Different reasons why we may have a small trading account.
You may find yourself trading with a small account due to many different reasons. It may be that you are just starting out and don’t want to risk too much money. You may have had a big loss and have decided to start small and go back to the basics. You may be opening up another account as opposed to your main trading account to be used for another revenue of income. Whatever the reason may be it’s important to try and not view it as a small account, and rather as a seed that has all of the potential to grow into a fully fledged tree as long as we can stick to a few certain guidelines.
The Psycological Game
No matter who you are, trading with a small account may appear slow, and our results may not reflect the success that we feel we deserve. This is probably the hardest part of trading a small account. And one that we need to overcome if we want to be successful enough to grow our account and begin to start making larger trades.
One of the biggest psychological barriers to overcome is the fact that your profits are going to be small due to the small contract size. This affects people differently. The novice trader and beginner will make a few successful trades and may get frustrated by the fact that he carries the idea of being a bigtime successful trader making millions of dollars to buy himself a jet plane and a luxury yacht. The trader who has has a big loss and is starting again gets frustrated because his profits are so much smaller than what he is used to. And the trader who has opened his secondary account to supplement his income will always compare the wins to his main big account. The problem with these philosophies are that we are taking the “glass is half empty” approach to our trades. What we need to do instead is look at things differently, look at the positives of what is actually happening.
For example, the newbie, needs to use this as his training ground. Implementing his strategies and everything that he has learned in the real world. Trading with real money is very different to a demo account and it’s a very important part of the learning curve in learning to manage those emotions while trading. Also, the losses are less so it’s easier to recover from. Once you are successful with the smaller contract sizes, you “earn” you right to step up because those profits will grow your account and allow you to invest more (and therefore take bigger profits).
The trader who has has suffered a big loss and now has to deal with a small account needs to take the same approach. He needs to analyze his losing streak and find out where the errors where. Again, think of this as a training ground so that once you start getting everything right, eventually the profits will come and then you can start going big again. Otherwise if you somehow come across some extra money and choose to boost your small account into a bigger one then basically you leaving yourself open to repeating the small mistakes and therefore loosing more money.
Some common traps
- Overtrading, you need to be very careful that you don’t fall into the trap of overtrading when you have a small accont. This is because when we overtrade we tend to make more errors. A few diffferent factors come into play for example the feeling of dopamine after a win is great, and we may end up chasing that feeling and therefore make a mistake buy overseeing some small detail. On the flipside if we have had a loss then we may be overtrading to try and get that money back. For the same reason this is a bad idea becuase it will cause you to rush into trades and make small errors which could cost you and before you know it you have made several mistakes in a row and now you are down considerably more money.
- Taking the glass if “half empty approach” (as mentioned above). This occurs when after several wins you start to compare you modest small account winnings to a big accounts winnings. You may be asking yourself, “If only I had traded X amount more contracts then my profits would have been made significantly bigger”. This will cause you to think of that money as ‘’lost’’ money and again this has a negative psycological impact on yourself which will affect your trading.
- I need to be making money so that I can use it for ……………… This is all about having a mindset of I just funded this account and nowI want to become a big successful trader making large amounts of money and living this crazy rich persons fantasy. Again this pushes you into chase menteality and it will only hinder your success. No matter how big your account size is, try to look at it gaining profits over a period of months and not a period of days. Try to take the approah of I want to be successful as opposed to I want/need to make $X.XX per month.
Trading a small account is a mental barrier that we need to overcome. Stop trying to look at it like a disadvantage and more a training ground. If you are successful here then you will be successful which a larger account. Try to not focus on the money and instead on the method. We have all been there and it is a difficuly thing to manage sometimes, but its part of what being a successful trader is all about.