Thursday, 1 November 2012

Discretionary Trading

There are some great conversations in the comments to the previous post. The last question was:
El, per your stat, how many contracts, say on euro futures do you trade per $30,000?

As an example, 1 contract per $10,000, i e 3 contracts per $30,000?

Can you expand a bit on what you beleive is a "proper" account per so many contracts?
 The answer depends on many things including: Are you CP? What your win rate is. What your average trade size is (the average of all wins and losses). Your risk per trade and so on. In other words, how many contracts can you trade without wiping out your account. Making this assessment is crucial if you want to trade aggressively or even passively. Once you have this number then it should be reduced to half, to a quarter or even less depending on your degree of aggression.

All of this depends on having comprehensive back testing stats with a large enough sample size to be relevant. The back testing is not only to validate you as CP but also to provide the information for proper position sizing.


  1. El, it was my question....I was looking for the answer, as an example, based on all the stats you have provided to the $30,000 account

    Other question relates to your statement"Your risk per trade and so on. In other words, how many contracts can you trade without wiping out your account"

    So, let's say trader is a CP for the last 10 months, then there is a drawdown of 25% using exactly the same technique ...should trading be stopped?

  2. Anon 15:49, I'll answer with a follow up post in the next few days. Thanks for the questions.

  3. I think that Anon 15:49 is taking a far too mechanical and theoritacel approach too positionsizing. Maybe he/she is helped with a pratical example: I started with one contract on a 10000$ account. Just trying to get cp after being cp in paper trading. Then when I got cp in real life, I looked at my figures and counted my worst drawdown from peak to valley. Then I looked at the multiple contracts positionsize. Is it better to scale out for me? Or is it better to keep it all in/out? Then I calculated the drawdown with minimal multiple contracts, and that drawdown number I multiply it by two. That is my maximum number of loss, before I get worried about my system. That is the way I started. As a result, I feel comfortable to trade up to 3 contracts of the Russel 2000 index per 10000$ in my account... I also find out that when you are sitting in front of your screen, you almost never hit the worst case stoploss. Mostly, the loss is a tick or two, three, because you really get a knack to 'know' when your position is not going in your favor... It comes with experience... It took me almost a year to get profitable on paper with an adapted system for my psychology and EL system is a big part of it... Give it time to sink in, it is easy to miss some important things... All the best, you can do it.

  4. Anon 15:49, I can't say it any better than Daniel did above. For a CP trader, a 25% drawdown is very very unlikely.

  5. Hi El!

    Thanks for a great blog.

    I am just wondering what execution platforms you use, and what brokerage firms?

    Do you use different execution setups for different markets?

    Also I am wondering if you have ever trade the ftse 100 contract?

    Good luck with your book, looking forward to reading it!

  6. Anon 07:20, I use quite a few including Bracket-Trader, Ninjatrader, MultiCharts. I teach about a dozen "setups" or pictures, both inside out and outside in trades. Yes, I've tradded the FTSE both on and off the floor. It was a tough market on the floor. Much easier electronically.

  7. jenrique42

    I have a question for you
    in one of your post, you say that when the dax, and I think it can be extended to any other underlying this at a point intermediate the VA, expect to reach an important puntof MP, whether the VAH, VA L. or P.O.C. or any other one I think is important, but that it could only make a full time trader, I'm not particularly full time but part time, in this case, that is what I can do? if it is true that I have several slots in which I can do trading, with limited time, but if I do so, there will often not be able to enter the market


    tengo una pregunta para ti
    en unos de tus post, dices que cuando el dax, y creo que se puede hacer extensiva a cualquier otro subyacente, esta en un punto intermedia del V.A., esperas a que llegue a un puntof importante del M.P., ya sea el V.A.H., V.A. L. o el P.O.C. o cualquier otro que uno lo crea importante, pero esto solamente lo podria hacer un trader de full time, yo particularmente no soy full time, sino a tiempo parcial, en este caso, que es lo que puedo hacer? si es verdad que tengo varias franjas en las que puedo hacer trading, con el tiempo limitado, pero si lo hago asi, habra muchas ocasiones que no pueda entrar al mercado

  8. jenrique42, The various points on the MP - VAH, VAL, POC, single prints etc are areas where the market has to make a decision of whether to break or hold. Trading in areas where you do not have these points of support and resistance reduce the win rate. I use the bar chart to time the entries at these MP areas unless the order flow is so clear that the MP is not necessay. This often happens on a trend day.