How to trade a small account

Z

zf trader

Preface:

Whether or not you have a small account, trading as if you do is probably the best idea for most traders. While there are several advantages to trading a large account there is the large drawback of hubris. As Livermore or Niederhoffer shows an over confident trader can get in big trouble indeed. And because of this almost everyone will have to at some point.
 
I need to start this chapter by saying the most important thing as small trader can do is learn about options. Options let you customize the amount of risk to your account size. Most people start with stocks because they can see what purpose they serve. Trading stocks in a small account is very hard to do. Lot sizes and margin requirements make it hard for a small trader to get a proper position size.

In order to get your feet wet, the best I can offer is a plan to gain experience that is doomed to fail eventual but gives a chance to breakeven in the meantime.
 
What you need to do is pick a stock trading under $1.50 with lots of volume. The thing about that is that the company is most likely bankrupt and like will go to zero some day. Only trade it from the long side and try some well know trading techniques like;

-Fading the opening range
-Breakouts
-Moving average cross-overs
-bollinger bands entries

However keep in mind the following rules:

-Use no stop loss orders
-Never buy more than one lot
-only exit at a profit

The best part of this is that the most you can lose it $150. You will be amazed at how often the market lets you out of your position. However the problems with this way of trading are obvious which is why you need to learn about options quickly
 
When people tell us about this kind of generalities, like "buy stock A @ $X" or "set up a portfolio containing A,B,C,D...Z instruments".

But in reality what everybody asks sometimes is just "how much should I buy this or that? and mainly at what price?"

Well, this is not a simple question, because there are a lot of complex situations while you're trading on financial markets.

About one of our previously situations, "buy stock A @ $X", this is more about asset allocation and portfolio managment than a simple buy/sell recommendation.

Then, when you guys are referring to "small accounts" what do you mean? Are we talking about minimums required by brokers in order to setup new accounts or any other amount of capital to start trading?

Those nuances are totally different approaches to me...

With a few years working on financial markets I really have my own parameters of max./min. and it is really based on one simple aspect.

That is "How much money taken from your total income minus future expenses can you afford to lose?"

Everything starts from that point.

Regards.
 
Their should be no difference in the way you trade 5000 dollars or 500,000 if you are risking a fixed percentage of your acct every time you trade. Small accounts become big accounts by sticking to money management rules, the most important part of trading! 3 percent is the about the max I am willing to risk on any given trade. Base hits no home runs. Consistency with small draw-downs wins the game.
 
Quote from zf trader:


The best part of this is that the most you can lose it $150. You will be amazed at how often the market lets you out of your position. However the problems with this way of trading are obvious which is why you need to learn about options quickly
More...

If you set yourself up for failure by trading piece of shit companies it hardly matters that the loss will be small. You will be having TONS OF THEM and hardly any winners to cover them up. I'm not one of the people who thinks you have to be correct all the time, I do pretty well being profitable on about 1/3 of my trades..but I can't think of any successful people who have gotten there by following the advice you just gave. I do agree with your first post though, that you should approach the game as though you are not a big swinging dick, even if you might be.
 
Quote from zf trader:


-Use no stop loss orders
-Never buy more than one lot
-only exit at a profit

You will be amazed at how often the market lets you out of your position.
More...

No stop loss?? Profit guaranteed ?....
But i dont like surprises
 
Stop orders are always good when they do work...

If you did something wrong though..., do not wait for that too much.

Stop orders are just orders and not "angels, saints..." but.

It's always good to have a back up plan, but take care because it also can trim your profits out.
 
Quote from greysquirrel:

Their should be no difference in the way you trade 5000 dollars or 500,000 if you are risking a fixed percentage of your acct every time you trade. Small accounts become big accounts by sticking to money management rules, the most important part of trading! 3 percent is the about the max I am willing to risk on any given trade. Base hits no home runs. Consistency with small draw-downs wins the game.
More...

You said that is no dfference in the way you manage $5,000 or $500,000 because you have an a very small account. Sure.

There is a great difference making free throws in a training session or do it in the last minute when your are playing the NBA Finals.

Just like that the most important part of trading is not money magament, the really most important part of trading is YOU.

Regards
 
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