Adrian Reid says you can start small and scale up, but only if you have profitable trading rules and the confidence to follow them. Backtest your rules on historical data first. Then pick an account size based on how much you can lose in dollars, not just percentages.
So the question is, when I first start and I feel like I'm a beginner, is it okay to put a small amount of money until I have confidence and then scale up later? Is that okay? And the answer is yes, absolutely. The most. I mean, there's a couple of things that are really important for you to make money trading. The first one is you have to have a set of rules that are profitable. If you don't have profitable rules, you won't make money, end of story. But the second thing is once you've got a set of rules that are profitable, you have to have the confidence to keep following them.
And a couple of things can shake your confidence. Either you don't trust the rules.
Or you're not comfortable with the level of fluctuation, volatility, risk in dollar terms.
Or you don't understand what you know, how the rules work and what's happening. So if you don't trust the rules, you can build confidence by testing them on the historical data and saying, ah, okay, if I'd followed these rules, this is what would have happened. And if I change the rules a bit, this is what would have happened. So the rules as they are are better than the rules changed, or you can optimize and improve them and make the rules even better so they make more money. So you build the confidence in the rules by testing.
The confidence or the comfort with the volatility of your account is all about your risk profile, your risk tolerance. So you have to ask yourself, how much money am I willing to risk so that I can still sleep well at night and I don't get stressed out?
And now on day one, that might be a small amount and in six months time or a year it might be a much bigger amount. But this is what's right for you.
So.
If you, and there's two parts to it. There's the dollar fluctuations and there's the percentage fluctuations. So if you have an account and you make some money and then the account drops 10%, are you comfortable?
Probably right. If you make some money and then your account drops 60%, are you comfortable? Probably not. If it drops 20%, are you comfortable?
Maybe if it drops 40%, are you comfortable?
Yeah. Right. So it depends on you. And so in the system trader Launchpad course, where we do the drawdown tolerance, that's the exercise to go back to go back to that exercise and look at how far can the account dip. And I still feel confident with it as a percentage of the account value that's part of it. The second part of it is how far can it dip in dollar terms? And I be comfortable because the percentage. One thing that you say, Joanna, you're comfortable with a 10% drop in your account.
But if you had US$50,000 that you just came across all of a sudden and you put it into your account and it dropped 10%, that's $5,000. So you have to think about the percent drop and the dollar drop that you're willing to tolerate. Combine them together and that tells you how big the account should be on day one.
And then over time, you can scale it up.
