My Journey and other questions answered.

I was asked a couple of questions by Pete in a comment on one of my Daily Trade Plans.

I like so much your blog, but just wonder how did you got there, did you blew your account several times? what was your path?

My path so far has been nothing special or different to many I suspect.

I have not blown my account during my journey, I am a financially risk adverse person, so I have always kept my risk to around 1% of my account.

This can be a double edged sword, whilst learning and developing an edge, it is a good protection from blowing accounts, but once one develops an edge, it can make it hard to start compounding a smaller sized account.

Personally, I prefer this method, as I had a limited size pot to start with, and blowing it would be a possible game ending situation.

The biggest draw down from start to date was around 33%, when I was developing my edge.

How much do you think one needs to making a living out of it even if i know there is an edge to get first; i mean how much you think ones need to get in there without getting too much risk with what you said before ( 6000e per lot )

This is a question I myself looked for an answer to in the first year of learning to trade, and could never find a satisfactory answer to. I am afraid I will disappoint you as well. The answer is depending, as there a few factors that one has to consider.

1. What is the expectancy. How much return we expect from the trading system.

2. What is the frequency of system. This has a massive effect on the returns. An edge that gives 5 opportunities a day will give a massive different return to an edge with the same expectancy that only gives a 5 opportunities a week.

3. How much we risk per trade. One system will give a very different return profile, when risk 1% and when risking 5%. When I say risk profile I mean return, likely draw downs and risk of ruin.

All these can have a massive difference to the amount of money returned, therefore will in turn effect the starting amount needed to make a living. And all this ignores what amount of money constitutes a decent or okay living standard.

Example of how frequency effects returns.

This is a Monte Carlo simulation of 500 trades, based on a 57% win rate and a 1.3 RR and an average frequency of 2.82 trades per day and starting balance of 10000, and 1% risk.

Starting from Monday 30th May, and finishing at 3rd April 2017 (roughly 10 months), based off 5 runs of the simulation, the return is between 14181 and 19797 not including the 10,000 we started with. With a draw down of between 6 to 8%.

Therefore, over that period an average of 1418 to 1979 per month. Of course this does not take account that the first months are going to be smaller and the later months larger due to the compounding effect. This is just an average.

Now this is the same simulation with the same figures expect that the frequency is now an average of 5 trades per week.

Starting from Monday 30th May, and finishing at 18th October 2018 (roughly 29 months), based off 5 runs of the simulation, the return is between 15460 and 22944 not including the 10,000 we started with. With a draw down of between 5 to 7%. So a very similar returns profile as the first simulation, which is to be expected.

But the average monthly (using the same caveats as before) return is 533-791.

And neither of these simulations is taking in account any withdraws, just the return if we compound the funds.

All of the above examples are not even looking at possible differences in expectancy or risk amounts.

This is why it so hard to answer your question and why I never got an answer myself when I looked. As it is a chicken and egg situation. You need to know your edge, frequency and risk and what you want to withdraw at a minimum then we can work out how much we need to start with.

I know this is unsatisfactory, but I would rather be straight than give you some bullshit answer.

Good luck with your trading.

6 thoughts on “My Journey and other questions answered.

  • 29/05/2016 at 15:53
    Permalink

    THANKS Adey ! great stuff ! 🙂
    Yes i know i think exactly as you do, let’s put it this way : you wont start it under what amount?
    You said you coulndn’t blow it because you didn’t have plenty, did you live on some savings at the beginning or did you try to get since the beginning your living month.
    If you did live on your earnings, how much did you save to live from it? enough for one year? more? or did you have a job aside?
    Thanks again !

    Reply
  • 29/05/2016 at 20:30
    Permalink

    @Aday great answers, and good advice for beginning traders!
    @Pete you might want to thoroughly read Aday’s answer again, as I think it already contains the (new) answers you are looking for (but that’s just my opinion);
    @Pete for some good interviews with traders about the start of their careers you might like to listen to: https://soundcloud.com/chat-with-traders, episode 013 (Lance) and 069 (John) are worthwhile; Lance started trading while more or less having a job aside, and John blew his account multiple times before getting his act (process) together.

    Reply
  • 30/05/2016 at 12:01
    Permalink

    Hi Pete and Seorge,

    When I started, I was supported by my wife (#supportivewife), who had a good job, but even this required a lot of belt tightening. We had to tighten our belt to do this on every single level and I mean every level, no holidays, no heating, cheaper food, no new clothes (I did not spend anything on clothes for 3 years), massive reduction in drinks any entertainment. We used to go out every week, but we changed it to going out once every 3 months.

    I liked to read but stopped buying books and joined the local library.

    I am probably the only person that has had hypothermia twice whilst trading.

    We had a weekly treat, where we went out on a coffee date every Saturday morning and spend some quality time together. We still had fun even though we spent very little money.

    As to pot size, I am not that keen to put exact details on the net, but it was under 20k usd.

    Seorges’ podcast recommendations are good ones. A lot can be learnt from Lance Beggs and his approach to making trading work for us.

    Take care

    Adey

    Reply
    • 01/06/2016 at 21:20
      Permalink

      Nice Adey !
      I wish you the best in your trading and bravo to your wife’s trust, you’re great to share and Soerge either !
      Soerge you understood me very well my ask because i am pretty the same as John,
      while achieving a goal i changed my mental setup, but thats only because i dont have a tough plan like Adey.
      🙂

      Reply
  • 02/06/2016 at 08:28
    Permalink

    Hi Pete,

    Thanks for the kind comments.

    I recommend the following book, “The Mental Game of Poker 2” it has lots of good practical strategies for handling the mental side, which make sit easier to stick to the overall plan and the daily plan.

    Adey

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *