Discussion in 'Risk Management' started by oldtime, Dec 16, 2012.

  1. It is my contention that the number one reason for failure is undercapitalization

    If you eliminate lack of discipline, fear, greed and all the other things they talk about on the psycho forum

    that leaves you with the problem of capitalization

    I bring it up because it keeps coming up on other threads, especially from people just starting out

    I hear, "If I can't make it with 5k, I won't do any better with 5m."

    I read all the books, "Only risk x% on any one trade." Ok, that takes care of that one trade, but what about thousands of trades over the course of the year? It's pretty simple for a scalper, but it gets more complicated if your strategy involves adding to positions or holding overnight.

    Any thoughts, ideas, or comments?
  2. Fool


    When I was a kid, my Mommy read me a bed time story:

    Once upon a time a trader had a "Holy Grail" that exited many an investor. However, he insisted that the starting capital must be $5 million. Doubters questioned: "If it is a holy grail, why not $2.5 million? Why not 25K?" He answered: "The birth of a baby is a miracle. But would you ask one parent to produce half a baby?"...

    I was deeply traumatized by this logic ever since. :D
  3. For a trader who has no edge, other than infinite capital and averaging down, a finite account would certainly be a limitation.
  4. Edge is what connects vertices...
  5. I personally have never had the guts to do it

    we called it the "division" method

    you take your account balance, and divide that by the margin requirement

    and that's how many contracts you should put on
  6. That is probably why you are still trading. :)
  7. One of the miracles of trading is how it all begins.

    I watched for over three weeks before I got an account rolling by mail.

    I was afraid to appear at MLPF and B since my looks were so out of order for connecting with others (Adult money types).

    I did the WJO'N or Darvas thing.(Late 50's when making money was automatic)

    The person I learned with and I never had to consider that there was a down side to making money.

    Maybe the OP can explain how that works in making money.

    Odd lots cost an extra tick (1/8th) and round lots came into the picture fast.

    I was always all in all the time in position trading by phone. I was mailed trading slips every day after a while. I kept them in boxes.

    A couple of years in after starting with 300 bucks, my IBM salary didn't pay for my commissions. I had to use profits after that.

    But I took out blocks to go to Europe and buy cars and then get loans on boats using stock as collateral (street name).

    What does undercapitalized mean?
  8. for a guy whose strategy doesn't involve averaging in or scaling out, and trades flat out day after day I'm not so sure it's a bad idea
  9. Money is a work horse that ploughs the fields. The plough bottom is not turning over clay, only top soil where seeds will be growing.

    I set my margin plus capital @ 94% on the dashboard. This lets the volatility of bars be inside 100% sum.

    I limit trade size to 5x market capacity.

    Market capacity varies during the date as a catenary. I use 13 divisions, each expressed as a % of the total day's volume. This was checked with a 400,000k sample size.
  10. Think of the turns you could carve trading that kind of size...... 13 transactions just to scale into the corner without lighting the fuse...


    JH disciples may be responsible for the huge volume at the "vertices", LOL!
    #10     Dec 16, 2012