[Advanced] How to aggressively grow a small (10k) account?Most of the time growing an account is a very slow grind. Make some, lose some, hope to make a little bit more than you lose.
For example, with an average risk to reward of 1 to 5, and a win ratio of 21% (not counting once a year outliers), which is pretty good, breakeven being at 16.67%, after 100 trades the result will be - with a risk of 1% (flat) each time:
- Profits = 21*5 = 105%
- Loses = 78*1 = - 79%
Net result = 26%
Finding 100 good trades might take more than 1 year. With a theoritical compounding of 1% each trade the max profit would be:
- Net = (1.05)^21 * (0.99)^79 = 25.94%
Compounding is not always the magic trick.
You might be looking at something like 20% a year. But once in a while, often in September-October, and sometimes at specific times such as March-April 2020, we get these monsters that go way further than usual. Often from a boring tight period, an explosion that grows exponentially, this pushes the reward dramatically. So we can end with a few winners at 10, 15R, rather than the usual ~5.
So you can "easily" get the regular barely above breakeven 20% (for the example) with on top of that an occasional 10, 20, or even more, percent.
On our small accounts these extras feel good, and they give a nice boost, but nothing dramatic. Growing a 10k account into 100k even with 50% a year will take 6 years. With 30% a year that would take 9 years. With 20% a year, 13 years.
An experienced but poor investor, that spent years working on entries, exits, and so on, will need do something rather "dramatic" to grow his account. Doesn't have to be a complete gamble. An idea is after one of these "boost" periods, the investor could put all of that profit at risk. Say he made 32%, losing it all would be a major drawdown of 25%, but if the investor sees it as extra it is not the same as a crippling drawdown. Having a great period is nice (within years of moderate consistency), but it is not life changing.
It might be a good idea to use that as some sort of springboard (or launchpad):
- Losing that profit is a return to last step it is disapointing and the grind continues but even with an extra 30% the grind would still continue it wasn't going to be life changing. Maybe 6 months - 1 year worth of profit lost (but it was "extra" anyway).
- Not losing it all (winning or even a period of breakeven) is great because it will allow the account to leap up suddenly, you quickly end up years ahead.
So how does this work? Going to use an example. The investor gets 100 trades a year because why not (that's 2 a week or a little over 8 a month), has a reward 5 times the risk and a winrate of 21% (PF = 1.33). Account size = $10,000. Risk per trade = $100. The investor was able to grow 4000 into 10,000 over 4 years "slowly" (not that slow) but surely. The biggest drawdown ever was 20%. The yearly return is 26%.
Over September to November he made $4000. He would "normally" make $1000 over 3 active months like this, but as is often the case, that period was violent with fear moves, winners just kept going and our investor that was able to add early ended up with 2 winners at 9+7 R each. So 32R. It can go very fast. 32%, on top of 8% on other grindy trades (over 3 months).
Trying to catch whole trends and hold forever in my opinion is not realistic, but adding once or twice to winners is (talking about FX here), and winners (especially in March 2020 or September-October) going vertical does happen.
So now how does the 10K investor scale up? Well $100 was 1%. 1% of 14,000 would be $140. but how about he more than doubles the risk?! So investor's profit in Sept-Nov was $4000 ("regular" $800 + "extra" $3200) and he/she decides to put it all at risk. He pushes the risk up to $280 which is now 2% of the new account size. After 12 loss in a row (down 3360) all the "extra" will be gone with only $640 profit left, the risk will then be reduced progressively, first down to 200 and if losses continue, 150 and finally back to 100.
To attempt this our investor must have several years of results. From these years, taking out the handful of outliers, we know average RR & WR. The important question is what are the odds of 12 losses in a row? (With 21% WR)
==> First the probability of 12 losses in a row (if it was a random coinflip) are 6%. The odds are rather low.
==> Second the odds of exactly 11 losses out of 12 are 19%. In that case investor lost 1680/3360 -> Half. Still 6 lives left.
==> Once investor has 6 lives left the odds of losing all 6 times are 24%.
Risking 280 rather than 140 means in 1 year rather than grow by 3640 (26%) the account will grow by 7280 (52%). Basically fast forward 1 year. In a way this is risking 1 year of profits to make 2. With something like 80% odds of making it. Aiming for much less than 12 lives is really gambling. An investor could also go for 20 or more lives but the higher the number the slower the grind. With 6 lives there is 1 chance in 4 to lose it all. But it would be a $560 risk, a huge increase from $100. Is there really a need to increase size by that much at once? It would not even accelerate growth that much. Our little investor can always make another jump after that first one.
