Trading is one of the hardest endeavors you will ever attempt. Having capital is a necessity in this business to make a living. Don’t let any trading guru on Twitter tell you otherwise. You cannot quit your day job and expect to make living with a small trading account, especially as an inexperienced trader with no other sources of income.
When we refer to a “small account”, we are referring to an account under $30k in equity. However, trading with a smaller account is not a complete waste of time, and can be beneficial to new traders in the beginning of their journey. Here’s why:
Benefits Of Trading A Small Account
Trading has a long learning curve, where you will likely go months without making any money and make many trading mistakes. If you blow up a $50k trading account because you got stubborn and didn’t cut your losses, that will be a big blow financially and emotionally. However, if you blow up a $5k account, it is not as big of a blow, and a much less expensive learning experience.
When you’re starting to trade live, it’s not about making money. It is about seeing if you can execute a strategy with an edge, and consistently make money over a period of weeks/months. There is no reason to start out trading a $50k account if there is no evidence you can actually make money trading with real capital (do not let paper trading results fool you).
The goal of trading a small account is to grow it into a big enough account so that you can make a living off of it without risking a huge portion of your account size. If you have large amounts of capital available, it is still a good idea to start with a smaller account and add more equity as you start to see success.
Now that you understand the expectations and benefits of trading a small account, let’s discuss how you can grow it. Here are 7 tips for people trying to grow a small trading account:
1. Risk Proportionally to Your Account Size
Treat your $5k trading account like you’re trading a $50k account. If you’re trading a $50k trading account, you’re likely only risking $500-$1000 per trade. So for a $5k account, you should only be risking $50-100 per trade in the beginning. Remember the goal with a small account is to develop your edge and refine your strategy as a new trader. You’re not trying to hit home runs.
2. Slowly Increase Your Position Size
After you start to see some green weeks/months and find some consistency, you can start to increase your position sizes. However, you’re not going to go from $100 risk per trade to $500 risk per trade. You slowly increase your size. Go from $100 to $150 or $200. Rushing size can lead to emotional trading, and will likely lead to a big loss, and undo weeks of hard work and disciplined trading.
3. Don’t Set Daily Profit Goals
In trading, you cannot control what trading opportunities appear every day. Some days there will be 5 or more amazing trading opportunities. Other days there will be none. If you’re just starting out, having a daily profit goal will likely cause you to force trades on low-quality setups and will result in you taking unnecessary losses, as you’re trying to make a certain amount of money in a day. You should focus more on weekly and monthly PNL. This will allow you to be patient for the best setups, and not overtrade.
4. Don’t Compare Your Gains To Others
I’m sure you see people on Twitter posting huge PNL’s every single trading day. How they do it, and whether they’re actually trading real money or not doesn’t matter. They’re likely much more experienced traders with a lot bigger trading accounts. Don’t compare your Chapter 1 to someone else’s Chapter 20. Following anyone who is posting their PNL on their Twitter doesn’t help you at all in the beginning. Focus on your own journey and building up your skill set and equity.
5. Have Other Sources of Income
Since you’re trading a small account, you will have to have other sources of income so you don’t feel a need to force trades to make the money you need to survive. As mentioned above, you shouldn’t open a small account with the expectation that you will make a living from it, especially as a new inexperienced trader.
6. Don’t Take Out Money From Your Account (Unless It’s An Emergency)
The goal of having a small trading account is to grow it into a bigger account. You cannot grow it into a big account if you’re wiring out profits. You’re trying to grow your account so you can increase the amount you can risk per trade, and therefore increase the amount you can make per trade. This will result in your account growing much faster, and get your account size to the point where you can comfortably make a living off of your trading profits.
7. Set Realistic Expectations
Growing a small account is not an overnight process. Do not expect to go from a $5k trading account to a $30k trading account (not to say it can’t be done) in 6 months. Do not rush the process and set unrealistic expectations. This will cause you to force trades and actually slow down your account growth. If you have seen several months of green, you can wire in more money into your account so you can increase your position sizes to speed up the growth process. Remember trading is a marathon, not a sprint.