Thanks Mark, finally an ontopic and detailed answer. Now we might go offtopic here, but: See, I don't see why? Let's say the trader is profitable week after week, his strategy isn't seasonal or cyclical, it work all the time. What would be the reason for him NOT TO increase his size, supposed the market/strategy is able to handle it? Let's simplify. ES trader makes 1 ES a day on average. Sometimes he has small DDs but at the end of each month he is always up 20 or so ES points. Since ES is the most liquid index futures, why shouldn't he increase size, if his strategy isn't a scalping one and psychologically he is able to handle the bigger size??
Strategies that worked all the time as in different market conditions and consistently profitable probably has more to do with the trader than the strategy. Yet, we both know that a trader needs to be in tune with his strategy to be able to exploit it. Simply, you can give a good strategy to a good trader and it becomes consistently profitable. Take that same good strategy and give it to a bad trader (discipline problems, emotional trader, too greedy et cetera)... That trader will be a losing trader. With that said, there are still intraday tendencies (different from seasonal tendencies) to deal with. Thus, that 1 ES trader needs to know when to trade 1 contract during the intraday and when to increase his size during other times of the same day. For example, I tend to go large size during the first hour of trading (there's less risk) on particular trading days and then completely scale down my size during other parts of the trading day (there's more risk) to only increase my size again later in the trading day. My point, if your a consistently profitable trader...increase your position size as long as it doesn't violate your money management rules. However, that doesn't imply you should do size for every trade in the same trading day. For example, there's lots of messages here at ET where someone saids they are consistently profitable in the morning while giving back much of the gains in the p.m. trading session... Finishing the day profitable but not as good as it should have been. Lets pretend that same trader increased his position size in the a.m. morning trading session while decreasing his position size in the p.m. afternoon trading session. Thus, getting back to a consistently profitable ES 1 contract trader that has seen his/her account grow large enough to increase to 3 contracts. That trader should be doing some statistical work to determine when he/she tends to be profitable and when they tend to not be profitable. Next, use that information to know when to increase size and when to go back to 1 contract trading. Having that statistical info at your finger tips will help overcome any psychological problems that sabotages most traders that increase size. There's a well documented journal here at ET in the past about such (AfterBurner's journal) where he increased size but did very little position size management. Regardless, start slow in the increase and don't hesitate to go back to the prior position size when problems show up. Mark
my main trading acct in the past yr did indeed grow in size a few times I made withdrawals of 10-25 % from it to keep it smaller ... however one time I did not do this and "mr market" did it for me in all seriousness ... I do find myself uncomfortable with size when losing money quickly in a position ... if hedged properly or if making money ... I scale out of my larger position and the larger size does not bother me is there an exact number that makes me uncomfortable ? not really .. however I do have memories of my few losing days when I stepped up too big and that sometimes helps me stay humble and small ... if I were a more systematic in trading and used classic rules ... I would probably never had made my acct grow so quickly in size ... this does not mean however that I swing for the fences daily
SethArb, I read your post and that was appreciated...coming from your heart. I made bold something you said, that has been occupying my thoughts lately. We (us humans) seem to remember this more than those successful moments. I do not know how it plays into fear and greed quite yet...but the selective memory plays a part. Senility is my salvation ... Michael B. not really .. however I do have memories of my few losing days when I stepped up too big and that sometimes helps me stay humble and small ...
Michael, you are getting offtopic on a very irrelevant issue. Go stroke your cat or wife or have a beer... Well, since you asked nicely, since mine is the only post that was made a permanent sticky where I declared myself the head of the Welcoming Comittee. You have any other inquiries or can I go back to the topic now?
