Starting Capital: Issues to Consider
There is no minimum capital needed for trend following. There is no magic number. There are many factors related to starting capital not the least of which is your own personal discipline and ability to stick with a system. Immediately question anyone who promises you a magic number of how much you need to win. No one can guarantee you profits. A top trend follower was asked how you need to trade. He responded:
"I'd ask a trader who thinks he needs a certain amount before he can trade exactly what amount he would need to stop trading."
There is no dollar amount too little, nor dollar amount too much. More:
- "What you're asking about [are] rates of return, what you can reasonably make. And I've found that my trading style with small amounts of money allows around a 300% return." [source: Richard Dennis]
- Ed Seykota, profiled in Jack Schwager's Market Wizards, is a trend follower. He traded $5,000 into $15,000,000 in 12 years in his model account.
- "I know of a few millionaires who started trading with inherited wealth. In each case, they lost it all because they didn't feel the pain when they were losing. In those formative first years of trading, they felt they could afford to lose. You're much better off going into the market on a shoestring, feeling that you can't afford to lose. I'd rather bet on somebody starting out with a few thousand dollars than on somebody who came in with millions....This is one of the few industries where you can still engineer a rags-to-riches story. Richard Dennis started out with only hundreds of dollars and ended up making hundreds of millions in less than two decades - that's quite motivating." [source: William Eckhardt]
- Trading equities through LEAPs® options & ETFs are viable options for trend trading.
- FX, currency and commodities markets can all be traded with ETFs.
- Read The Complete TurtleTrader. Ultimately, it's your passion to win and your self-discipline to stick with it that makes a difference. Starting capital has little impact on your long-term success.
If you don't have enough confidence or capital to start trading, learn how to trade successfully by spending some time each day performing paper trade analysis. Armed with paper instead of your hard earned money, you can learn the rules and hold off actually trading until your bankroll is sufficient. This is a sensible alternative to wasting money on sub-par trading systems or worse, trading with no system at all. Go to school.
Trading is risky. You can win and can you lose. However, trading is a zero-sum game. The winners take from the losers. A solid plan is the first step toward winning from the mistakes of the losers.