I have built my act. up slowly and steadily from 10,000 to now about $145,000 over the last several years, which I am very happy about, but I know I can do better and increase it much quicker. Just not sure the best way to go about it safely. Your insights would be greatly appreciated!
What, in your opinion, is the fastest and most efficient way to grow an account if your acct. balance is roughly 100k? I know you have mentioned of traders doing extremely high percentages….I think Darkstar made some 300% in back-to-back months (or something like that). Was that all fading stops? Maybe buying/selling into the stops? News trading? What are your thoughts on rapidly increasing one’s acct. that is not yet a millionaire?
Congratulations on your journey and accomplishments up until now! It can be nice to just take a moment and appreciate all that you have accomplished so far. Of course as you said, you seem hungry to want to go for more! And that is perfectly fine and actually a natural evolution. It is always better to choose growth and figuring how to grow an account and trade bigger position sizes, etc. Always towards growth, new challenges, new experiences, new knowledge, new fun, etc.
As Jim Rohn once said:
Learn how to be happy with what you have while you pursue all that you want.
There is a certain energy and excitement associated with the part of the journey you are on. You have experienced the trading joys and sorrows, but have a very nice trading stake to work with. Since you built up your account to such a point, you want to find ways to keep going, faster than ever, etc. You can hunger for more, because you have tasted the success before. You have tasted the profits, speed, joy and ecstasy of the profit and volatility going in your favor. It is natural at this point to have a lot of hopes and dreams loose in your mind. You already have a great tinkling of what is possible because you have achieved part of it already. You know that it’s not just fantasy anymore – the hundreds of thousands and millions – because you have tasted part of them. So your mind can naturally start thinking about all the breathtaking possibilities that the markets can offer.
Perhaps you feel that you have access to the knowledge and developed the skill that you need to go to the next level. A source of great power – if you can tap into it and channel it properly.
Maybe you just need a few key insights and missing links and you can be well on your way! I hope to provide that in this email.
I will give you all the insights I can come up with and the various scenarios, philosophies and paths you can take. Then you can pick and choose what you like and what resonates with you.
Firstly, I would say to print this quote or write it on a card or have it somewhere near you:
To make the big money, you need to be right at the tight time
To make the big money quickly, you need to be right at the right time.
Plant your goal firmly in your mind. Whatever it is you are trying to achieve. Whether it is $500,000 or $1 million or more. Think of the small steps and smaller goal posts in between you and your goal.
Realize that to do what you want to do, you have to expend some energy, sometimes a lot of energy and work. $1 million dollars is not just going to be magically wired into your account.
So you just have to combine the right mindset, principles, strategies, together with the right energy expended and intelligent activity.
When the right mindset, principles, strategies, goals, belief in your destiny and plan, combined with intelligent activity, then that is when magic and speed happens.
You don’t want intense action, without vision, because that can just lead you to spin your wheels on irrelevant and low value activities.
You want to expend energy and do work on the right things, that move you toward you goals and your vision.
As a quote says:
Vision without action is a daydream. Action without vision is a nightmare.
Risk, Payoff, Profit Sheet
Another thing you can do is to create a sheet that I keep handy listing the % risk, R-Multiple Payoff, and % profit. You can always do this in your mind, but when you are trying to do what you are trying to do, keeping it handy can help.
I have listed it for you:
% Risk R-Multiple / Payoff % Profit
1% 1R 1%
1% 5R 5%
1% 10R 10%
1% 20R 20%
1% 30R 30%
2% 1R 2%
2% 5R 10%
2% 10R 20%
2% 20R 40%
2% 30R 60%
3% 1R 3%
3% 5R 15%
3% 10R 30%
3% 20R 60%
3% 30R 90%
5% 1R 5%
5% 5R 25%
5% 10R 50%
5% 20R 100%
5% 30R 150%
10% 1R 10%
10% 5R 50%
10% 10R 100%
10% 20R 200%
10% 30R 300%
I would put the above tables into Excel or Word or something and print it out and have it handy.
As extra notes or phrases you can add:
“Find The Big Moves, with reasonable and small stop losses, if possible”
“Chain the small, medium, and big moves together”
“The amazing sequence of trades”
“Find the Big Wave”
“Find the Changes in the Rules of the Game”
“The Next Big Move”
“ODVE, MDMM, GM”
What Do You Deem Safe?
Next, you have to answer, what you mean by “going about it safely.” This is where you should write down what type of drawdown you are willing to tolerate.
There are two types of drawdowns: Drawdowns from initial starting capital (or initial capital starting from beginning of the year), and drawdowns when you are in the profit for the year.
For example, there is a big difference between if you start off with $100k for the year, and lost 20%, you lost $20,000. You have depleted some of your original capital.
But if you were up 100% for the year and at 200k, and you lose 20%, then you lost $40,000, but still have $160k left, still up 60% of the year, so it can feel kind of different.
So if you want, ask yourself and try to get a feel, according to your prior experiences, what type of drawdown you can handle – both from initial starting capital, and what drawdown after you are up big for the year, etc.
Two Groups of Capital
Another option that you have, is to split your capital into two groups: Primary, and the High Risk (Go For The Jugular) account
So lets say someone is starting out with 100k in capital. That is a pretty nice starting sum and you can do so much with it and use that as a foundation to catapult you to trading success and life. With judicious mindsets, principles, strategies and actions, you can place so many great trades with it.
You can take, say $10k – $20k of the money, and place it into a separate High Risk, High Leverage account. If you want, this account can only trade forex. Or if you are comfortable, you can have it trade futures and stocks and stock options as well. Whatever your preference is. But this is the high risk account. You will place trades in this account with more, sometimes much more risk than what you would do in your primary account. Let’s say for example, you choose to risk 5% or 10% a trade with this High Risk account. If you find a nice trade, get the timing correct, with small stop, and the volatility is in your favor, and lets say you capture a ODVE or MDMM, and make 5R or 10R on the trade, then you are up 25% or 50% on just one trade. If you lose, you are down 5%. If you risked 10% on the trade, you are up 50% – 100% on a single trade. If you lose, then you are down 10%.
This high risk pot of capital, is designed to shelter your primary account from excessive risks. You don’t want to lose your trading stake. If you don’t have a trading stake, you can’t take advantage of current movements. I believe Jesse Livermore was flat busted for a few years between the ages of 33 – 37. So you don’t want to lose your stake.
So with this High risk account, you choose to place really good trades, sparingly, with a lot of risk and leverage. How much risk %? Only you can decide. Some people only want to risk 1%, others 2%, others 3%, others 5%, others 10%. I wouldn’t really go higher than 10%, there is just no point in that. So choose something between 1% – 10% for your high risk trading account, if you choose to split your capital this way.
If you can chain together enough of these good trades, capturing some intraday moves, some ODVE’s, some MDMM’s, etc you can have amazing months, to the tune of +20%, +50%, +100%, +300%, etc. It just depends what sequence of good trades you can capture, and if you can stay out of bad trades. It depends if you know which trades can run for more and if you have the patience to sit on them as they go in your favor. It can be kind of breathtaking and scary at the same time, watching your profit % on an open trade fluctuate so much on small moves when you are running high leverage. There have been some cases many years ago where I had 30 pip move in the market = 10% of my account size. So if you catch a runner for 100 pips, you can be tempted to take profit, as you just made 30%, and if it just a ODVE and reverses on you, it was the right decision. But you need to have the skill and knowledge, patience and a bit of luck to figure out when it can be a runner, because if that 100 pip gain turns into a 500 pip gain, and if 30 pips = 10% of your account or so, then you just made 150% on a single trade, etc.
Then with your Primary Account, you retain 80% of the capital, or 80k if you started with 100k. With this, you can place the same trades as the High risk account, and some extra ones, but you just do it with less risk to protect your stake. Maybe in this account you only feel comfortable risking 0.10% a trade, or only 0.50%, or only 1%, or only 2%. Only you can know what you are comfortable with. What is the goal with this primary account? Well I would guess the target goal is to make around 50% – 100% a year, with small drawdowns on your 80k initial capital. So if you can make 50% on your 80k, then you are up 40k in your primary account.
Maybe it’s not as fast as you wanted to get to a million, etc, but this is where your smaller High risk account comes into play. How well can you do in it? Because if you do well with it, then your high risk account starting with just 10k or 20k, can generate gains of 500%, 1000% or more during the year if you are good and do the work and capture the moves.
It may feel like a pressure early on because you are piling on the leverage to try to get the High Risk account to a big size. The great thing, is that if you can do it, and get the High Risk Account to 200k or 300k, or so, then you can start ratcheting down the risk. Making 50% on 10k, is 5k. But making 30% on 300k, is 90k. So as your account gets bigger, you can ease the pressure off yourself, by lowering the risk, and lowering the returns, but you have a big account to work with, so the profits are still big.
So that is one potential philosophy to use: See if you want to split your capital into a Primary, lower risk account, and another High Risk account. Or if you want, you can just keep all the money in the primary account. It is just an idea.
Your Beliefs and the Truth
Some people can question whether you can make 100% return or more, etc. They may not believe you can do it.
You can fight these false beliefs with historical facts of the great traders, etc. You can go back and see in the Market Wizards books, what type of returns they had, etc.
George Soros in his book The Alchemy of Finance, takes his account of $445 million to $1 billion in the year 1985. That is a fact. It also stands to reason, that if he was able to make +120% on his huge account of $445 million, then smaller traders trading with $10k, $20k, $50k, $100k, $500k, etc can do the exact same thing at the very least. Or do even better. Especially in today’s age of more technology, faster execution, etc. The only thing lacking is some knowledge, and a whole lot of discipline.
Soros caught a lot of MDMM’s and GM moves back in the 1985, where they were plentiful. But he still can’t catch them all. He just had to capture some of them, with sufficient position size and pyramid some of the gains. Chain a sequence of good trades together. So that by the end of the sequence, you have a larger account, so you can place bigger position sizes at the end of the winning sequence. Not all years are as plentiful as that year. The maximum opportunity set of MDMM’s and GM’s fluctuate during the year depending on the global macro environment.
Back in 1985, he was taking advantage of the inefficiencies and volatility across all sorts of different markets – currencies, futures contracts like S&P, bonds, and in the stock market. Because Soros figured out that if he trades and analyzes multiple financial instruments, he gains access to vast array of inefficiencies and volatility. His maximum opportunity set skyrockets. That most certainly does not guarantee success. But if your strategy does offer you a large maximum opportunity set, then you have a great chance to do well if you do the work and have the discipline and expend the energy, etc.
Expand Your Maximum Opportunity Set
So that is another potential philosophy you can adopt. With 100k, you have a good chunk of capital to be able to trade multiple financial instruments. You can place trades in the spot forex market, or in the futures market, or in the stocks and stock option market. This doesn’t mean that you automatically start placing wild trades, having on 5 forex trades, 1 open position in bonds, 1 open positions in S&P, and own another 5 different stocks, etc. No, that’s not what I mean at all. What I mean is that you expand your opportunity set by analyzing multiple financial instruments, preferably uncorrelated as much as possible. Then, if you see an opportunity for a good trade, you place it. You can follow multiple things and not see many opportunities. Or sometimes you can follow many things, and spot a lot. It just depends on the situation.
You can structure some interesting trades in the stock option market if you are able to capture some big volatility by buying put or call options. A lot of money has been made this year in the stock market for a lot of big hedge funds. Big, monster moves in a lot of different stocks like NFLX, FB, AAPL, TSLA, PCLN, LNKD etc.
That is how Nicolas Darvas turned $25,000 into $2 million in 18 months. He was taking huge positions in stocks, risking like 10% or more of his account on every trade, and he caught some runners, making a profit of 10R here, 20R, 30R, even one trade was a +50R profit. He caught the global macro move upwards in the stock market during that time and barely took any losses. Pretty much whatever he bought was going up, so he did get lucky in that regard.
