Adrian Reid answers whether it's acceptable to start trading with a small amount of capital until you gain confidence and then scale up. He affirms this is fine provided you (1) have profitable, well-tested trading rules and (2) can tolerate the dollar and percentage volatility your account will experience; he recommends backtesting to build trust in rules and choosing a starting size that lets you sleep at night. The answer uses concrete percent-drop examples (10%, 20%, 40%, 60%) to illustrate comfort levels.
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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?
