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The pro trader is not someone who swings for a homerun on every trade. On the other hand, the pro trader is on who looks for small, less risky trades, and who accumulates a growing asset base over time. This, on its own, is not sufficient to earn the big bucks the pro trader makes. He follows a certain defined path.
1. He starts out with sufficient capital to weather large drawdowns. No $1000 to $2000 starting equity for him. The minimum he starts out with would be $10,000 to $30,000. More preferably $50,000. With this capital he has room to maneuver with less chance of drawdowns influencing his disciplined approach. With a $30,000 starting equity, and only a 4% risk per trade, he could theoretically go for over 12 losses in a row before he lost 50% of his trading funds. 2. His disciplinary approach is buttressed by trading a 100% objective trading system that if followed precisely, requires no personal interference on his part. He takes all trades as determined by his trading system. He never gets out too soon and never trades without a stop loss which he never changes except when trailing after a target exit is made. He accepts losses as a part of doing business. 3. He aims to make small profits on a regular basis, rather than attempting large profitable exits on each trade. Nice if you can make it, but mostly results in lots of losing trades that are difficult to overcome over time. Better a bird in the hand………..With these small wins a large fortune can be made, with the inclusion of the magical formula of “compounding”.
Compounding is the secret recipe to amass a huge amount of wealth over a relatively short period of time. How is this accomplished?
This approach is based on increasing your number of contracts per trade as your equity increases. When your equity falls with the inevitable drawdowns, you trade less. When you win, you trade more. There is a mathematical formula devised to accomplish this task and is coupled with the risk per trade which in turn guarantees you are around long enough to benefit – as befits the tortoise’s patient trading approach.
You can benefit from this plan of attack by limiting your losses to 2 – 4% of your trading equity while increasing your trading volume at the same time. For example, in one of my trading systems (Dynamic Swing Trading System), it took approximately 9 months to go from trading 2 ES contracts per trade to 50 contracts per trade. This boosted the net results after trading just 2 contracts per trade, from $95,402 to the astounding total of $784,066 – over the same period of time - when trading the graduated rise from 2 to 50 contracts per trade. (I could have traded more contracts, but I set the maximum at 50).
The equity curve was very smooth:
The formula you can use is programmed into a FREE MS Excel spreadsheet which is located on the front page of my web site .
Enjoy with my compliments.
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