What do you think about: "going pro" account size?

Discussion in 'Trading' started by Evermore2017, Jan 27, 2018.

  1. From the book: "Come into my Trading Room" Alexander Elder

    "Going Pro
    ...
    The minimum size for a trading account is about $20,000 at this time. Once you've moved up to the level of a serious amateur or a semiprofessional trader, $80,000 will give you more freedom to diversify. Once you get your account up to $250,000, you may start thinking of moving up to professional trading. These are absolute minimums, and if you can increase them, your life will be easier. Starting with $50,000, having $120,000 at a semiprofessional level, and moving up to professional trading at $500,000 will improve your chances of success"
     
  2. This question/answer is really an outgrowth of something you want to prioritize above that:
    how much reward are you seeking, for having undertaken how much risk, with your capital.

    No matter the trading targets, and regardless of method, a professional will have very precise trade entry/exit and portfolio management rules. "In general" they will recognize capital preservation as THE summum bonum.

    Elder's "levels" are arbitrary, and assume a hidden expected draw. (Well, it's hidden to me -- I've not read Come into my trading room and my copy of Trading like a professional (??) was borrowed away years ago. :( ) But the levels he references are outcomes: a $120,000 account may seek a robust, reliable 15%-20%, a get-it-while-it's-hot 33%-50%, or a "Hey! Look what I can do!" 50%-100%. One of these will still be around in 10 years.:wtf:
     
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  3. Xela

    Xela

    Hmmm ... I'm wondering (not that it matters, really) whether (a) the quotation above is from the original edition of the book, long ago, or the much more recently updated new edition; and (b) whether possibly the good Dr Elder was saying that with regard to some very specific context not mentioned above? (I suspect from my recollections of the book that he was probably talking/thinking mostly about stocks?)

    The answer to this surely depends greatly on one's personal circumstances, and what's going to be an appropriate "minimum turning-pro account-size" for one person might be hugely different for another? Depending on many, many variables (including even "what they're trading", and perhaps "what other skills/education/prospects they have, in case things don't work out")?

    Granted, Elder makes the essential point that "you probably need quite a bit more than you think you do", to try to "turn pro", and that's a good point for him to make; but the issue's so vague and ill-defined and variable that it's not really too easy to discuss helpfully?

    For me, given what I was doing at the time, my overall financial circumstances and aspirations, the alternatives I then had, and various other personal considerations, I felt that "turning pro" became a realistic option for me when I was able to make $3,000+ per month for each of several consecutive months with no drawdown over 5% along the way. So the amount of money I needed to "turn pro" was roughly "enough for that to be a realistic expectation" together with about 6 months' "funds to live on" already saved up separately. (Some people - for example those with families to support, will perhaps laugh at this and consider it grotesquely inadequate - and probably rightly so from their own perspectives and circumstances, which may be hugely different from what mine were at the time.)

    It's undoubtedly true that undercapitalization's a common problem for people, and so are unreasonable expectations, and the two together will take the overwhelming majority of people out of the game.

    But I don't think it's possible meaningfully to give absolute figures. If you're going to try at all, you'd certainly want to make them on the high-ish side (exactly as Elder's done, above)?

    Overall, I think the major issue (not nearly widely enough discussed and drawn attention to) is that considering "turning pro" isn't primarily about "how much capital do you need?". It's actually much more to do with "how many hundreds or thousands of consecutive trades have you made in a live market, with a funded account, without losing money and with no drawdown larger than x%?"

    If you genuinely have the risk-management skill-set and the objectively proven edge, the money becomes less significant (and for sure, if you ever want to trade OPM at a professional level, your drawdown sizes are very likely to be a far more significant parameter than your profits).
     
  4. So true. If somebody's granny with only, say, $5000 can turn a profit every year、how is she any less a pro than GS and the like? She knows her stuff. So she's a pro!!
     
  5. That's a great point. I've read points made by Elders and others previously and I thought that's a reasonable assumption. But now I don't think that's the complete picture and I think the more important points are stated above.

    Having a lot of capital and making lots of mistakes and drawdowns will just buy you more time before you blow up. There are countless stories of people funding their account with $X(where $X is a reasonably large number) only to have to it blow away or whittle down to nothing in a matter of months or a year. Having a small or medium account and managing tight risk is a better indicator of your readiness to turn pro.

