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The key to trading with a small account?

Here’s a list…

Today, I was asked in the trading room how one can scan to identify trades that are meant for a small account. 

Well, I don’t have a specific scan that does that — but, I can tell you my process for identifying these trades. There may be a scan out there that exists, but in my experience and analysis, it’s better to identify what you’re looking for and get familiar with trading tickers that have cheaper options versus trying to find a specific ‘cheap’ trade.

Here’s what I do…

First of all, you have to quantify what a ‘small’ account is, and what risk looks like for you. We typically say a small account is anywhere between $5,000 –  $15,000. 

Well do I trade?

Well I’ve traded with 5k accounts and I’ve traded with 25-50k accounts.

People always think you need more money to make more money trading. While that can be correct, ironically, I’ve found that the smaller the account, the better I trade.

Why would that be?!

I equate trading with a larger account than needed to…

Going to Costco right after you got a big paycheck. Whenever I make this mistake, I always find myself walking around the warehouse with wide eyes, thinking, “Wow, what a great opportunity to replenish our wine fridge, buy a couple more plants, refill the freezer, and oh my gosh, look at those clothes!” 

It doesn’t seem like a lot, but then I end up at the checkout with an overflowing cart and BAM! panic sets in, and my euphoria bleeds to panic. Then I’m thinking… 

“Wow, that added up a lot faster than I thought! I spent more money because I had more money, but it wasn’t necessary…!” 

For whatever reason, my precision with smaller accounts has been better. So, don’t let anyone tell you you can’t trade with 5-10k and make money. I do it all the time. But, you have to be precise.

So here are some tips and tricks for small account traders:

Entering With an Edge — with a small account, you can’t take a lot of heat. There isn’t as much room to work with. That means you have to have defined entry and exit points, and you have to focus on always entering where you have an edge.

Buying new highs or new lows, and breakout moves, is a killer of the small account. Why? Your account’s small, so when a normal move pulls back, you panic and exit… leaving a normal trade at the worst spot. To avoid this, focus on getting entries with an edge — on pullbacks in the trend, or right up against support or resistance for a reversion to the mean.

Trading Tickers with Cheap Options — I trade the same tickers all the time. That’s because with a small account, you have to be so careful of your risk. I don’t like to risk more than 5% of my account per trade when I’m very aggressive in the market, and no more than 2.5% when I’m being more conservative.

Options can be expensive! I don’t need to buy long calls in Google for $15.00 or more. I trade MA, V, MSFT, AMD, HD, and ETFs like XLY, XLK, SMH. I like tickers that have delta .70 options 2-3 weeks out for less than $7.00. Once you find them, you can trade them over and over. Each time there’s a setup.

Utilize Options Strategies — If you’ve traded with me, you’ll know I love trading tickers like Amazon. Obviously, as one of the most expensive stocks, it has expensive options. For this reason, I always use spreads or butterflies to bring my cost down. Utilizing multi-leg options strategies is the absolute best way to bring your cost down, and allow you to sit through volatility. 

Stay Away From FOMO —  I think this is arguably the hardest part for those with small accounts. You see other traders buying $15.00 options, making 50k in a day… and you want that! Of course, I get it.

But, let me tell you… if you can’t master a 5k account, you’ll never have any business trading like that. For me, I made it my goal to master the small account, and build up the skills to walk towards a future where I don’t even blink on a 50k trade — or more. If there are trades that don’t fit your personal risk parameters, forget about it! 

This is your money… protect it. Don’t let FOMO get you. Stick with rules, technicals, and work on your discipline. And, guess what? If you’re still working on your strategies and implementation, you can paper trade. It’s like practicing with monopoly money.

That’s what I did! You can always switch over to that if you’re in a situation where you’re still trying to learn, and you don’t want to risk your real cash. There’s nothing wrong with ‘practice’.

3 thoughts on “The key to trading with a small account?”

  1. Love this article. I’m becoming more precise at this point and have finally overcome FOMO. I’m also managing my loses better. My account has been heavily dented but is slowly starting to come back…even in this choppy market. I don’t want to give you a big head, but a majority of my success is understanding how you are trading and your setups. THEY WORK!!

  2. Nice article. It helps overcome the FOMO I feel when I see JC plunk over $20K on a single trade, and walk away with $50K. I just don’t have an account that size.

  3. You make several good points in this post. One that I’ve never considered is to trade stocks that have cheaper options. While it makes perfect sense, I typically amend my strategy and create a spread instead of just sticking with the cheaper options! I’ll definitely be updating my scanner tonight…

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