 60% of trades, at a R:R of 1.5:1
let's assume you take on average 2 trades per day so in any 10 trades you would have (6x1.5)-(4x1)=$5,000 per week
which is 2.5% of your cash balance. Keep that up and you double your original balance after 40 weeks.

ok, the above is a very simplistic
(everyone else, please don't start derailing this thread with posts about statistical data about having x many losers on the trot, probability ratios etc - we know all that, this is just finger in the wind guesstimate)

if your performance pans out anyything like this, after 12 months I'd be inclined to take out $50,000, open another account and trade the same rules alongside the normal 0.5%/$1,000 trade but beef it up to $5,000 a go, sh*t or bust. if it blows it blows, however if you maintain the same discipline and systems that got you so far, you could be looking at serious money per week !

all, of course, just imvho

 

[MrGecko]

Something for you to think about is how much of your profits are you going to withdraw - If you don't let your capital grow, you are inviting trouble for when things go wrong; better to take out a pre-determined sum P/M. How you figure it out is up to you, but IMO a fixed %age of your profits should stay in your account, and the absolute $ size of your risk per trade adjusts to your P/L. I think this is a much better way to scale up your trading, and with any luck, increase your income.

 

[new_trader]

Newbie here. Please welcome me with open arms, encouragement and advice.

Been part time day trader (two days a week while I work from home) for a couple months with good overall success. Made the blunders that's been mentioned here but have been able to limit the losses. A voracious reader and have enjoyed studying the materials.

Thinking about giving myself six months of cont'd part time day trading and if my success continues, I may take the leap to full time trading. I have a mindset that I wanted to throw out there to be dissected. Looking for feedback. I've always been one to throw my opinions out there but very willing to be corrected.

I like simplicity. The sophisticated systems that I've seen here are intimidating and mind boggling. If I can develop a good trading pattern by spotting good positions based on stock volatility, macro-economic conditions and the pattern of the stock using generally accepted indicators, I should expect to ID the correct trend seven times out of ten. I'm thinking to key to success is to not accept a losing position. Giving myself little (say .5%) margin to maintain a losing position limits the losses. I'll be getting out of many positions that would turn out to win but I'm willing to give that up. My motto so far has been to let the market give me what its going to give me. I'm resolute that I won't force a position. Afternoon trading tends to challenge my "system" as I'm thinking I can take the one last profit to cap off the day. So for me, the challenge has been the psychology more than the technical. Fortunately, I consider myself mentally disciplined and tend to be very decisive and deliberate.

Big question I have is capital. If I decide to go full time, I want to make certain I have the right capital in order to give me the best chance to succeed. The more I have, the fewer ticks I need in order to meet my daily profit goal. Is it generally accepted that $300-500k in buying power is enough to insure a six figure income if I'm moderately successful and can get a .5 to 1% average daily return? And how difficult will it be to obtain that type of average daily return?

I know the general answer is "maybe' or "expect to lose your shirt". What I'm looking for is whether these dynamics cause you to shudder or if your first thought is...ok, sounds like he may be on the right track but here's what I suggest.

Not that it matters necessarily but I'll share...a big reason for this possible change in occupation is to spend more time w my three small boys. No, I don't see this as part time, but would enjoy being able to pick them up from school at 4pm instead of rolling in a 7pm, tired and exhausted.

Appreciate all replies.

It's more about proficiency rather than how much capital you have. You must think in terms of points rather than £/$. If you consistently make 1 point profit (ES contract) with $US5000 then you will do just as well with more. If you can't do that you shouldn't even consider risking more. Forget % of capital nonsense. Trade with tight stops and endeavour to make them as tight as possible. How tight? That is a matter of skill.

 

[grantx]

Unflap,

If have 300k and expect 6 figs return (100k minimum), that's 33% pa - a phenominal return if consistently repeated. What's the best (risk-free) rate on Treasuries - 2.5% (?). That would equate to 6,500 gross pa. Therfore, anything greater is a good return (assuming a commensurate risk).

One perspective may be to consider the amount necessary to replace lost earnings; or the amount necessary just to cover all household bills. Perhaps these would be better targets. However, in the fianl analysis, you can only take what the market gives. If this is inadequate you will need to increase your risk tolerance to compensate, which I don't think is a good idea.

Regarding the problem of picking up your children at 7:00 pm, send them to a private school (UK, not US). My old school has no problem accepting Yanks. Floreat Etona.

RC,

I see your baby is still selling. I think it's your responsibility to advise. Social Services consider unsupervised, unhedged, under-capitalised mega short positions as cruelty ("She told me she was flat at close everday, Your Honour. She hid the margin calls from me").

Grant.

 

[fibonelli]

Re: Stops

"Trade with tight stops" is potentially specious advice.

Your stop is where your reason for the trade is no longer valid, period.

A very simple example, I see a double bottom at 1400. My trade is to buy @ say 1403 (eg bar high +1 ) with a stop at 1398. The stop recognises that if price falls below 1398 then I assume support (at 1400) has definitely failed.

The size of your stop is also dependant on the timeframe you're trading. The longer the timeframe the potentially higher the stop unless you have the skill, as NT says, to buy at support or sell at resistance without the price revisiting your "tight stop".

Your stop distance needs to be compared to volatility in the TF you're trading and of the probability of fake outs occurring at the stop price.

 

[new_trader]

Re: Stops

"Trade with tight stops" is potentially specious advice.

Your stop is where your reason for the trade is no longer valid, period.

A very simple example, I see a double bottom at 1400. My trade is to buy @ say 1403 (eg bar high +1 ) with a stop at 1398. The stop recognises that if price falls below 1398 then I assume support (at 1400) has definitely failed.