Because yes, that snowball can keep getting bigger. It is a terrible idea to keep going double or nothing, eventually it will be nothing, but we could find a compromise between being very careful and careless. We might not accept a 30% drawdown, or losing 3 years of very difficult very slow profit but if we can separate that say slow grindy 15% a year and go "I won't risk this" but the once a year or two monsters that provide 20%-40% at once (arbitrary numbers) we can see it as "extra", we got our account with 10k in in and the 4000 we just made well losing the 4000 technically would be a 30% drawdown on 14k but we can perhaps separate this, it was unexpected, and we put all of this capital at risk, without hurting our "main" capital. Might be a great way to boost growth without risking to blow up or being set back years.
And if it works out. As I said the example investor (which is already at least in the top 5% by the way) made 7280 rather than 3640. An extra $3640. Actually since his account was $10,000 and he was supposed to make about 3600 in 1.25 year, but instead made 7280 + 4000 = 11,280, well that's an extra of about $7500. Last time investor risked 3400/4000 in 12 trades (6% odds of losing all 12 and perhaps ~15% odds of losing all that money over a longer time), maybe this time investor wants to risk 6000/7500 in 12 trades ($500 each!). 26R = $13,000. If it works out in 2 years investor's account went from $10,000 to $34,000 rather than $16,000. $24,000 profit rather than $6000 (or $10000 with the big winners). With what? 1 in 4 odds of only making 6000?
It is still going to take years anyway, but it is possible to take ponctual big risks to try and jump up a few steps, without playing russian roulette either.
Another quick example...
I think this example is within the good compromise area. It would be possible to go "I will risk $1200 over the next 3 ($400 each)" but just 3 trades that gets rather random so it becomes gambling. Over several years risking "1200" (12% base account) over the next 3, well the randomness would even out but seems bad, better to have some sort of certainty. 4% and 6% odds to immediately fail means 94/96% odds of success, unless really bad luck that should rarely happen, this should work. Just not with rent money. And even if it fails the "base account" is still here, simply some unexpected profit evaporated. If it fails, can always re-try next time, after another while of grinding, making sure we are still actually profitable and it was just bad luck.
On top of this whole concept of putting profit at risk for a boost, there are the very rare "generational" trades (George Soros versus BoE 1992), where risk is known to be limited (so no swiss tsunami), the odds are really high (way more than 21%), and the reward will be even better than 5R. Also more generally when having a great winning period, great conditions, but I would not trust anyone to be objective about that. Our eager investor that made 4000 could out 3000 at risk over 12 trades with $250 each, and leave the remaining 1000 for the "great ones" where maybe $300 can be risked at once (and if it works out a one time 1500-3000 boost), 300 being "only" 2% of 14000 so it's still fine, not completely crazy (we are talking about a serious investor that has been doing well for a few years not a retail day trader with a gambling addiction).
Just like with trade selection strategies, there is no secret magic trick. This scaling strategy is honestly the best I can do.
Maybe 1 last example...
And finally, this can be tweaked. Rather than rambo the risk from $100 to $280 in the example I choose, still putting all or most of the 4000 at risk, an investor could first increase the risk to $190 (takes 20 losses to lose most of the 4000 rather than 12), and if that goes well, which if it's a profitable investor is more likely than not, then once at +5R (+$950) or so investor could then increase it $280 which overall is safer, and much more likely to work out. With $280 from the start 5R would be 1400 so investor left 450 on the table, not that big of a deal. From that point the next 12 will have a 280 risk, if unlucky then there is still profits left and we can drop to 190 before returning to only 100 which hopefully won't be the case, at least most of the time. Then stay at 280 a while (if it works out) and next time big profits appear, risk that + a part of the 4000, without touching the rest of the profit made in the meantime.
Risking profits is really not the same as risking the "bulk" or "base" capital, that's a slippery slope...
Rule number 1 = protect your capital
Rule number 2 = do not lose money
1percentrule
The adventures of leveraged naked ootm option sellersAh the famous "free money" option sellers.
Ah the famous strangle strategy.
Option sellers. Ok.
Naked option sellers. Sooo...?
Way out of the money naked option sellers. Let me think...
Way out of the money strangle naked option sellers. Getting good.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers. Oh boy.
Ultra Leveraged Way Out Of The Money Strangle Naked Option Sellers That Never Cut Their Losses. Not fair for other Darwin award contestants!.
They have to be doing it on purpose.
A strangle is an absolutely garbage strategy where the writer sells (slightly) out of the money options on both sides.
The maximum profit happens when the price stays between both strike rates. Not going to make a full explanation and a drawing, but what is important is it involves option sellers that take small premiums win very often but are at high to unlimited risk.
