STRATEGY is what will dictate what your account size

Taken from BM forum for my reference:

http://www.bigmiketrading.com/psychology-money-management/3649-primary-source-income-how-many-have-made-5.html

Account Size "The Magic Number"

---

I do and DONT understand the fixation on account size. At the end it all boils down to "profitability/drawdown/trade opportunity/risk/money management".

For example:

Starting Account Size $5,000
Average trades per day = 10 to keep it simple

70% wins 30% losses

Average Loser 8 ticks
Average Winner 6 ticks.


Statistically on average the results would be as follows

1. Win 5
2. Win 6
3. Lose 8
4. Win 4
5. Lose 8
6. Win 6
7. Win 5
8. Lose 8
9. Win 6
10. Win 4


Thats a net win on average of 12 ticks per 10 trades.

Lets say half a tick ($5) of commission per trade and you have:

GROSS PROFIT: 12 Ticks
COMMISSIONS: 1/2tick x 10 trades = 5 ticks
NET PROFIT: 7 ticks

$70 net profit on an account of $5000 is 1.4% per day !

MORAL OF THE STORY:

Account size protects against the risk of ruin, and effects the number of contracts traded but has NOTHING to do with the Expectancy/Profitability of the strategy.

Your STRATEGY is what will dictate what your account size can be.


Obviously the sample size of 10 is very very small and does not represent the real life scenario of say 8 losers in a row.

So a drawdown of (8 x $80) = $640 is likely. But even in that case the drawdown on a $5,000 account is only 12.8% ( $640/$5000)

If you are netting on average 0.7 ticks per trade it would take you about 92 trades ($640 drawdown/ $7 per trade average win) to get back to even.

If the system generates 10 trades a day its about 2 weeks (10 trading days) to get back to even.

ACCOUNT SIZE MATTERS, don't get me wrong.

But telling people they need a $50,000 account is as crazy as telling someone they need one of those fire fighting helicopters with the giant bucket of water to fill a swimming pool.

A garden hose will do just fine. It just takes a bit longer

My 2 cents!
Jungian