Let’s accept the fact every trader wants a well-capitalized trading account, but it’s hard for many to do this. That said, many traders start with a small account, thinking they could become an overnight success and potentially double their account. The fact of the matter is, you can’t really quit your day job with a small account, or a trading account under $25K. Now, don’t be put off by this because you could build a small account and learn how to trade until you have an account over $25K. Trading has a steep learning curve, and you could potentially go weeks or months without making money as a beginner. However, there are 5 tips for trading a small account.
5 Tips for Trading a Small Account
Don’t be scared to trade if you’ve got a small account. You should look at is as a learning experience until you’re able to build your trading account or add more capital to your account. Let’s discuss some tips for trading a small account.
No matter what size your account is, you should learn to manage your risk. When you’re starting out, one of the most important tips for trading a small account is managing your risk. You should always look to manage your risk proportional to your account size. For example, let’s assume you have an account with $15K, you don’t want to risk say $500 per trade. Rather, you would want to risk around $50 – $150 per trade. Now, this doesn’t mean you can’t potentially become successful in trading.
Trading conservatively and managing your risk in relation to your account size is of the utmost importance when trading a small account.
Trade Your Best Setup
Another important tip for trading a small account is to trade setups that you’ve found to be profitable. In addition to managing your risk and trading conservatively, you need to be highly selective and only trade setups you know and not experiment. Style drifting is one of the main pitfalls for beginners and those with small accounts. For example, if you find trading a specific technical setup works for you, trade only that. You need to have grit and stick to what works before you start exploring other strategies.
For example, when Jason Bond first started trading, he stuck to what he knew and that was penny stocks, spotting catalysts and technical patterns. Only when he started to build his account, he started to expand my skills and learn about other trading strategies. The same goes for Kyle Dennis. Now, Jason Bond runs JasonBondPicks.com and is a swing trader of small-cap stocks. While Kyle Dennis runs Kyle Dennis’ Biotech Breakouts (biotechbreakouts.com). He’s an event-based trader, who prefers low-priced and small-cap biotech stocks.
Discipline, Discipline, Discipline
No matter how much capital is in your trading account, you need to practice discipline. However, with a small trading account, you need to be extremely disciplined. To help keep your discipline, you should write out your trading plan. There’s no cutting corners here. No matter what trade it is, you need to write out your thesis, entry price, stop-loss price and target. When you have a plan and stick to it, you’re able to remain disciplined. When you don’t have a plan, you risk holding onto a losing position and are like a deer in the headlights. Conversely, when you have a plan, you know exactly where your out is.
At the end of the trading day, you should journal and see whether you stuck to your plan or not, as well as highlight what you did right, wrong and how you could’ve managed the trade better.
Find a Mentor or Trading Community
Let’s face it, trading is a difficult endeavor, especially when you’re going at it alone. Most successful traders will tell you that they had a mentor at one point or another. When you’re trading a small account, it helps to have a mentor or trading community to fall back on. Chances are, your mentor or someone in the trading community has traded with a small account and encountered some problems you may run into. If you ask questions and address some of your problems, your mentor or trading community could let you know how to go about your problems, as well as offer insight into your trading style. There’s no shame in asking for help, and you should look to join a trading community because it could make you successful.
Be Real With Yourself
When you have realistic expectations, you’re able to focus on the process, rather than results. Trading a small account is all about developing as a trader. You can’t expect to take a $15K account into a $50K account in just 3 months. It could happen, but it’s unlikely. When you set unrealistic expectations, you may lose discipline, which could cause you to get out of the game with a string of bad trades.
Trading a small account is difficult. However, with these 5 tips for trading a small account, you could avoid common pitfalls. That said, remember to manage your risk properly, trade the best setups, be realistic, maintain discipline, and find a mentor or trading community to help you along the way.