Best way to scale up

Discussion in 'General Discussion' started by status1, Mar 4, 2018.

  1. status1

    status1 Well-Known Member

    I was wondering if there is some kind of guideline or concept of successful traders about how to scale up an account that has grown let's say from 25k to 40k ?
    1 Trade the same and leave more and more cash unused in the account which is not a bad thing in this environment ?
    2 Increase the trade size ? By how much ?
    3 Widen the spreads ?
    4 Stagger the trades So maybe 2 trades separated by 2 weeks ?
    5 Other options ?

    I am kind of leaning toward number 4
    Of course that would double the number of trades that I have to manage which may be ok for one or two accounts but with 7 accounts that would be 14 trades I would have to manage so that would be too much unless I do it full time
    I normally trade a 5 lot fly so I was thinking I could do a 3 lot and 2 weeks later I could do another 3 lot this way I am not all in at one price If the market comes down I could get a better entry and probably more profitable than the first trade
    I would also need to leave enough cash on the sideline for adjustments on both trades
  2. ACS

    ACS Well-Known Member

    If what you are doing is making consistent money then the easiest thing to do is just increase the size of each trade. Instead of 5 lots then use 7 or 8 keeping the size of the position in scale with your equity.
  3. PK

    PK Well-Known Member

    I fully agree with ACS. If something works, refrain from changing parameters. In the case you are doing longer term option trades (e.g. Road Trip Trade), scaling up your positions from an n-lot to an 1.6xn-lot is the easiest way to go (2). You may prefer to allocate your extra-lots to different expiration cycles to achieve better time diversification (4), whenever your lot size for this extra entry allows you to manage the position as you are used to do it (e,g. if you are trading a 3-lot Road Trip Trade, it will be easier to scale up to a 5-lot instead of entering a 2-lot in another cycle; if you are already trading a 10-lot, I would prefer entering an 8-lot at 2 different expirations instead of scaling up to a 16-lot). My personal way of managing a growing account like you describe implicated another major change. When I started with a small account, I tended to higher leverages and did not care so much about portfolio hedging. With more money on the table, my focus is on balancing risk exposure and expenses for portfolio hedging, which ends up having less capital at risk (5).
  4. status1

    status1 Well-Known Member

    Thanks I am pretty much at this same situation
    Because of last years low vol I was taking on a lot more risk in a small account but now with the higher vol I actually feel I should scale down even though the account itself has grown so that would leave more money in the account
    but I think I better leave it like that in case I need it for adjustments
    I definitely would not put the same trades from last year now
    So I can't say that I am making consistent money because of the changing environment I have to change my trading strategy so I have to get used to this recent volatility and find a strategy that works more consistently before considering a scaling trade
    Since you have less money at risk do you feel that the rest of the account is just sitting there doing nothing ?
  5. Kevin Lee

    Kevin Lee Well-Known Member

    My take is this for whatever it's worth....

    The most important part of scaling up isn't about the technicalities. Yes, it is important to find a trade plan that works and it is important to optimize the return. But I think it is far more important to test out and train your trading psychology with large size. At least for me, that is the gating factor and not the trading techniques.

    Initially, I thought I would start by trading a $10K account. After I prove that I can be consistently profitable, then I'll move to $50K, then to $100K, $200K, etc.... thereafter, as they said I would live happily ever after. I realized it really wasn't the case. I'm not sure if that's just me but there comes a point that psychologically I cannot take the P&L swings anymore. Initially when I traded one tranche, daily P&L swings were few hundred $ in a bad day. No big issue. I could be really disciplined to ignore the gyrations, wait till adjustment time and then do what is needed. If the trade hit max loss, so be it. That's at most $1 or 2K$. Hit it twice in a row, nah... no big deal.

    But when the size is huge, hitting a bad day will see swings of few $10Ks. Suddenly, it's no longer that easy. Max loss can be $50K or more. Hit it twice in a row, it'll take a while to re-adjust psychologically. So when market opens down 3% and I have a huge +ve delta, it's no longer so easily to ignore and wait till adjustment time. I know theoretically I'm supposed to but in real life, there is a psychological wall that everyone will reach at certain size. You need to find what yours is.

    It's easy for others to say.... well, then you're trading too big. The issue with that statement is if I trade for a living, I cannot continue to trade small. I have to trade big enough size to be meaningful. So, the real solution is to morph my trade in such a way that I can scale up and be psychologically palatable. If you're like me, then it's not true that you can keep the same type of trade going from $10K to $500K. My solution is to trade further DTE, flatten T+0, avoid massive P&L swings but accept lower overall returns percentage wise as a consequence.

    So in summary, my advice is don't extrapolate your performance from small to large account. Don't base your results on back testing. Whatever you can do in back testing, that's without emotional stress. Be careful of people who show you what they could do with paper trades, back testing, small account or other people's money. It's not reflective of what they could do with a large account of their own money. Find out what your own psychological make up is and then create a trade along the way that works for you as you scale up.
    Last edited: Mar 7, 2018
  6. status1

    status1 Well-Known Member

    I was thinking along the same line but I am not sure how to change my psychology
    I guess it will take some time to adjust and try different things and find something that works for me

    For me it's not about moving from a small account to a bigger one It's more about as my account slowly grows with each profit over a few years the amount that is in cash is increasing which is not a bad thing I was just wondering if there is a better way to use more of the cash available but in a less risky way if that is possible
    I realize I was taking a lot of risk in a small account so obviously I am not going to scale up that risky trade as the account grows I was just wondering if it would be worth it to use the same small scale trade size but spread it out over time or over different strikes as the market moves around so in theory just one trade would be in danger in the near term

    One of the reasons I have a few small accounts rather than one large one is that I am limited by the account size from trading too big so I am forced to trade small I think I know myself well enough that if I had one big account I would be tempted to trade bigger on the other hand if I trade small in a large account I feel like I am not maximizing the account so a lot of it would be sitting in cash
    I guess it's like you said It's psychological I have to find a trade that I am comfortable trading in a large account
    so that will probably take some time and experimenting

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