best strategy for small accounts?

J

Janitor

just found this site and I'm eating it up!

I'm 27 and have been trading for 3 years. I have lost over $50,000 in that time, but have become consistently profitable for the last 9 months.

However, in those 9 months of profitability, I have had an average account balance of just about $4000.. I have been trading fulltime, and have been able to live of my profits, which have averaged 25%/month = approx. $1000/month. Barely scraping by.

My strategy has been almost exclusively DCBs and bounces on very depressed stocks. In the past month I have traded PMTR, EDSN, WCOM, CVSN for profits, and have made even larger profits on pennies like TGIS and LASE.

As you can see, I trade only the lousiest equities out there. There is a lot of risk, but I rarely get burned these days as I set tigh stops and never hold for more than a few days. I have become very good at picking bottoms on stock that are tanking severely. (And though I usually sell for profit, my exits aren't nearly as good as my entries).

Ok. my question is: what strategies would those of you, with more experience and success, suggest for a daytrader with a small balance? I have just secured a loan for $15,000, so that will be what I'm dealing with. I will now be able to invest small positions for weeks or months, like the gold breakout I would have bought had I more money to invest longer term when I noticed it.

I know this question is awfully general, but I'd appreciate input from anyone who is dealing with little money, or how those of you who started with little made a lot. Like I say, I have been averaging great returns (25%/month), but am I barking up the wrong tree? It seems all my money goes into only the lousiest stocks, and maybe this isn't the wisest path. This is your chance to keep me out of HRCT or NMMG tomorrow :)

Thanks,
Aaron
 
As a follow up:

The reason I'm asking is that I simply don't know how anyone could do much better than I have with what I've had to work with. I'm sure I'm showing my ignorance here!

I noticed on another thread that someone claimed to have made 1000% in under a year, starting with a $20,000 balance, only trading 2 stocks! (I think they were JNPR and JDSU). I can't figure out how this could be done, even with a lot of margin. He didn't mention trading options on these stocks.

Nearly all my buys are under $2 (stock price), and most under .30. These seem to bring the highest potential return in the shortest amount of time, simply going long.

So I am interested in other high return strategies. Clearly I am willing to take risk. I am learning about options, but don't trade them yet. (In fact, I don't know what requirements one must meet to be approved to trade uncovered option and would appreciate input on that too).

Aaron
 
That's awesome that you've been consistently profitable for 9 months. Have you thought about buying call or put options instead of stock? You tie up alot less money, yet you still get plenty of upside. Obviously, options would only be available for the more liquid of names and not penny stocks.

With $19k to work with, you could put perhaps 3-5% of your total account in any one deal (almost $600 to $1,000). Maybe spread it out among shorter term trades and longer term trades so you can balance things out if one isn't working for you.

IMHO, I think trading gets easier as your account gets larger. Commissions take away less of a percentage of your profits, you can afford better software, you can spread your money amongst more trades, etc. With under $5k, I felt like I was literally fighting for my life to stay "afloat". Once you get over $10, $15k, you can start to "breath" a little more.
 
Being approved for call or put option buying isn't very difficult. I don't think it's much different than being approved for margin buying. There's more requirements though if you want to do more complicated spreads, selling naked options (uncovered), etc. Selling a call or put that you don't own in the hopes of buying it back for a profit can be very risky if the trade goes against you. Your profit is limited but your loss is theoretically unlimited (selling uncovered calls for example).
 
yeah, I'm very much looking forward to the extra money to work with. Ever since I've gotten pretty good at trading, I've only been able to afford 2 or 3 or 4 positions at a time. So I have to pass on a bunch of great plays. Like BGO (gold stock) a month ago at $1. A double in a month, but I passed on it because that's too slow and maybe, just maybe, I could do better elsewhere (don't think I quite did, heh)...

I know so little about trading, as I'm realizing by perusing this site, so I'm just trolling for ideas. As it is, I'm using a 15" monitor, Medved Quotetracker, and Ameritrade... I don't even know a thing about direct access brokers or how to set that up. I'm hungry to learn about all aspects of this lifestyle and how I can improve.

Aaron
 
Hi

I used to be a marginal trader till I wised up and started playing the higher priced equities. Even if i was working with a small account, I would rather trade 50 shares of a 100 dollar stock than 1000 shares of a 5 dollar stock. U want to be in stocks that big institution are starting to accumulate and always be on the watch for high priced stocks that are starting to fall below their 200 day moving average, for possible short plays.

Nothing original but it works for me!!!

Sterling
 
Sterling: The problem is, I don't know how I could make good profits trading more expensive issues with such small positions. They just aren't as volatile. It could be that daytrading more expensive stocks just isn't my forte... but aren't you doing well to make 2% in a day on that type of trade? And with a $5000 postions, that's only $100. And my position would be even smaller than $5000.

I would like to trade in a more orthodox way when I have more money. Also, my lousy setup (hardware/software/broker) renders me too slow and clumsy to trade very effectively that way, I'm sure.

Thanks for the reply. I'm probably making some misguided assumptions here, but I have always done things the only way I know, and there's a lot I don't know.
 
You should consider futures. The emini's give lots of leverage to small accounts, and the commissions are much cheaper than trading the underlying index tracking stocks. The only problem is with the leverage you could blow through your $4,000 pretty fast. On the plus side, trading 1 contract of the NQ mini it's possible to make (or lose) $200-$1,000 a day, and you could avoid borrowing money right away if you develop a winning methodology.
 
19,000 at 25%/mo. for 12 months.
19000* (1.25)^12 = $276,486/year
.
19000* (1.25)^24 = $4,023,406/2years
19000* (1.25)^36 = $58,548,270/3years
If you're for real and can keep the same profit margin you have a gold mine. Don't change a thing.
The main danger is probably psychological, fear of success, etc..
Trying new strategies would really be stupid.
 
Originally posted by Rigel
19,000 at 25%/mo. for 12 months.
19000* (1.25)^12 = $276,486/year
.
19000* (1.25)^24 = $4,023,406/2years
19000* (1.25)^36 = $58,548,270/3years
If you're for real and can keep the same profit margin you have a gold mine. Don't change a thing.
The main danger is probably psychological, fear of success, etc..
Trying new strategies would really be stupid.
More...

Dude, that's so MISLEADING when someone throws numbers like that. No one(or at least no one publiclly documented) can compound 25% a month foryears on end! I mean maybe of a few months or even a few years like the tradign legends, but then at the end they sometime sloss substantial amount like Richard Dennis.

The longer you are in the game the easier the risk to fail.

Also, once your account gets big, the hit is bigger too. A loss of 10% on a $10K acct. is only $1K, but on a $1M acct it's $100K! And psychologically it's harder to come back from down $100K than down $10K though both are the same percentagewise!

trader99
 
You must log in or register to reply here.
Back
Top