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BillW:
This is what I've learned about account size.. the hard way, believe me.
The aim is to never over-leverage your account and to never risk a large
percentage on any trade. If you have 7-10 losers in a row, will that small
account be enough to cover that without much damage? If not, the winner
that was just around the corner will never happen.
You will never lose more capital with a larger account if you are not
RISKING more capital. NEVER meet a margin call.
If you have a small account, but can afford to risk more, then don't fake
yourself out by trickling capital into a losing account. A $5000 account
that dwindles to $1000 and then gets beefed up to $5000 again is much less
useful than a $9000 account properly utilized.
If you're only giving it a half-hearted stab: "Oh, I'll just stick $5000 in
here and see how it goes.." then you're probably not prepared and you might
as well count on spending that money on your 'education.' Don't expect to
make money.. and if you do, it's just luck.
Waiting for trades to "recover" outside of the limits of your defined risk
is fatal. Recovery is not a way to profit. Profit is your only objective.
Make a plan, a methodology. Define your risk tolerance (make sure it's
realistic.) EXPECT and be prepared to lose. Make sure that you can easily
trade another day if that happens again and again by controlling your risk.
Kill your losers at your predefined limits. Maybe the market will turn
around right beyond that limit. Who cares? You can always go back in.
One more vital basic concept (certainly not mine):
The percent gain it takes to come back from a loss increases geometrically
with that loss. If you lose 50% of your account, you'll have to make 100%
return just to get back to even (not including expenses.) A 100% return is
a pretty good return. If you lose 15% of your account, then you have to
make a 17.6% to get back to even.
PG
At 03:19 PM 7/31/98 EDT, CalaxCorp@xxxxxxx wrote:
>Peter,
>
>Thank you for your explanation.
>
>(1) I think for the "fear" above, you are talking about the "account size"
>being the only trading capital available to the trader, therefore creating
the
>fear of "losing everything" and the resulting stress, affecting the trading
>decision of the trader. Right?
>
>(2) What if there is other available risk funds, but it is just not in that
>particular trading account at that momemt? Would that mean then there would
>be less "fear"? That means the smaller account size is not a problem?
>
>(3) Is the following another consideration-- If the "account size" is
>adequate, so the broker would not have to monitor it so much, so that in case
>there is a series of bad trades, the intraday/overnight drawdown would not
>turn the account balance into a negative, forcing the broker to make a margin
>call or to liquidate the losing position, thus giving the trade a chance to
>recover back to profitability?
>
>(4) So a large account size is good for the brokerage/clearing firm--less
risk
>and less work. But is it actually good or bad for the trader if his fear is
>not a factor?
>
>Thanks in advance for any clarification.
>
>Sincerely,
>BillW
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