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HOW MUCH DO I NEED TO START TRADING WITH?
This is one of the most asked questions for those just starting out. How much do I need to start trading commodities or indexes? I believe that one of the safest ways of answering this is to tie it to how much you are willing to lose on each contract per trade? If you are trading the emini s&p, you may, for example, cut your loss per contract to $200 per day. This works out to a loss of 4 points per contract. If you are trading one contract per trade, then you should multiply your $200 maximum loss times 10. You should then start trading with $2,000 starting equity. If you trade 2 contracts per trade, then you should start out with $4,000 starting equity. If you are willing to lose up to $1000 per day trading one contract, then you should start out with a $10,000 pot. 2 contracts per trade = a $20,000 pot. In this way, if you lose your initial 5 trades and be down – at one contract per day with a maximum $200 loss – to a total loss of $1,000, then this leaves you with $1,000 capital to continue. Many traders suggest you quit if you lose 50% of your starting equity. You may then continue if you make improvements to your trading plan or the markets turns in your favor. You should never, never start out underfunded. If you don’t allow for what you would think were maximum losses in a row, you won’t have much chance to continue after a bad spell. And all traders go through bad spells. So, prepare for the worst. And the worst always seems to happen. This is the time that your emotions will come into play and you will move your stops thinking the market will come back. It won’t. Then you will take your profits too early and you will not benefit from the full profits you should have earned. Perhaps you will arbitrarily trade more contracts attempting to make back your losing trades. You’ll just be digging a bigger hole. By preparing and being disciplined in your trading habits, you will reduce your anxiety level and this will allow you to successfully handle drawdowns that are the bane of all traders. |