The premium basically means that even if the price goes against you a bit you are still in the green. Out of the money means you have even more breathing space before the price gets to a losing area, and then additionally you have the opposite side premium as additional "breathing room", which in all means the price has to move very much for you to even start being worried. But when it goes that far... careful.
Depending on how out of the money the option is the premium can get pretty low... So the option seller won't make alot of money. There is no free lunch.
A summary of those strategy is "Picking up pennies in front of freight trains."
Ok here is a drawing xd
A few people use this, and I know it is taught by Tom Sosnoff that runs a brokerage. You might recognize him in some old documentary & interviews about the 1987 (he was a market maker obligated to buy people bags and "add to loser" and they all were running out of liquidity & had to beg banks for more money so the whole system would not collapse). He is the creator of thinkorswim that he sold to TD Ameritrade for a big bag of money.
He published a video recently where he bashed the robinhood effect where down synd- er I mean young credulous investors (and legends like Portnoy) are getting enabled to gamble on risky & complex products they do not understand. Oh wait no he praised it all, said it was wonderful and a new paradigm. Sad. "Hurray optimism" (until the suicide). Not sure what my opinion of him is right now.
On the long run those strangle work, and ... well I can't say any idiot can do those clearly with all the clowns blowing up ... but it does not require any prediction ability (you are better off if you can predict low volatility thought), it is maybe complex to understand for novices at first but rather "easy".
Someone running such a strategy will often win, and get consistant profits, but the profits are just... small. And funds or individuals using this strategy have to be prepared for big moves that sometimes happen and have a plan to hedge at some point.
Tom Sosnoff tells people to "trade small trade often" (another broker telling people to trade often gee didn't expect that).
Since this strategy makes little profit, fools have a tendancy to use leverage, sometimes alot.
Warren Buffet once said, or more than once, way more, that leverage was the best way to wipe out your wealth.
Especially when mixed with ignorance. He uses leverage himself, but not like this, not like these guys...
The only way I see leverage maybe making sense with those strategies is say you make 1% a year, so you'd put 90% of your money in a mix of equity indices & risk free with low correlation, then use 10 leverage on the remaining 10% that is used to write options, keep risk managed, so then you make 10% on the 10% and if something goes real wrong you have deep pockets, 9 times the amount... Using a bit or even 2-3 times more capital and more leverage too would not even result in getting wiped out for those that did. They REALLY asked for it.
There are plenty of naked option sellers that got wiped out, included hyped or famous ones. Naked selling means you do not own the underlying (so if you never buy until the client exercises his right you will have to first buy the asset at whatever price, or have to buy it from him if he is short potentially at a much higher price than the market price).
James Cordier from OptionSellers dot com, Victor Niederhoffer, Karen Supertrader, LJM Preservation And Growth Fund (HAHAHAHA they have a great sense of humor).
James Cordier used way out of the money options, so it would look something like that:
Wow! We found the holy grail! You cannot lose!
He really got zero sympathy, and even his clients did not get much. They either knew it was risky or did not bother how to even put this they did not even bother looking at was option selling was somehow?
James Cordier was making tiny profits with huge risk, had very high winrates, and because he made little profits he used extreme leverage to get any significant amount out. He is the epitome of the concept "Picking pennies in front of a freight train". They should use his picture in encyclopedias.
Those leverages aren't even poor risk management at that point we reached another stage. Seriously this guy is an absolute psychopath.
Victor Niederhoffer used to be a rather famous fund guy, he worked with Soros, he was rather popular I think he wrote in big journals, probably was on tv regularly. He was "one of the best" making 30% a year for 20 years, famous people held him in high regard, he was sort of a mentor to guys that are famous today. But he missed a few braincells. He sold a big amount of naked puts in 1997 then the market crashed. Rekt. Another "myfxbook" loser. Maybe he was just bad all along and got lucky for 20 long years. Outlier. He probably whine that it was just "20 sigma bad luck". He blew up again 10 years later 😂. Rekt by the trash securities crisis of 2007. Oh ye another "free money one". If you saw the movie "the big short" you might remember scenes where bankers were laughing and partying at the "idiots that bought options against CDO/MBS". He was not a banker himself so Bush did not use taxpayer money to bail him out. He was not unlucky actually, he was very lucky to have lasted 20 years the previous time. Dumb people often have Dunning Kruger...
Karen Supertrader was a random old lady that got into the Sosnoff noob strategy. It is very hard to lose money while keeping it small with that one, so idk I guess this is why he pitches it to complete noobs that would all become day traders and lose their money quickly. Hey they'd just lose their money otherwise, at least here they are making a little. It is true, can't even blame him he is maybe saving noobs. Should just let natural selection do its job just like getting rich slow is actually not slower, helping people is not actually helping.
