this week's lesson.
Today I want to talk about growing your account in your first year of trading, especially when you’re starting with a smaller account such as $3,000.
Sometimes you don't have a choice when your personal funds are low.
Or maybe you’re in college student doing what you can, but don’t feel ashamed about that.
The downside is small accounts don’t allow you to play around; it’s too easy to blow that money in the beginning, and that’s why paying attention and learning from research before can give you the upper hand. Before we continue, it’s crucial to figure out the maximum dollar loss you can afford to lose because you never want to place a trade that makes you uncomfortable and negatively affect your emotions. With a $3,000 account, I’d tell you to keep your risk around 5-7%, which means you’re risking $150 to $210 per position.
If you don't know how to manage your risk, going all-in can detonate a bomb on your account; that's why sizing in small protects you versus giving in to the get-rich-quick mindset.
Samples & statistics
I see many beginners trying to learn multiple strategies at once, which is useful in theory, but it’s important to have samples to backtest and statistics to support you. Gaining that knowledge takes time, and with a small account, you don’t have the funds to spread yourself thin. I was once told that multi-day breakouts have good winning percentages, and that’s where I want to be. However, after I tracked 200 samples, I learned that the breakout almost always has a 60-70% chance to turn into a fake-out, leaving you with a 30% winning percentage; that’s not what I’d consider to be a good winning percentage.
Tracking statistics is a hot topic for many of my students, and I’ll go into that in more detail at another time.
But for today, it’s beneficial to look at a pattern and figure out its general statistics, such as: how many times this happened per year, what’s my maximum risk-reward, average risk-reward, minimum gain and largest gain per year. With these statistics, I can generate the potential profits with a $3,000 account.
Growing your account in the beginning can be the hardest thing to do, but you can feel confident making that trade with a $150 risk and $450 in profits when you understand the general statistics. Having an account at $3,450 now means you can size in more significantly next time. Now, let’s say you grow that account to $10,000 by using 50% equity, you can then size back the equity you’re using to 30% and still make $500-$800 a day. As you increase your account, the equity you’re using gets smaller to the point where you may have a $30,000 account that you can now split into smaller accounts, which protects you from losing streaks.