Wednesday, 9 December 2009

Size DOES Matter

Kiki and I read Dr Brett Steenbarger's blog every Sunday as it deals with a lot of the "head" issues of trading. One of the most misunderstood things that impacts traders' heads, is trading too large a size for their emotional capabilities at that point in time.

One of the first things that I did when I started teaching Kiki, was to make sure that she had saved enough money to trade. In her case it was the equivalent of $10,000 US, to trade 3 contracts. Probably twice as much money as she really needed. For other markets like the YM it may be a little lower . How much you need in your account depends on your ability to "not care" if you lose it and for it to be large enough to carry you through the inevitable draw downs (losses) when you start. But it's important not to feel squeezed because you are under capitalised.

Its very important to start live trading with the least number of contracts that your methodology allows. It's 3 contracts in our case. When you start SIM trading, you should also only use that same minimum number size.

I usually say that you can go from 3 contracts to 6 contracts after you have made $5,000. Kiki is ahead of that target but is still trading 3 contracts,as that is what she is comfortable with. Some of us thrive on pushing ourselves, others need to go with the flow. Kiki surprised me when she told me that she still only wants to trade 3 contracts.  She tells me this even though she has learned her setups, validated her methodology, experienced risking real money and has lost the initial stress she felt when she switched to real money after months of SIM.  She thinks of the money she has made trading as her money not the market's money and doesn't want to give back any that she has made. I believe that you cannot become consistently profitable unless you reach this stage of relaxed trading, Kiki has, but there still must be some "head game", going on that I don't know about or she won't tell me about. It will be interesting to see when she decides to go from 3 to 6 contracts.

There has been great interest in the webinar. I love the great countdown clock Kiki put on at the top right hand corner of the blog. We will record the webinar for those that miss it.

Today's trade in the ES was relaxed as usual. We caught one very good trade and the others were average. There is probably more money to be made today but I'm tired, even after taking my usual nap.

Click chart to enlarge


  1. From the trades you have posted, it appears that you yourself are trading 3 lots. Since you seem to want your student to move to 6 lots, is there a subtlety in your continuing to trade 3 lots? I am sure the equity in the account is not the issue.

  2. Hi Tom and Kiki,

    Is that a parabolicSAR indicator (the small diamonds above and below candle bars) you are using on your charts? I am interested how it is used for your decision making.

    I have read every post of yours and I am riding along learning. Thanks so much again.


  3. Geo, no I am not trading 3 lots but always in multiples of 3 lots. The blog trades are my trades on a 3 lot basis. Once Kiki is more comfortable with the pressure of visibility, we will post both sets of trades for comparison.
    Mark, those are the MomDots and you can find the formula in a previous post. Used sometimes for entries sometimes for exits. They help in the decision making, usually in steeper vertical moves.

  4. Tom, that is what I figured, 3 lot being just a unit size and you use a single unit size for posted trades to illustrate the method's efficacy. Thanks for clearing that up.

  5. Reading Market in Profiles Jim Dalton.

    Read all your post and plenty of comments.

    I think ultimatley to get a lot of value here you need to have a real time room where you discuss things in greater detail and show charts etc.


  6. Tom/Kiki- I have been reading your blog since the beginning and have really loved it. Your point today is well received. Trading is more psychological than most think - that may be why people are drawn to it. Your theory of consistent wins and scaling in and out of trades is fantastic and extremely necessary for the new trader. I am also a big believer in "deliberate practice" prior to going live - I think that can take some (not all) of the stress of a beginning trader from running SIM.

    One request - would you post about how you calculate your support and resistance and how that applies to MP.

    Awesome, awesome job guys.

  7. Jake, I split the profiles and use the VAH and VAL and POCs. Also significant are buying and selling tailsm especially those longer than 3 ticks. I'll be showing much more on this in the webinar.