Monday, September 18, 2006

More bang for the buck

=> Overleverage => Blown out account

Trade the contract which gives more bang for the buck. It took me nearly a year to climb back out of the hole I had been falling in following this advice.

I new them all. Books telling me to trade the ER2 with 8k$ margin, ZB with no less than 10k$ margin in your account, regardless what your broker was offering you. But also old traders, I respected for their wisdom, for their market knowledge. They said to me, Chris, don't over extend yourself. I thought, why? I have it all under control. Not only the market, but also my reactions, my feelings, my emotions. But tell you what, I hadn't. I felt bad one week, the market did not care, I traded as if I were fit, but made errors, did not believe them, hoped, made more errors and lost more.
I made it back. Trading 1 contract. Slowing increasing my daily goal from 10ticks a day to 20 now 30 ticks a day. The final goal will be 50 ticks a day. I'm not there yet, but it sure is possible, I sure see the trades, I'm just not yet able to take them all. I'm on the way.
A daily USD goal is fine, but it is a huge difference, if you can consistently make 500$/day trading 1 contract or 5 contracts. If you make the 500$ consistently trading 1 contract and you increase size to 5 contracts and you are able to do everything else identical, you will make 2500USD / day. Very simple
If you make 500$ trading 5 contracts, to earn 2500$ you will have to trade 25 contracts.
I sure know which of these 2 traders I would like to be.
My Money Management Plan now allows me trading 1 contract / 10k$ account size regardless of the contract I trade. 1 year ago I allowed myself trading 1 contract / 4k$ account size. I wasn't ready for it. I now see my errors, actually it was one major error I just recently identified and which is at the core of the "able to do everything identical regardless of size" statement.
I tweaked it. I thought of scaling in, of scaling out of positions, when everything I had to do, was trading bigger size. Everything else had to remain identical. Not similiar, not tweaked, identical.
Why? Because otherwise the statistics I had accumulated about my trading, the statistics which are the basis for my belief, that I have a trading edge, are no longer usable, no longer valid.
By changing the way I trade I made them obsolete. I had no idea, whether I had an edge using my new scale in/out technique or not. And by subcontiously recognising this problem, doubts and hesitation came into my trading. And these finally led to my downfall and disaster.
Then I did not see it. Just recently, when I increased size again and repeated my error, I saw, that I had travelled that road already. That I was about to repeat what I had done a year ago and today I understood why it would not work.
Today I aim to increase the ticks/contract I make. This tells me that I really make progress as a trader. The number of contracts I trade becomes insignificant. Because when I've mastered these 30 or more ticks/day on average, I will slowly increase the size I trade, get used to it and be able to trade this increased size without tweaking my trading plan.