    Tight risk management coupled with a proven edge on a small account can grow faster over time than a BIG account with no proven edge. It doesn't matter how big of an account.

    And it's not just a retail thing. Institutional traders like hedge funds blow up too with overleveraged and lose EVERYTHING. Billions gone in a matter of days/months when a crisis hit.

    It's not that these people don't have an edge(some of them might not have an edge). It's that they don't know how to manage risk and bet the farm and sometimes it works out then great. When it doesn't it's gone.

    Great points above.
     
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  6. CALLumbus

    CALLumbus

    https://en.wikipedia.org/wiki/Professional

    A professional is a member of a profession or any person who earns their living from a specified professional activity.

    So when you make (most of) your living from trading, I would call you a professional trader. How big of an account you need for that ? Totally depends on a number of factors, for example your trading style/ strategy, trading instrument, trade frequency, other (passive) sources of income, ...
    Now just shooting from the hip I would say that about 100,000 USD is a good starting point if you want to make a living with your trading and therefore be a pro. Some might be able to do it with 50,000 while others might need more than 200,000.
     
  7. 777

    777

    Depends on how much variance your strategy has and how big your edge is.

    Some strategies need much more money than others.

    (SOES Bandits had an exceptional strategy that needed very little. Turtle traders needed lots of money)

    Please don't forget you need worthwhile positive expectation as well as a large enough bankroll paired with reasonable risk control.

    Not so easy to get a worthwhile edge or professional traders would sprout up everywhere.

    Also, edges often end: arbed away; technological progress; rules changes, etc.
     
    Last edited: Jan 27, 2018
  8. In my opinion, account size is irrelevant;

    If you can't prove your mettle, or trading skill and prowess, with a $2K account, for example,...then a 20K account or $200K account or $200 million account shouldn't, or wouldn't, make a difference.

    All you need is that, proven, seed. -- And time and skill and compounding will easily all take care of itself.

    If you ask me, most people aren't true traders...but rather investors.
    I'm not saying that in bad or derogatory or condescending way...but rather from a point of risk, or aversion to it, and/or skill and traits required to be an...elite...trader. :vomit:

    Most people here are better off just investing or running a sleepy mutual fund, or writing about it. -- Instead of trying to be an ET, extraterrestrial trader.

    But it's also important and vital not to confuse true skill and great growth with simply just having dumb balls and gambling and maybe getting occassionally lucky. o_O

    Make 2018 Great Again...High-Five`
     
    Last edited: Jan 27, 2018
    qxr1011 likes this.
  9. A true edge with positive expectance would show more profits the more you trade. While any single trade you can make or lose money, but over time over thousands or tens of thousands of trades the results should be positive.

    Most people make money in one(or a handful) lucky trade(s). This lead them to think they are good traders. When a number of factors can be at play. Positive bias in prices(i.e. a bull market or upward trend). Negative bias in prices(i.e. bear market or downtrend). Randomness. Fooled by Randomness. This happens at the institutional level as well.

    Without a positive edge, the more a wannabe trade the closer they are to risk of ruin. As noted in another thread here on ET, I had some really fantastic gains. But couldn't keep it due to poor risk management. So hopefully in 2018, I will keep the positive gain and control the downside. Resulting in a positive expectancy.

    I would not say account size is irrelevant. Certain strategies need large capital to deploy. Arbitrage strategies are relatively risk-free but need large capital to deploy. On small accounts, it's nearly impossible to do certain strategies.

    Therefore a certain minimum threshold is required. When one is learning, then no amount of capital is sufficient. It's better to learn on sim(I wished I had learned this lesson and saved on losses and pain. haha).

    I think Dr Elder et al mention such large size to account for losses while learning and generating enough capital to sustain a living...
     
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  10. ironchef

    ironchef

    I am surprised he defined the profession by the amount of money one trades.

    I thought professional means you trade for (as) an institution, hedge fund, banks.., like sle, xela... Those of us who trade our own funds, full time or part time, big or small are look upon as retails, amateurs, mom and pop....o_O
     
    #10     Jan 27, 2018