From what I read, it is hard to get outside funding for a short term trading system if the associated account loses more than 20% of its value. In addition, if an account loses 20% of value, it now needs to rise 25% just to get back to even. Assuming one starts to make typical market returns, it can take years to return to the starting point. Therefore, I consider a short term trading account “blown up” after a drop of 20%. After a blow up, it is time, actually past time, for one to evaluate their risk management practices and or their trading system. Here is a comparison of returns and gross compensation of a personal account and a managed account using other peoples money: Own account, $100,000 starting value, 20% return, 100% payout ratio, $20,000 gross comp. Managed account, $20,000,000 starting value, 15% return, 20/2% payout, $1,000,000 gross. Obviously there are regulatory requirements that have to be met and funds to be raised, but over time, one can leverage their profitable trading system using other people money, without the risk of leverage, into a great income stream. Isn’t maximizing one’s return of their trading system is what trading is about?
When I traded Prop, I experienced both types of blow-ups: single event and nibbled-to-death over time. In the first case, lack of discipline was the major factor....hoping against hope that the market would turn in the trader's favor...no stops in place. In the second case, lack of strategy and/or lack of trading plan were the major factors. Also, a crumby trading platform that did not support stop orders (the old Lightspeed platform) was a factor.
At least if you're losing small bits at a time, you have the chance for the light to go on, "I'm doing something wrong" and to regroup, rethink. Hopefully you'd come to that conclusing before losing it all. Always protect capital. Live to fight another day.
I say "no". Such presumes overall success... not a given. I believe trading is all about... trying to "make a good/high/extraordinary" return with best risk control. (Capital preservation is always more important than "return". IOW... if you're going to fail... do so on the side of capital preservation at the expense of "hoped-for" return.... IOW, if you "screwed it up this time", you'll get another chance... so long as you didn't wipe out your capital, that is.)
Amazing, these traders just continued without a plan and without a strategy. I think to be successful in short-term trading, you need both. Just look at this trader with the handle of VolPri....he's knocking it out of the park daily. https://www.elitetrader.com/et/threads/develop-and-follow-a-written-trading-plan.318419/page-24 I've been a skeptic...and thinking he is posting bogus numbers.....but now I think he is employing some sort of break-out strategy with well-placed stops. My guess is that once a profit threshhold is reached....say 4 ticks, he puts on a trailing stop...and when he has a loss of 8 ticks, he's out. That's the only possible way he can show such high win percentages. He said he doesn't back-test, but I don't believe him on that.
Exactly...he's just picking up a lot of nickles and dimes, but with little risk too.... as opposed to short options strategies which are akin to picking up quarters in front of a steam roller....which was Victor Niederhoffer's strategy.
Yes, there are some systems where you can "survive" with constant tight risk control. However, it is not the Holy Grail which are systems that allow you to "thrive". Also Victor Niederhoffer blew up multiple times so be careful referencing him.
Most here are retail traders and the average account size may be 5k - 20k. I came up with those numbers from another forum that did a survey about account sizes back around 2010. Anyways, usually a trader that says he/she blew out their account...I don't think its meant it went to zero or below. I think it just means they still have money in the account but not enough to be able to continue trading whatever it was that they were trading. Thus, they're no longer able to trade until they refund their account (put more money into the account). Also, you'll see a lot of talk about blowing up or margin calls during high volatility trading conditions or soon after those high volatility trading conditions...that's normal in my opinion...not unusual. On the flip side, its the same type of market conditions that attract new people to the markets...they think they can make big profits. wrbtrader