How to manage with small capital

[PitBull]

I have now started to trade end of day US Stocks as recommended by JBartlett from his course. I have a watch list of about 10 stocks that I monitor every night and my TA skills are beginning to get better. I am currently trading 1p a point with finspreads and after 6 trades I am breakeven. I only have a small grubstake of £1000 and what I want to know is when I can no longer trade 1p a point and have to to start using £1, I will be risking more than 2% of my capital as US stocks are quite volatile and I would therefore be looking to place my stop at 1 ATR (Average True Range) away from entry or highest high if short or lowest low if long. I mean its quite common that I guessed the right direction, but a regular 100 point move would put my risk at 10% and I will wipe out my account in no time. If I set my stop so that I only risk 2% i will get stopped out most of the time.

Can anybody help me with the money management side of things?

Your help appreciated.
PitBull

 

[neil]

Trading Capital

Save up £10000 as a grub stake and bet at £1 a point.

Move over to one contract trading of the ESTX or SMI Futures using a broker

http://www.eurostoxx50.co.uk/

is a good site for learning more of the above Futures.

£10000 gives a far better "comfort" factor than £1000 thus heading off the fear factors that bedevil many traders.

Take care.

 

[rglenn]

Pitbull

I think you will find that it's 50p per point after your training period.

 

[wysinawyg]

Pitbull,

About the only thing I can suggest is to take out a loan based on how much you would otherwise be able to save. i.e. if you are able to save £100 a month you could take out a loan with a £100 a month repayment. In theory I don't suppose this actually increases your risk as it was all money you were going to save for the account anyway (well as long as it really was!), you have just accelerated (at a price) when you were going to get it.

That doesn't strike me as too reckless (as opposed to taking out a loan which requires you to make profits in order to repay it) but does mean that if you blow it you will be out of the game for a while (and also pretty gutted at seeing the monthly payments go out every month for money you already lost).

Of course the other hitch is that you would probably have to lie on the application form which would mean you were kind of into the territory of criminal behaviour. How much that is a problem for you I don't know.

wysi

 

[sidinuk]

Personally I think too much emphasis is put on the 1% max risk per trade quote.

If you have £1000 in your trading account then 1% risk is £10! Trading at that amount is just not worth the effort. But if you have £100,000 in your account then 1% is £1,000 and more realistic.

The real point though is that replacing £1,000 is a lot easier than replacing £100,000 should you blow it all. So reduce the percentage risked as your bank grows. So with a small amount like a £1,000 you might as well do 5 or 10% a go but as your bank grows reduce the percentage, so at £100,000 your doing 1% and when you get to a million maybe only 0.5% or less.

People often quote that the pro's don't risk more than 1% on each trade so neither should the amateur. Don't forget though that the pro is probably protecting an account worth £1m plus not £1,000.

 

[bonsai]

Pitbull
what did you have in mind to do when you opened the account ?
you knew then you couldnt continue at those levels.

 

[stevem12]

I agree with sidinuk, the 1-2% rule is more important the more your bank is worth.

I`m not sure about borrowing money when just starting out, but it`s ok when you are sure your profits will cover the costs.

How about using your blossoming ta skills to day trade instead? You can limit your risk much better. The return on any given trade will be less, but thats to be expected as this game is all about risk/reward ratio.

Steve

 

[sidinuk]

Pitbull, may I suggest that you utilise the 12 months on-going support that your tutor provides and ask the 'expert' his opinion on what you should do.

 

[PitBull]

Thanks guys, Im inclined to agree with sidinuk that 5-10% is more realistic if you have a small account and also if I did have a maximum drawdown, it shouldn't be too hard to replace £1000.

To answer Bonsai's question. I think I have done enough groundwork to understand the basics and therefore I wanted to put my skills to the test with minimum capital. As they say, "the best way of learning is actually doing it" and also, to get to grips with my emotions. Yes, it has been tempting to go for broke just to build my account to a reasonable level where I feel more comfortable with my stake size and risk per trade. I have looked back at some paper trades that I could of made £300 with a £1 stake over a few days, but Im resisting this as the market will soon take it back as quick as I got it.

I have thought about day trading but will first need the capital so that I can give up my day job. It is my ambition to daytrade, maybe in 2-3 years.

Thanks everyone

 

[bonsai]

I'm not sure you have answered my question but
don't change your money management rules because you are
short of money.

and certainly dont change anything until you can show better than breakeven, not even putting more money in the pot.

 

[jklondon]

from my experience : started trading 5 months ago using SB with 1k up as margin. was generally using 5% as the guiding rule - was broken once .