Why capital is so important or even critical in successful trading?

Discussion in 'Trading' started by OddTrader, May 26, 2008.

  1. It seems so often people on ET would mention that adequate capital is very important or critical in trading successfully, however without much discussion usually.

    Are there any good reasons for that? And what are they? Why?
  2. it takes money to make money
  3. discipline is the key :)
  4. epetrov


    I'd guess that method and discipline are the keys.
    Under capitalisation may be an excuse for not being successful in trading.
  5. Well Odd, adequate funding is entirely relative to the Traders style, as I am sure that you already know.

    ie if your trading history of say ES shows a consistent 1 - 3 tic stop then funding is a quite different matter to holding over a weekend.
    This is a simplistic example which requires no diagnosis.

    Of greater importance is a Traders relationship with his/her Broker and this is a relationship that must be nurtured and earned the hard way.

    Until Traders reaches this point of trust I would strongly them to trade well within their account limits.
    You can explain why OT.

  6. epetrov


    But wait, OddTrader!
    What's your opinion about this???
  7. My analysis is when trading with only a small capital, a trader would almost never reach a profit-generating level that could support her/his living comfortably. That means practically no growth of capital at all. Actually that would be a negative growth of capital (after living expenses). Then the trader would never get rich that commonly requires re-investing of profits for componding power. Therefore undercapitalisation can be as bad as in any other businesses.

    Another reason is it might take a fairly long period of time for a trader to become successful. Without adequate capital, the trader has to give up her/his dream, probably just before getting there.

    Psychological heat when capital is insufficient would be also a major factor, I think.

    With small capital, designing systems sometimes would encounter limitations as well.

    Just some thoughts!
  8. epetrov


    I fully agree with you OddTrader.
  9. This can work both ways OT.
    Too much account and too little brain power can result in death by a 1000 cuts.

    A smallish account can keep you sharp.

    An undisclosed problem of inadequate funding rears its ugly head when a newish Trader makes a giant boo boo and then presses the flatten button.
    This MO must first be accepted in his/her Brokers account before being sent off to market.

    My suggestion is never ever put yourself in this position.
    But by the time that you fully comprehend just what I am saying, you dont need me.

  10. So your definition of successful trading is always keeping a smallish account! :)
    #10     May 26, 2008