3 Keys to Growing a Small Trading Account

Consistency

The first aspect of growing a small account into a much larger account is going to be consistency. Consistency can be a misnomer in trading because people often believe consistency has something to do with your setups. In other words, consistently applying the same setup over and over, and letting the results pan out over time. If that is your aim when it comes to consistency, why not just code an algo? That will be much more consistent at executing your trades than you will ever be.

So what do I mean by consistency? Mostly, consistency lies within you as a trader. Consistently performing your pre-market analysis, consistently keeping a pulse on markets, consistently meeting with other traders to discuss markets, consistently journaling and tracking progress, consistently putting yourself in an optimal state of performance, even consistently maintaining your motivation as a trader.

The intuition, discernment, and discretion that the best traders in the world apply to their trading, comes from an accumulation of their experiences. So why do some traders seem to be getting much better results in 2 years than others who’ve traded for 10 years? Experience is not just the amount of time we’ve been trading, if that was most important we would just call it trader age. The definition of experience is – “practical contact with and observation of facts or events”. The difference between just passing the time in trading and practical contact with trading has a lot to do with your approach and application of a consistent process.

Adaptability

The next component is Adaptability, which I like to break-down into two sub-categories. First, is the ability to quickly recognize changes in the macro picture or higher time-frame context. In other words, can you define what sort of market we are currently in, and identify early when the conditions of that market change?

The second is the ability to apply a trading system that fits the current market conditions, or having the discipline to not trade. If you only trade breakouts, and we’re in choppy market conditions, then don’t trade! You’ll find yourself forcing trades that aren’t working when you are in a rush to make money. Remember that protecting your capital is just as important as making it, which leads us to our last component.

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Protecting Your Capital

This is the least sexy part of growing a big account. As with most of the less sexy elements of trading, it probably is a good indicator that it is a very important aspect.

First, let’s discuss what I call the “Big 3” when it comes to risk management. If possible I would configure these with your broker:

• • Max size/contracts per trade. Ideally, I like to employ a range of different position sizes in my trades. Sizing up for trades that are working well in current conditions and sizing down for trades that are more speculative. It’s important to pre-define how much risk goes to each setup
  • Max risk per trade. For me, I’d like my max risk to be about 1% or less per trade. It’s very important when growing a small account that you understand the variance and potential drawdowns you will experience at some point. When you’re risking something like 2% or more per trade. It is quite possible you could be trading consistently and still find yourself in a 30-40% drawdown at some point. I’d say pretty much every time I’ve ever drawn down more than 25%, I’ve found a way to just go off the rails. In most cases, it’s better to protect yourself, from yourself.
  • Max risk per day. Also known as a Daily Loss Limit. I think risking 5% per day is quite aggressive, more than this will result in a much higher risk of ruin.

Drawdowns are unavoidable and part of the game. To grow an account as quickly as possible, you’re going to want to limit the self-imposed aspects of drawdowns. Here are some questions to ponder: When the market changes, am I already in a significant drawdown before realizing my trades aren’t working? How many times per week am I going on tilt, taking trades that aren’t part of my plan, and revenge trading? How many sessions per month am I (or am I not) trading from an optimal mental state? Am I using full-size on every trade? Am I indiscriminately applying my setup every time I “see it” instead of first thinking about the market context and are we in the right conditions for my setup?

With a small account – or any account for that matter – it is very important that we don’t have massive drawdowns due to tilt and bad trades. If you’ve had 3 max daily losses inside of the same week, it is very likely that you are either trading on tilt – or you’ve failed to recognize changes to the context of the market. Oftentimes, one will occur as a result of the other, so be cautious.

– Landau Lang, @CT-Jaguar (Support and Content Manager at Convergent Trading)

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