Thread by @Emmonspired

What people don’t think about early in their futures life is how undercapitalized and overlevered you really are.

You take $5K and the broker offers you $500 margins to trade ES intraday. Up to 10 lots. Each lot is $50xPoint of notional risk. Over $1.8 Million levered on 5k.

I see it all the time in combines and even live accounts. People dream of massive daily gains every day but what is more likely is you take a major blast to the face on even one trade and it knocks your ass out, to the point where you can’t even use same size next trade.

Now let’s consider the NQ… at 12,000 NQ was $20xPoint Notional risk per lot. Or $240,000 for one lot, $2.4 Million notional risk on 10 lots. You may survive a few trades or even a good week but eventually you will blow it all in one trade that way

So then you say ok I’ll go down to the micros… even 10 lots of micros is still $240,000 of notional risk with MNQ. A single 1% economic number move will wipe out most of your account with 5k and lose your account in a combine in one flash.

The market is filled with probabilistic random price movement even though the path can definitely be from “level to level” over the course of a day or week. That random walk can literally wipe you out when overlevered and undercapitalized. On any given day!

In order to have any chance of long term success, always keep in your mind the fact that if you’re using a 3-5k staring point on capital, you’re even overlevered and undercapitalized w/ 1 MNQ MICRO so the need to be with the motion of the market quickly or get out is ever present

But Dan, how is 1 micro overlevered?
1 MNQ = 1/10th NQ, at 12000 that’s $2*price of notional risk of $24,000 you are controlling with 3-5k. But since it is nearly impossible to be correct at any given price in a market with 400+ points or 1600 ticks of movement…. Think RISK 1st

One lot trading is the most difficult. I would recommend at least 3 lots, but prepare in advance for your first entry to be impossible to be 💯 correct. You have no ability to know what the market will do on its next tick let alone next half hour. Scale in/out.

It is actually - when underfunded and overlevered - quite arrogant to think that your entry will be perfect and you can just have tight stops in an environment where vix is over 25.

People Foolishly believe that having an understanding of Risk in the market is equivalent to acceptance of risk. There are two VERY different things. If you do not prescribe to the idea that even though prices move level to level, while also filled with probability of prices…

Then what you’re saying is that while you are aware of risk in price action and exposure to the market at any given time, you are NOT fully ACCEPTING that the risk is there because your trade isn’t accounting for the random walk along the way between levels to level.

It is simply NOT enough to enter the market and put in a stop to say you manage risk. You can enter and get stopped out repeatedly and incur many death by 1000 cut losses doing that. To prove you accept risk exposure, trades must account for the REALITY of volatile price action.

I’ve seen people go broke using tight stops simply because they think limiting risk means using a tight stop close to entry. But they don’t even use either volumetric risk management or size down to account for probabilistic price action.

When you do not have a guaranteed positive outcome on financial risk, up or down…. There is probability involved. Period.

Edge of a system is nothing more than a mathematical result found after thousands upon thousands of entry points in a data series. Not one outcome. ☝️

Entire reason I am able to make money and grow the account is that I have fully accepted the fact that there are significant risks in placing even a single trade. Huge difference between knowing risk, simply using a stop, versus accepting risk & having ways of conducting business

To me it's a fallacy to not think of trading as gambling at all. we have no control of the outcome. we have a setup. thats it. it's a financial risk with no guarantee of profit. that is the very definition of a gamble.

You can either be a Pro (casino), hobbyist, or degen.

Professional gambler,
Social gambler, and
the Problem gambler.

1) pro traders for a living are professional gamblers.
2) hobbyist trader is a social gambler, and
3) person that just goes to a different job just for the sake of trading leveraged money is a problem gambler

Unwillingness to accept this idea, or even to understand a market is filled with random walk of price action WHILE simultaneously moving between level to level, shows an inherent misunderstanding of why charts look identical but still have probabilistic no-guarantee outcomes.

A professional accounts for this fact when trading. That's the entire reason why these methods of managing risk exist in markets. Especially the options and futures markets, as well as other derivatives.

You can still accept the fact that there is professional level gambling while maintaining an unwavering level of discipline.

This is why these derivatives exist!

Ignorance of the knowledge in trading methodologies does not excuse a refusal to accept it.

@threadreaderapp
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