money management discussions

Discussion in 'Risk Management' started by trader198, Apr 3, 2012.

  1. some people say a small account like 4k 0r 1k will definitely blow up

    but frequently we heard some people with big account blown up too.

    the conclusion is: the success of trading is not decided by the account size.

    some people say trading Edge is the key toward trading success, but we frequently heard those with top gun skills fail too.

    so trading success is not decided by trading edge either

    if you have a small account 3k, you can divide it into 1500 pieces, each time, you just bet 1 piece, it is possible, buy one cent option plus tiny commision (normally will not exceed 1bucks). you need 1500 trades to blow up 3k account if all are losers, that sounds impossible

    but if you have a big account 1m, you do not divide it, all in a position, you may blow up the account in one time

    so what decide the success?
  2. BBB

    Backtests and Black Boxes
  3. RobertG


    you mixing here apples and oranges.
    There is a thing called undercapitalized (small account)
    There is a thing called over leveraged (big accounts with huge positions)
    Then there is lack of risk management
    lastly, sometimes there are just pure bad positions you refuse to get out of.

    When big funds blow up, they make stupid amateur errors, there are no "Sophisticated Mistakes"

    the difference in success? being reasonable about losses.
    The ability to see the odds in one trade versus another.

  4. Good1


    I like what RG said.

    I'd add, since when is a $1K or a $4K account so small it must blow? If you are trading coffee futures then yah, maybe. What are you trading (planning to trade)? There's this thing we could call granularity. It's about the smallest risk you can take per deal, without undermining the integrity of your tested system. If the smallest risk you can take is $500 and your expected win rate is 60%, then yah, the $1K account is likely to blow. But if granularity allows you to reduce your basic unit of risk to about $50, and you've got a 65% win rate, your $1K account should survive (if you've got a valid plan and stick to it) and wait for an average draw-down before going live. If you only have $1K, then you have to find some kind of 'market' where you can reduce your basic unit of risk to $50. You might be able to risk $100 per deal if your win rate is upwards of 85%. $1K closes a lot of doors. You won't be able to do certain things. But other doors open, and if you can specialize and be patient to wait for a draw-down in an otherwise robust system, you should have no problem getting started and staying in the black.
  5. ocean5


    "so what decide the success?"

    Science, knowledge ,mentor - if you are lucky enough.So be lucky, go find a mentor, be trained in Science, acquire knowledge.
  6. Let me try to correct your logical fallacy.

    Most if not all undercapitalized/overleveraged traders fail.

    Some well-capitalized but overleveraged traders fail.

    Opportunity cost dictates that trading a small account is a waste of time and money unless you do that for recreation purposes.
  7. Bigger account often pay less commissions as a percentage of the position size. Economies of scale, sort of.

    When that's the case, the trading strategy need less of an edge to be profitable.