The size of your stop is also dependant on the timeframe you're trading. The longer the timeframe the potentially higher the stop unless you have the skill, as NT says, to buy at support or sell at resistance without the price revisiting your "tight stop".

Your stop distance needs to be compared to volatility in the TF you're trading and of the probability of fake outs occurring at the stop price.

Maybe. The STOP is also a distance = how much you are prepared to lose if you have misjudged your entry. The rest of what you wrote is mainstream "mechanical" mentality.

 

[combotrader]

Unflap

150-200k would be a good starting point. Depends on much you are willing to risk - on both a leveraged and non leveraged basis. Without leverage, I take it you are willing to risk 0.5-1% of your account. With leverage obviously it changes.

On a different topic entirely - are you used to losing and not geting things right ? How do you feel being punished remorselessly ? The majority of daytraders are losers. You say psychology is all important - fair enough. But do you really know what its like to lose, lose and lose ?

I`m sorry to go on about this. I had dreams like you, and I considered myself rather unflappable as well ! Its just that noone told me this when i started. If you know what it feels like to be a loser - ( an you can get through that and not give up like most do ) - then you will be a winning trader one day.
For myself - it was about waiting and waiting for the right moment to take a trade. Different people have different ways.

CT.

 

[Rhody Trader]

Maybe. The STOP is also a distance = how much you are prepared to lose if you have misjudged your entry. The rest of what you wrote is mainstream "mechanical" mentality.

The actual stop itself shouldn't be placed in terms of how much you are willing to lose. The stop should be placed based on your strategy - a location that makes tactical/strategic sense. Position sizing based on the location of that stop is then the "how much you are prepared to lose" element.

 

[Mathemagician]

You are getting some incredibly good and sound advice in this thread, unflap!

jj

 

[fayalac]

These is only my opinion, i could be wrong.
You cant expect to make any % a day because you dont know if the market will offer it, is commonly accepted that into a single day any currency pair can vary up 100-200 pips, but i have seen days on which it doesnt happen so you cant take a income thats not in the market.
By the other hand, we all know we rely on volatility, the more volatile the market the more profit you can get as long as you know how to take it, there will be losses, so you have to make enough profit to cover your losses first, then the rest will be yours.
To make a 0.5% a day depends on the risk assumed, in simple therms, if i have a 500 usd account, to make 0.5% the first day i have to make 2.50 usd, if we know the minimum lot is 10K and we understand for a 10K each pip equals to 1 usd ( for most of the pairs ), then it is highly probable to make just one operation per day to cover what i expect, if i probably lose 30% of my leads ( lets asume i stop loses at 20 pips ), then i would have to make 10 positions a day to get the 0.5% i want.
By the other hand if i capitalize the 0.5% a day i'm getting then, at the end of the mont, i will have increased my account by 13.84% which makes almost imposible to think getting six figures account with a start of 500 usd or getting 0.5% daily. You can get more than 0.5% daily, i have gotten form 3.5% and up to 28.0% in a day, these involves risk, the more you get to more risk you have to deal with.

 

[Rhody Trader]

These is only my opinion, i could be wrong.
You cant expect to make any % a day because you dont know if the market will offer it, is commonly accepted that into a single day any currency pair can vary up 100-200 pips, but i have seen days on which it doesnt happen so you cant take a income thats not in the market.

While you may not be able to say "I will make x% today" with any real confidence for exactly the reason you mention, expectancy is based on long-term application of your system. It's not about today, but about average performance per day when aggregated over a period of time.

 

[grantx]

Fayalac,

Even a small gain every day without a single loss is an achievement.

Grant.

 

[fayalac]

Of course

Grant.

I share your opinion, i totally agree, it can be easily done just watching and waiting for the good one, once you are in the trend hold as much as you can and that single lead could be more profitable than the rest of the day.

Thanks!

 

[Unflappable3838]

Sincere appreciation...

for the replies and PMs. I'm hoping to f/u more on some specific topics of interest. In the interim, these responses have been enlightening and informative. Can't ever recall being so excited about the prospects of getting my teeth knocked in on a daily basis :clap: ..thanks, CT.

Enjoying this board...only thing missing is a smiley face icon drinking a beer

Heck, even got J Forman to chime in a couple times!

and for my signature quote....

There's nothing that so focuses the mind as a hanging - Benjamin Franklin

 

[nine]

The second hanging is pretty good too Unflappable.

A brother of one of my ancestors was hung twice. Apparently he was a bit of a socialist and got into trouble for suggesting that pillaging the peasants was a bad thing (silly fool).

The family cut him down and took him to a doctor ... but then a friendly neighbour turned him in and they got it right the second time. You can bet his mind was focussed for that one.


Morals: Socialism can be dangerous to your health. Never trust your neighbours.

 

[new_trader]

The actual stop itself shouldn't be placed in terms of how much you are willing to lose. The stop should be placed based on your strategy - a location that makes tactical/strategic sense. Position sizing based on the location of that stop is then the "how much you are prepared to lose" element.

If your entry is based on sound strategy like it should be, a location that makes tactical/strategic sense, your stop then becomes a matter of how much you are prepared to lose if you are wrong.

 

[grantx]

A common approach to the placement of stops is by reference to the previous bar's high or low. From a strictly TA perspective this is reasonable but the greater your time-frame, the greater your stop. Personally, I find this pretty frightening.

Let's assume a current stop is 50 points on an index future. That's a lot to give back. I would suggest if a position goes against you close at 50% of the stop maximum. Frightened of being stopped on a temporary reversal? We don't know whether this is temporary or a change in trend. The point is you can always go back and open at the point you closed if you are still convinced of direction.

Grant.