There are a few essential things to keep in mind when dealing with a smaller trading account. You need to understand yourself and your trading approaches. Traders always consider how much capital they have before deciding how much risk they can take and how big a position to take. However, you shouldn't change your trader personality or ignore risk because of your account's size. Let's take a look at some useful insights on how to grow a small trading account.
Benefits of small trading accounts
When starting to trade, a big hurdle for many people is the initial capital outlay. Many people think they can only afford to trade with a large amount of money when, in reality, you can use small amounts of money and still be successful. Trading systems that suit small accounts are being developed all the time.
Trading with a small account can be a good experience, one that can teach you valuable lessons about discipline, risk management, and trade execution. If you are prepared to lose some of your account's capital and operate within strict guidelines for risk and leverage, trading small can get you started affordably.
In short, a small account will enable you to enter trades on a more consistent basis, thereby allowing you to become acclimated to the market. It also provides a haven to get your feet wet and learn from your mistakes without any catastrophic consequences. So - if you have one of these accounts, here's how to grow a small trading account profitably.
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6 Steps: How to Grow a Small Trading Account
Here are six tips on how to grow a small trading account:
1. Follow the trend
The trader's goal is to capture the trend, and when trading on a small trading account, it is ideal to find stocks that can run for several days or weeks and bring you excellent profits. Some stocks won't move for long periods, but they can become explosive once they break out, especially if they form right after a strong downtrend.
When trading on a small trading account, you should be patient - don't enter trades recklessly. Once your stock moves in your direction, stick with it as long as possible. It's no use jumping from one trade to the other.
Are you still wondering how to grow a small trading account using specific setups? A+ trade setups are based on trend-reversals with a high probability of continuation. In other words, they provide a very high chance and low stakes for the small account trader to catch the perfect entry point and take part in the long-lasting trend.
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2. Try low-risk options trading
You can try low-risk trading options such as short selling and spread trading (forms of synthetic trading). When you find a stock with a short interest below the average, you can short that stock-that is, sell it before you own it.
The high demand for this stock will usually drive its price up or keep it from dropping too sharply, so your risk is minimized. In this way, a typical transaction will net you the difference between the purchase price and the lower price at which you sold. Spread trading lets you take a position, usually resulting in a long-short combination.
Options are the right (but not obligation) to buy or sell a stock at a specific price. If you're looking to gain leverage in your investment portfolio and diversify your investments but don't want to take on the full risk of day trading stocks, consider trading options. As a buyer of options, also known as going "long," you can make significant changes to your portfolio while minimizing risk.
3. Keep an easy to track record of all trades
A trading journal allows you to keep a comprehensive record of all your transactions and system settings. Also, keeping a trading journal helps you reflect on your trading performance and provides you with a point of reference when it comes time to reviewing trades and making decisions about future ones.
When it comes to picking a good journal, it should be large enough to accommodate the amount of detail needed to preserve all your essential trade information. A neat, orderly trading journal can also help boost both your confidence and enthusiasm about trading.
4. Leave a little on the table for your gains to accumulate over time
If you start on a small account, the best thing to do is not take your profits out right away. This way, you will be able to accumulate more money just by allowing your earnings to compound over time. The best example of how this works is an interest-bearing bank account. If you keep the money in the bank, it will grow much faster than taking it out right away.
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5. Set your position size according to your account size
Position sizing is related to risk/reward and money management. It would be best to experiment with different strategy sizes, depending on whether you are a conservative or aggressive trader. The amount of capital allocated should be based on your trading account size.
It would help if you considered setting position sizes of 1% of your account size. For example, if you have a $500 account, that amounts to a total risk of $5 per trade. To reduce risk further, you could choose to buy only two lots if the trade's average price looks to be above the buy price. If your account gets bigger and you wish to continue trading 1% size, then consider trading more contracts for each trade.
6. Trade small timeframes
Your small trading account should also be your starting point to learn the foundations of technical analysis. As you progress in your trading journey and learn more, you can gradually move up to larger timeframes once you feel confident with your trading skills. But start small, and stay focused on the critical aspects of price, support-resistance levels, and indicators.
It's impossible to understand how price moves in larger timeframes without adequately understanding the basics and ABC of technical analysis when trading in lower timeframes. That means starting smaller by analyzing price at the five minute or even one-minute charts and then gradually moving up to the higher timeframes.