SCOTT WELSH TRADING BLOG

The Most Exciting Thing In Trading

The Most Exciting Thing In Trading

Feb.26, 2014

I love the rags-to-riches story.

When I read about Nicolas Darvas turning a small account into millions, I get so excited I can hardly form a thought.  When I read about Jesse Livermore making his fortunes, I want to sell everything I own and put the proceeds into my trading account. For my money, there is nothing more exciting than thinking about turning a small account into a big one.

How many people’s lives could be changed if he or she could take $10,000 and turn it into $30,000 relatively quickly? Retirements would change; people could retire early. Quality of life would change; people could afford the things that would make a difference in their day-to-day lives. Charity would change; more money for one person could lead to more money for a lot of people.

Turning a small account into a big one is not just exciting, it is life-changing.

Of course, turning a small account into an empty account is disastrous. Regular people don’t have money to burn—does anyone?—and a small account is usually all people can afford. Going for a big win by taking on too much risk could ruin everything. Losing $10,000 is life-changing also.

For a long time, I’ve believed that it can be done. I believe normal people can turn small accounts into big ones. All of my research over the past several years has been to prove that this is possible, to prove that this is true. Now it’s time to give it a try.

This week I opened up a new $10,000 account at Tradestation. By next week, I will put my Robots on that account and see what happens.

So what is possible? What are my goals? First I want to double it within a year. That’s step one. If that works out, tripling or quadrupling won’t be too much trouble. The big hurdle to anyone becoming rich is the beginning. Losing ten grand right off the bat ends the quest. Losing ten grand after you’ve made $90,000 is nothing. If I can get to $20,000, big numbers are sure to follow.

The method? Of course I will be using my Robots. The real question is what lineup of Robots I will put in the game. I am working on two new portfolios, different from the eight currencies I currently trade. The reason I would change? If I can get the drawdown to be over more quickly and lose less money, I will switch to whatever portfolio makes that happen. If I can’t improve the drawdown, then I’m sticking to the eight I’ve been trading for almost a year.

Can it be done? The key here is compounding. I’m either going to compound at every 10% gain or every 5% gain (the spreadsheets will give me the answer over the next few days). That’s why drawdown is huge. The more often my account makes a new high, the quicker I can compound. The longer it takes to make a new high, the longer it takes for compounding to do its magic. It’s all going to come down to the numbers.

But here’s what possibly could happen. Taking my original eight Robots, here’s how it would have gone if I started back in 2012. Keep in mind that I’ve done no optimizing on any Robots after December 31, 2011.

Monthly returns since 2012 on my original eight Hornet Robots:

TOTAL
$739 1/1/2012
$1,783 2/1/2012
$51 3/1/2012
$963 4/1/2012
$377 5/1/2012
($569) 6/1/2012
$1,357 7/1/2012
$354 8/1/2012
($708) 9/1/2012
$173 10/1/2012
$302 11/1/2012
$525 12/1/2012
$1,894 1/1/2013
$317 2/1/2013
$1,278 3/1/2013
$1,498 4/1/2013
($41) 5/1/2013
$1,406 6/1/2013
$1,481 7/1/2013
$528 8/1/2013
($107) 9/1/2013
$184 10/1/2013
$645 11/1/2013
$290 12/1/2013

 

Using those returns and only compounding at the end of every month, $10,000 turns into:

$38,743.34

The account doubled in about 15 months. Just about where I’d like to be.

If you compound on a weekly or daily basis, it goes much faster. If you create a portfolio with similar returns and a smaller drawdown, it also goes much faster.

The bottom line is: the numbers say big things are possible. Come Monday, I’m about to find out.

 

Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.