She was an outlier in a normal distribution, mistook that for greatness, and started a fund managing to get idiots to invest hundreds of million. 150 I think.
She ended up losing if I recall a good 50 million, hide the losses as unrealized (which she rolled over each month and used new positions to offset), while still collecting fees.
I remember seing her interview on how great she was and thinking "ye give it a little while" and then doing some research, and oh ye blew up haha.
Didn't see that coming.
I don't get people brains. If people use certain strategies, it is mathematically impossible, literally impossible, they can get certain returns without taking huge risk or committing fraud. Why is it so hard for the creatures on this planet (especially regulators) to comprehend? It is physically impossible. Proven. This is not economy or climate science where randos come up with their ooga booga opinions and apocalyptic calls, mathematical PROOF means it is true period. Really blows my mind. How are all those mouth breathers even alive?
If a strategy no matter what is contained in Upper Bound Lower Bound and we are outside of the bounds it's not because of divine intervention or a parallel universe. I don't even know how they think. Lmao I crack up when I try to imagine their thought process. It's like the market moves 10% in a month, and someone tells you they simply bought & held, made 60%, and used no leverage. And some people are stupid enough to think this is possible??????????????????????????????????????? Wow.
LJM Preservation And Growth is just the funniest. "Preservation" in the name, then goes to the option selling casino with infinite leverage.
People trusted it blindly because it has preservation in the name? XD Reminds me of some groups in the USA self proclaimed "good guys".
Idiots that fall for this get the karma they deserve.
You can find stories and read about it on the internet it is all over the place. The best bits is how they always find excuses.
The fund came up with "there is no way we could have predicted the 911 attacks". The stupidity of this excuse is really beyond.
I don't even know where to start. Well I don't think I need to explain. They clearly were in the wrong business entirely.
"Oh no there are risks in the business" 😂
One of optionsellers client shared a google doc of his 1 million (in total) portfolio, here it is, it goes from left to right day by day so you can see how the positions evolve and how James Cordier holds onto his losers forever, until death pulls them apart.
docs.google.com
You can find the second to last idea James Cordier published on seeking alpha here:
seekingalpha.com
He got all excited at the "free money" (greed & euphoria) and then sh** his pants (fear), held the bags, blew up. The he was less excited (pain regret sorrow etc).
Emotions -> Emotions -> Emotions. Mistakes -> Mistakes -> Mistakes. Like a baws. And the guy had 20 years experience or so.
His last idea was a short on coffee and he was very right. Should have just went short for real with leverage since he was gambling anyway rather than sell for "only" 1.8 million.
The website has his ideas since 2009.
You know these people I think they just hate losing. He probably was right often enough but I am not going to backtest his ideas got better things to do (got a new zombie game to try haven't been able to play games in weeks because idk they bore me but at the same time I really need a distraction I must be alone having to force myself to play games rather than the other way around).
It is not the case for all of them of course, but I am sure alot would make money without having to use 50 leverage if they just applied their analysis and accepted to take the risks, rather than look for some really stupid trick to always win.
As a speculator you get rewarded for absorbing risk/volatility. Sometimes down sometimes up, but on average more up than down.
How can some people be in the business, and not as market makers or arbitragers or brokers, for 20 or 30 years and still look for "sure thing" strategies and be afraid of taking a loser? Who cares if the portfolio moves a bit in 10 or 20 years the end result is what will matter.
It is clearly not for every one.
They should know better and be prepared for the "big events", but they go pavlov brainwash and emotional and feel good about it, as long as it has not happened they think it won't (and even once it does some don't even learn and think they really fell under the wrath of god and did nothing wrong as demonstrated by Victor Niederhoffer, seriously how dumb is this guy? I don't have a quarck of respect for him.)
If you are able to survive those big events, accept small drawdowns and they do not cause you to make mistakes, you are already ahead of many.
Another obstacle to be making money in this game. When you "have it" it really seems like a no brainer, but yes there really are alot of people unable to climb that obstacle.
Aren't 90% of casual investors bagholders? With "strong hands". So afraid to take a loss. Strong hands ye right, weak chins.
The receding chins are using computers now so they don't piss themselves, but I don't think the computers will be able to do everything, just the small day trading.
If we get to the point computers can go THAT far to predict the future weeks away (not just M5 stat arb etc) we won't even need markets anymore anyway, and we'll be too busy visiting other galaxies xd
Imagine science without all the dogmas and politics. Imagine politics without all the politics. And so on. I ain't worried. My tip to profitable speculators: learn to invest, find a passive income stream, you never know if you'll still be making money in 10 years, but don't be too worried all opportunities just disappear (unless communism).
Yes you never know if it is a pullback or the end, it is easy to look at it in hindsight compared to being in it and think "oh it just goes up".