I have heard other stories, such as someone who took $8,000 into $500,000 in just two months, back in the late 1970’s when Gold surged. He caught a big volatility move, with a lot of risk. And if the market keeps going in your favor, you just have to trail your stop up.
Another story I heard about The O’Connor brothers, who made $25 million in a single year – 1973, during the huge soybean bull market.
They just came in and bought the maximum amount of contracts possible. There was volatility in their favor and a huge MDMM and GM formed, and they made a killing. They risked a large %, and got lucky. But it does illustrate the principles in the Mastery Course. With the ODVE, MDMM and GM moves, the right timing, the right volatility in your favor, leverage, etc, then really huge percentage returns are possible.
Whatever you decide to do, certain core principles remain the same. You want to capture the ODVE, MDMM, and GM movements, across many financial instruments if you can. You have to trade well, no matter what you decide to do. Lower risk %, just gives you a bit power staying power to survive if you catch a series of losing trades. Higher risk, puts you under more pressure to find winning trades faster, since you cannot sustain a long series of losing trades.
Dr. Van Tharp once said:
My belief is that the largest profit percentage are made by active short-term traders who really have their psychology together. I’ve seen short-term traders who could make as much as 50 percent or more per month (on small amounts of money such as a $50,000 account) when they were very in tune with the market and themselves.
I completely agree. When you are small and nimble, you can weave in and out of the markets. You don’t suffer much, if any, slippage. The short term traders can take advantage of the smaller trading moves – the stop hunts, smaller news trades, ODVE, etc and make big profit percentages if they leverage them.
While the big hedge funds can’t do that, because they are running bigger position sizes, so getting in and out of large positions takes longer and thus they have to try to find the bigger moves to generate the small big profit percentages that they used to when they were smaller.
I am sure there were day’s back in the 1980’s, where PTJ was trading and he was up or down anywhere from 1% – 5% in a day. He would take advantage of the ODVE’s, etc and perhaps add a bit of leverage to them, and try to capture them. He can’t do that nowadays because he is running a lot more money. If he had $50 million he could still do that. He can get $50 million of S&P futures filled in 1-2 ticks or so, easy. But if he trading a $3 billion account size, things are different. Firstly, he isn’t going to execute a $3 billion dollar S&P order most of the time, because that is a big position relative to his account size of $3 billion. It would be too much volatility of the Profit and Loss since he is running a large account. Since he has a lot of money, he consciously chooses to run at a lower volatility level. He wants lower draw downs and thus accepts lower returns. And he wants to retain some flexibility to place a trade in other markets if the opportunity arises.
As Paul Tudor Jones said in an interview in 2000:
I’m probably the exact same trader as I was 15 years ago, it’s just less risk, less return.
So if PTJ was going to high double digit gains or triple digit gains during the year back in the 1980’s, he was probably willing to risk a drawdown of 5 – 20% or so, in order to try to achieve those returns with his $40 – $200 million account or so. But if he is trading $3 billion or so now, then he will choose to only target say 15 – 30% a year, while lowering the position size, risk and leverage, so the draw down is only between 4% – 10% or so.
So if PTJ was risking say 0.30% up to 5% a trade back in the 1980’s, nowadays, his risk per trade is far lower, probably somewhere around 0.05% – 0.30% per trade or so.
Remember from the mastery course where I said you choose your volatility level? http://orderflowforex.com/key-money-management-position-sizing-and-psychology-concepts/
A Few Things
Always remember and never forget a few things:
This is the best time to be alive and be trading
The markets are more accessible and cheap to enter than ever.
Commissions are the lowest they have ever been, execution is the fastest it has ever been
There is a whole world of possibilities of financial markets and instruments that you can trade as you grow an account
It is a whole lot easier to become a millionaire today, with the cheap trading costs, cheap commissions, fast execution, etc than it was back in 1975. You just need a bit of volatility in your favor, combined with a position size that you are comfortable with and chaining together a lot of successful trades.
You attract as much money as your skills, the order flow, liquidity, and volatility allow.