The type of trader you are speaking of is probably not going to grow very much in knowledge, skills and experience. He is just a person who is marginal as a trader. We probably all know this person and how he wins some loses some and just has a net as you describe. Compounding profits does have an effect but this type person will blow it every so often and that will effect his equity curve more than anything like what you are hypothesizing about. I posted three sheets which are illustrations of the market during the day and they address the money that is available in commodiites (the ES) as a day unfolds. A five minute timing scale is used to show the day unfolding and the three diifferent aspects of the vertical scale address money velocity in ticks per minute. There are six basic money velocities shown. How do people who are making money consider the use of their capital in the markets as the day unfolds involves a lot of considerations. The question of thinking in % or dollars is not a choice a person has, usually. Check most trading platforms for the answer. The other place to check for data is "the trader". Not many "traders" are posting back to you for good reasons. Equity curves are usually posted in a way that shows a sawtooth pattern where the capital available is in a range from the bottom of the sawtooth to the top of the sawtooth. This is not like a backtesting graph of performance. People create the sawtooth frequency by how often they take funds out of trading accounts (weekly or monthly, usually) Your trader does not encounter this problem because of too much trading captal. His curve is chopped up because of periodic trader failure. These people are the ones not posting in this thread with several OT exceptions and OT questions. The essence of the matter of making money comes down to how you trade the capital that is being compounded. Things like protection, drawdowns and risk reward ratios are not part of this. They are simply not part of making money. A trader grows into handling money in an account. There is a statement about traders getting what they ask for. Think about this. You are beginning to plan on making money in the near future, perhaps. So you ask an assortment of questions (Look at all the threads you have OP'ed and the vast range of seeking of information unknown to you). Right now your reality is a point a day on the ES, maybe. You ask how capital is traded in the market as more capital becomes available. The way it works is this: when you get to have the capital, you will know, then, what to do with it. This is not largely a concern that relates to looking at an account during a day showing a loss at a given moment. During trading, people who are successful do not get bored, they are busy all the time and they are not counting chips during the day. Any person who is growing as a trader is dealing with one thing: adding to his skills, knowledge and experience the very major consideration of THE MARKET'S OPERATION AND HOW HE IS A PARTNER WITH THE MARKET. You may have seen 40 steps lists about how traders grow. There are about 9 steps for traders who are growing in skills, knowledge and experience. The 40 step list is about a person who is simple aging and not working. The one step you are dealing with by implicaton and inference is the sep involving switching from being a trader who enters and exits to becoming a trader who holds and reverses. One person thinks aobut making a living the other recognizes that trading is wealth building. You will be very hard put to take the step of going from making a living (if that) to building wealth. At some point anyone who is going to be a trader has to turn to dealing with how markets operate and how they delivery money to the participants.
It's a tough question I've asked before and never really got a clear answer. Mark's post is probably as good as it gets. I don't know how much leverage you use, but with what's allowed with futures, it's safe to say that you don't really need the capital you keep in the account. It might help mentally to just keep a little more than the minimum margin requirements and sweep out the rest. Say you trade at one contract per 10K intraday, why not just keep around a third of that in your trading and the rest in a cash or long-term investment account. This way you are relieving the possibility of risking all your capital, but on the other you are also "maxing out" your trading account and forcing you to get comfortable with high leverage. It's all just accounting in the end but the whole issue is in one's head anyways.
You have to be greedy and want more and more. And of course you have to believe in your strategy and what you are doing. If you are confident then it is an easy leap to take larger and larger positions so to make more and more. I started with 200 share positions and was quicily trading 3k share positions within a few months and then 6-10k positionis within another few months. If you think you see a good trade, why would you want to do just 500 shares when you could do 5000 shares assuming you could get the shares off at the price you want. Of course you don't want to trade so big of a size that you could lose so much money that you would then have to drop back down to smaller size in short order. Its like having choice of either sitting at the $5 blackjack table or the $25/table. If you are a good card counter, wouldn't you rather play at the $25/table an win money 5 times as fast? Of course you can't go to the $25/table if you only have $200 bucks, because even a great card counter can lose 8 hands. But is likely to never go 40 hands down at the $5/table. So with $200 bucks, you start at the $5/table...when you double your money then you ready for the $10/table. And in no time you are at the $25/table playing with the big boys.