Swing trading and maximum trade position ?

[nicemate]

Hello! I am quite new to this but have been using IG demo for one year now. I blew my first account trying out many different day trading strategies. But then I focused on swing trading, and now I feel confident I have nailed one simple strategy that has been giving me my many profitable trades for several months now. I would like to trade on a real account, but my two main concerns are that I am not very good in calculating how big of a position I can take, on a day of several trades, with an account of 10K, also considering the margin that is required. I assume, also, that the margin floats when the price goes in your favor, but also in the opposite way.

Also: is it a good idea to go slower, with the objective to scale up?
I found out that it took me very little to go from a 50k account to a 100k capital, but it's much more painful and hard to double the capital from a 10k account. Thanks in advance for all your suggestions! I love this forum!

 

[tomorton]

Controlling losses is the key to success. Not sure why the demo account did not help you in getting the size of your position right - I haven't seen IG's demo - but this is so important that I would really suggest more demo work.

Base your stop-loss on a chart level, a level that if price goes through proves the trade will not now continue in your direction. If you're wanting to go long, put your stop just below this level. When you have found the stop-loss level, subtract this from your entry price and calculate the position size that this difference would be equal to 2% of your account - so £200 on a £10k account. That's your risk: its small so that if you get a run of losses, your account will still be big enough to trade back into profit as either your luck improves or you improve your system.

 

[timsk]

Hi nicemate,
I've opened a bespoke thread for you as the one you originally posted to is very old and not really appropriate for the subject matter.

. . . but my two main concerns are that I am not very good in calculating how big of a position I can take, on a day of several trades, with an account of 10K.

Position size is absolutely vital, especially if you're using leverage - which most traders do. It's especially significant if you trade equities where you could be trading a US $5.00 stock one minute and a $50.00 stock the next. It's not as simple as trading ten times the number of shares of the cheaper stock as you must factor volatility into the equation. If you've not seen it - have a read of this article: Position Sizing as an Approach to Risk Management by Trader333

. . . also considering the margin that is required. I assume, also, that the margin floats when the price goes in your favor, but also in the opposite way.

Yes, it does. However, if you're utilising all your available margin then you're waaaaaay over exposed and sooner or later you're going to come seriously unstuck - i.e. you'll blow up.

. . . Also: is it a good idea to go slower, with the objective to scale up?

Not too sure what you mean by this? If you mean is it wise to start small in terms of position size and only increase the amount risked as and when the equity in your account builds - then yes it is. By the same token visa versa , so when your account suffers from a drawdown - reduce the amount risked per trade accordingly.

. . .I found out that it took me very little to go from a 50k account to a 100k capital, but it's much more painful and hard to double the capital from a 10k account.

If a trader doubles their account very quickly, that's usually a sign that they are taking on far too much risk, i.e. betting too much money relative to the size of their account. If you've not yet seen it - read, mark, learn and inwardly digest everything in this Sticky: Essentials Of 'Risk & Money Management'
Tim.

 

[nicemate]

Thank you Tomorton, thank you Timsk!
I knew that I was trading on far too much risk. It will be hard to trade on £200 positions now that I am used to standard contracts, but I understand it is necessary for me to go this way, and I appreciate your suggestions. For instance, now I am in a 6 contracts short position on the USDCAD, entered on the 15th of april at 1.23635, with a current € 96.590 equity, € 8.458 margin, and € 14.670 profit. Would I have taken a too high risk position even given these numbers?
I am trying to figure out how much capital to start with, because I totally agree with you on the position sizing and risk management, but if you see this as a job, you also want to try and produce earnings that are comparable to what you consider a satisfactory salary for yourself. Also because, I would rather do fewer, even very very few trades, like 2 trades a month, for example, but really waited for and thought out, than having to look for many trades in order to produce desired results.

 

[timsk]

. . . but if you see this as a job, you also want to try and produce earnings that are comparable to what you consider a satisfactory salary for yourself.

Hi nicemate,
I don't trade forex - so I'll defer to those that do to answer your questions about that.

Regarding the part of your post that I've quoted, I'm afraid that your reasoning - although understandable - is fatally flawed. The amount you win or lose must be in proportion to the size of your trading account. Let's say you want to earn an annual income of £20k. If you have an account with £200k - then you're aiming for 10% gain. However, if you only have an account with £20k, then you're looking for a 100% gain. Needless to say, to achieve your £20k annual income with the smaller account will necessitate taking much higher risks than you'd need to take if you had a £200k account.

Trying to make a liveable income on a £10k account isn't really feasible I'm afraid. Another Sticky you might like to read covers this is greater detail: How Much Money Does a Trader Need To Start Trading?
Tim.

 

[tomorton]

Even the best planned trade can go against you. You might not have made any mistakes with your planning, its just that statistically, x% will go in the opposite direction after you enter. You can't plan to not fail, so make a plan for what happens when you do.