I know that many people will make fun of my idea, but i would like to attempt an experiment. I am starting with an account of $646.66 and will attempt to earn 2% (or less) a day, compounded daily for 200 days. The worst case scenario is that I will lose all of the $646.66, but I will gain some valuable experience along the way, and then will see how to proceed in the future. I believe, regretting not trying is worse than losing. If my plan works out perfectly, I should be able to make 5248% in return. This sounds ridiculous, I know. Nevertheless, here i go. Starting Values: Balance: $646.66 Goal to earn in a day: 2% (or less, depending on the markets) Time period: 200 trading days (almost one year)
Rude shock on the first day itself. Lost 8.13% on Day 1. Day 1 - 19 June 2013 Loss today: -$52.58 (-8.13%) Balance: $594.08 Day 2 - 20 June 2013 Profit today: $27.45 (4.62%) Overall profit / loss: -25.13 Balance: $621.53
Day 3 - 21 June 2013 Loss today: -$49.95 (8.04%) Overall profit / loss: -75.08 Balance: $571.58 Went from +20 to -49 in a jiffy. Should have stopped while I was ahead.
I know it might be tough with a small account, but you should probably decrease the amount you are willing to lose in one day. It is going to be difficult to average 2% per day when losing four times that amount on bad days. Also, 8% loss of your account per day is a bit much for daytrading. If you have 5 bad days in a row, you will have lost 34% of you account in just one week. 8% loss per day might be okay if you have days that you make 15-20% or more, but until that is achieved it would be safer to limit the risk. I do understand that is can be difficult to use percentages will a small account. It is tough to show up and only risk $12 per day. That might mean that if you lose on one trade then you are done for the day. Just remember that there is always another day and another trade. Until there is consistency there is no need to burn through your money. I know you like excel, so I made a little table to show what happens to your account based on daily risk. You have to look at worst case scenarios. What would happen if you went on a bad losing streak?
Yes, I should stick with 2% risk/day since the account is very small. The issue here is that if I set my stop loss per trade to 50 cents, I would hit the 2% risk/day in a single losing trade. I guess I should reduce the quantity, but if I do so, then I would have to execute more number of trades to reach my daily target of 2% profit. It's tricky, and I will have to find the right balance between qty and stop loss. Also, for one losing trade, I would have to execute 6-8 winning trades to get even. Nevertheless, I cannot risk more than 2% per day or it would be difficult to last even 10-15 days. Thank you for taking time to remind me of the importance of strict adherence to risk/day. I should work on my self discipline and stop losses. This weekend is a much needed break for me.
Day 4 - 24 June 2013 Profit today: $23.36 (4.09%) Overall profit / loss: -51.72 Balance: $594.94 No stop losses were hit. Went short on a stock that went down 12%. Took smaller margins of profit in multiple trades, as I couldn't take any risk at this point of time.
Day 5 - 25 June 2013 Profit today: $86.35 (14.51%) Overall profit / loss: +34.63 Balance: $681.29 Great Day... I was able to recover from the earlier losses and break into positive for the first time in five days.
Day 8 - 28 June 2013 Loss today: -$142.54 (-28.8%) Overall profit / loss: -294.34 Balance: $352.32 Really Really bad couple of days. Few of the trades which I though would bring me profits went bad. I am down to my last few bucks now with no lifelines. Hope I can survive.