Date: 12/2/2022
Author: Chris Hood
Some of the traders I coach have large accounts.
We’re talking seven figures or more in trading capital.
However, the majority have far less. And some operate with accounts small enough that they have to pay close attention to the PDT rule.
You may be one of those traders.
And if your goal is to grow your account size, you may be going about it wrong…or working at it in the least efficient way.
If you’re making 20 or 30 small trades per week, winning just a few dollars on each. It’s time to reconsider your approach.
Let me explain.
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With a small account, allocating a higher percentage of your capital to trades is often necessary than someone with more money.
Let’s assume the risk-to-reward ratio is about 1:1 on a trade.
If you follow the 1% rule and your account is $10,000.00, you’ll only be able to risk (and earn) about one hundred bucks per trade.
Keeping in mind that you won’t win all of these, it could take quite to see substantial growth in your account.
Plus, you’ll quickly rack up lots of commissions and fees.
To build up your account quickly, you’ll need to focus on extremely high probability set-ups and size up your trades.
Rather than long calls, debit spreads, and other directional strategies, focus on trades with high win rates.
For example, credit spreads with short strikes far out of the money.
You will take on additional risk if you deviate from the 1-3% per position allocation. However, if you plan your trades correctly and use the appropriate analysis, you can offset risk with probability.
I believe it’s far better to make fewer, larger trades than many lower-probability ones.
Study a handful of stocks and learn how they move.
When a high probability set-up comes, have faith in your signals and load up on the trade. If you want to see some real growth, you have to be bold.
With that said, trade management becomes even more critical.
Sizing up your trades means stopping short of losing 100% on the positions. Taking a total loss can easily wipe out the gains from dozens of other winners.
Keep your stops tight and get out early if the market isn’t going your way.
Some of the best traders started with small accounts. They had to learn to trade correctly because they had no choice.
If you want to find out how to turn your sapling capital into an oak of wealth, I can show you how.
Hop on over to our live trading room, and we can devise a personalized plan just for you.
Cheers,
Chris Hood
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