I'm opening this thread to discuss a problem that is not often widely mentioned. To begin with a brief background of myself, I have been trading for 8 years now (mainly stocks). I trade full time (claim traders status), use Realtick software and I utilize both daytrading and swing trading strategies. I am also 33 years old, recently married with no kids as of yet. Now with that in mind here is my current "problem". I have watched my equity increase steadily throughout the years, however; over the last couple of years while I have made more than enough to pay my bills and increase my account, I can honestly say that the percentages per year have been going down against my overal trading capital. I know this may not sound like a five alarm fire type problem as I have been profitable year after year for 8 years running there is an underlying issue. That issue is the underutilization of my trading capital. Thinking about this as I start the new trading year, I plan to adjust my position size accordingly to more accurately reflect the capital that I currently command. That is something that I have neglected to do properly as the capital has grown over the last 8 years. What I will say is that during the first 4-5 years I most defintely utilized all capital when trading...be it 5 positions at once etc etc. However, over the last 3 years I have been trading as if I had far less capital than I actually do. For example, if I don't adust my postion size accordingly in this new year, I can see myself trading as if I have a 100K dollar account and not one 5 times as large. In other words I might as well put the other 400K in a CD! Now here is where I would greatly appreciate the advice from everybody who reads this...what is your opinion on this situation? What do you believe I should do to utilize my full 500k capital this year? Should I increase postion size? Should I carry 10 positions instead of 3-5 as swing trades? Should I carry 20 positions? Should I day trade 10k shares of MSFT at a time? What % of capital should I risk at a time at this account level? In other words what are your opinions. Yes I am a seasoned trader but I'm not arrogant enough to believe that I am looking at all the options. I'm sure there are many ideas out there that I'm not exploring and that is what I'm asking for when I open this thread. Thank you in advance for all your responses.
As your account has reached a pretty significant amount, it's probably only natural that you have become a little defensive with your capital. If I was you I would focus less on how much to risk on each trade and more on your total exposure to one side of the market. You shouldn't risk more than 2% of capital on each position, however if you told 10 long positions and a catastrophic event occurs your are still at great risk of a major drawdown. If you decided to never commit more than 50% of your capital to the long side of the market and no more than 50% to the short side, you may be a little bit more comfortable using all your capital. Of course this may result in less total trading opportunities, however if your daytrading, you will still be getting plenty coming your way. Maybe it is also time to consider diversifying the number and type of instruments your trade, to create a better balance of positions. This carries risk also, as you will need to adjust your successful formula, however it maybe a necessary evil if you wish to maintain a high level of return. Runningbear
Yes I am a seasoned trader but I'm not arrogant. It sounds like you are a lonely person and want recognition for your trading. I have an idea. Let me trade the 400k, and you can continue trading your 100k. Or better yet why don´t you consider giving it to charity. This may make you feel like your life has meaning. Trading with $500,000.00 and a page talking about yourself and then to say your not arrogant. What is your real account size?
Take it easy thesage, your post kind of paints you as the lonely loser. Why waste time even replying if you think he's just boasting about himself? Having a bad day on the ES making those 2 points? As to the topic of the post, I think you need to define what your risk level is. Is that 400k just trading capital or are you looking to use it to buy property/ send kids to school and college? You say you day and swing trade so I would recommend diversifying your trading capital with longer term trades such as currencies, interest rate derivatives and options. Nice simple medium to long term trend following strategies which you can follow on and end of day basis. As for options, index options provide good opportunities for simple neutral strategies. Think you need about $50,000 to $1000,000 to be able to open a index options account. All depends on your exact circumstances. If that $500,000 is all you've got, a house/ pension/ bonds are about the extent of risk I'd take.
Good thread Harry. Ignore the sniping. It's an interesting one. I often think about this with my account. I have worked it up to a similar amount, and have found myself getting increasing defensive. I principally trade equity indices & individual stocks/sectors. I try extremely hard to brush aside the $/£ signs, and concentrate simply on the percentages - risking no more than 1.5% per swing trade (anticipated time in trade 2/4 weeks) and no more than 0.5% on the rare day trades. So far I have had a pretty steady progression on the upside, which is all well & good, but as you say it does lead you to wonder about the 80%-90% of the equity that is left on sidelines (i.e. uncommitted to margin etc.). But I keep reminding myself that this is money effectively AT RISK. So it simply stays sitting there chalking up the miserable 2% ...... The other temptation is to start thinking that because you only had 20% of your equity actually committed to trades, that you can then multiply your P&L percentages by a factor of five - i.e. I figure I made a total return of 50% last year - and in weaker moments I will start to kid myself that this was effectively 250% ..... DANGEROUS ! There have been articles written in TASC about the relative merits of placing a percentage of your unmargined equity with another trader whose performance is either correlated or uncorrelated with your own. It is an interesting idea - and could work well for some people I guess. For me, I want to stand or fall by my own results. I guess there's an element of control freakery about it - but I think it is also about responsibility. As a trader it is paramount that you trust yourself. If I start to place side bets against myself, I don't know about you but I start to feel a little less wholesome! Just for the record - because I think it is interesting to compare circumstances - I am 36 married with two kids. We rent a house in London, and will continue to do so until I can buy one outright & still be left with enough equity to trade from. It's going to be a slow, long, but interesting haul ........ esp. with house prices being what they are here ! All the best - Patrick
$500,000 isn't necessarily alot of money today. There are guys who have been trading for 8 years with a hell of a lot more than 500k. Just because you aren't that successful, you shouldn't believe there aren't others who are.
It is normal that you risk proportionaly much more with low than with high capital. Now low or high is relative to your total wealth. For futures trading 500000$ is not so much on daily scale but if it represents a great part of your total wealth then you'd better be conservative and risk the traditional ratio of 1 or 2% of your capital.
Thanks so far for the responses keep them coming...To sharpen the focus a bit...the 500K is pure trading capital, I have other resources that I dont touch...example a house ...and other long term liquid assets. Thus with the 500K is it a question of keeping the same percentage of capital at risk such as 1-2% which seems to be the agreed upon standard? If so then I will be risking 5-10k on each trade. Now there of course are plenty of people with 5million dollar accounts I'm sure and plenty of people with 50 thousand dollar accounts the point being at what point in order to keep your percentages growth consistent do you end up having to confront the demon of the absolute amounts of money you are risking and not just the percentages. (example 1-2%) Please keep the responses coming they are terrific...thank you.
Sage this one is for you....Lets run with your comment "give me the 400K" if I did do that exactly what would you do to maximize the gains on a 400K account? The ball is in your court...thanks for your time.