Posted by: joetradingplace | July 23, 2012

Undercapitalised

Most traders fail not because they don’t have a good method, but because they are undercapitalised. I think trading a small account and try to make a living out of it is more difficult than trading a large account. With a large account you have a buffer against mistakes, but with a small account, a single mistake can be very fatal. If you have a large account, you can survive a losing streak…and live to trade another day.  I have noticed some traders who have very small account, but they want to trade every currency pair their broker provides…

Trading is a business and if you run out of money, you can’t run your business. A lot of businesses fail because they don’t have a good cash flow…some business might even be very profitable businesses, but if they have a bad cash flow, the business might fail. So as a trader, you must make sure that your business is well capitalised.

I am not saying it is impossible to make a living from a small account…I am saying it is very difficult, some traders can do it, but they must be very disciplined and good at their trading. If I could compare 2 traders…trader A has a small account and he/she trades at $1 per point….Trader B has a large account and he/she trades at $10 per point…if trader A want to trade for a living he/she will need to make about 500 pips a week, the trader cannot trade multiple positions, and it  makes it difficult to manage a trade, especially when you want to ride the trend.

Trader B only need 50 pips per week…which is very easy to achieve almost every week…he/she can trade multiple contracts…he can easily divide the $10 per point into 4:4:2…that means he can take partial profits let’s say on the first $4, move the remaining $6 to BE…then take another profit on the 2nd $4…and let the $2 run, by doing this, he is taking  advantage of the trend….you can see that there is no pressure on trader B…When you trade with no pressure, you make better decisions than a trader who trades under pressure.

And the other thing as well is new traders trade a $1M account on Demo…but they know that when they start trading live, they will never start with such a huge account…If you know that when you go live you will start trading with let’s say $10,000…that’s what you should trade in a Demo account as well….

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: