The Small Trading Account Project
Can I grow $500 into $25,000?
I recently came across a small, old account that I had at eTrade containing a bit less than $500. I had completely forgotten about it and when stumbled upon it, I really didn’t think much of it and then moved on. Trading with such a small account size is beyond crazy.
With trading, the odds are stacked against you, whether you have a larger sized account or a tiny amount of money to trade with…like $500.
Having a small account size to trade with makes success even harder. The percentage gains could be great, but in dollar terms they are small. A few decent sized losses would be devastating and hard to come back from…making it very easy to get discouraged.
I gave it some more thought though…wouldn’t it be cool if I could document trading this minuscule, underfunded trading account into something much larger?
Well…that’s what I’m going to do.
The Small Trading Account Project
A few things happened to make me think about taking on the challenge…
- eTrade (and other brokerages) moved towards commission-free trading after the dam broke with Charles Schwab’s decision to eliminate commissions, following on the trend that Robin Hood started. This takes away a MAJOR obstacle to growing a small account. If it costs you $4.95 to buy & $4.95 to sell, you are already at about a 2% loss before you even start. That loss percentage right there is where it is advised to pull out of a trade. You are at your loss limit before you even start! If the trade moves in the wrong direction right away, you have to get out. Talk about a disadvantage! Well…that obstacle (excuse) is gone now.
- I’ve recently been getting many questions from new traders who are just starting out with small accounts and thought this would be a great way for me to recreate my first forays in the stock market with small accounts. It would be a great way for many of you who follow my blog see how I use risk management, how I develop a strategy, how I decide which trades to enter, why I decide to get out of a trade, etc…
My Goals for this project
I created this site because I like to teach and share some of what I have learned over many, many years of trading. I find that by explaining my thoughts, I actually become a better trader because it helps to reinforce what I know and also refine my insights into trading, leading to new breakthroughs for me. Call me selfish. 🙂
Here is a great way for you to follow along and watch how I make every single trade…how I will hopefully grow this account by making regular picks, sharing my entries, stops loss and price targets.
With this project, I hope to relate to many of you who might be starting out with a small account. I’ve become a successful trader through trial and error and perhaps by following along, you can avoid many of the pitfalls that I encountered in the past.
Whether you have a large account right now or not, I think everyone could gain something by following along…at least that is my hope!
Here is how you can participate
Step 1: Watch my trades in real-time as I make them by following my accounts on Stocktwits. Select push notifications so you get notified as soon as I make a post.:
I will start pushing out updates before I make a trade so you can see in real-time what I am doing.
Step 2: Sign up for my email list. About once a week, I will start to send regular updates with in-depth insights into some of my trading decisions, thought process and other info that I believe will be useful to you. Also, when you sign up, I will be sending you the password to the top 5 free tools I use for trading.
My trading strategy for this small account
These are some crazy, volatile times in the market! In many ways, the strategy I have been using for almost 10 years has become harder.
- For example: there aren’t as many stocks that are above their 200 Day Moving Average… fewer stocks show up on the screens.
- Also, perfect setups don’t perform as before, since an individual stock that would normally power up higher over days and weeks, ends up getting dragged down by the rest of the market and the pattern that would have worked in the past, ends up becoming swamped by the general market movement.
Though I still use my trading method as I have outlined, I have become much more cautious and the opportunities are fewer.
Trading a small account using that method is difficult:
- Although you might have trades with a great percentage return, the dollars don’t look like much! That can be frustrating and discouraging to many of you! But this helps to teach that it is the process, the focus and discipline on the trade itself that matters not the money…that is one of the keys to trading.
- You can’t day-trade because of the SEC’s pattern day trader rule for accounts under $25,000. That limits the opportunities and strategy options. However, I will show that you can still day trade, but you have to limit the number of day trades (buying and selling stock in the same day) to 5 trades or less per week. We will actually use this to our advantage, since so many new traders have a tendency to over-trade and quickly blow up their accounts.
For my Small Account Project, I am going to focus on the following:
- Focus on shorter-term holds, in many cases avoiding overnight holds.
- The pattern I follow is still mostly the same, but the pattern takes place within 1 day, not a pattern that unfolds over days and weeks.
- The pattern/method I will use is strong enough to overcome even major down days in the stock market.
- Trade only with the part of the account that has settled (2 day settlement period), using a maximum of 1/3 of the trading account, sometimes 1/4 of the trading account. This is a small account (under $25,000), so I have to be mindful of not triggering the “pattern day trader” (PDT) rules that applies for accounts less that $25k.
- Setting a stop-loss that is no greater than 2% of the entire account size, many times even tighter than that, perhaps a trade where the loss might end up being .05% of the entire account size.
I’ve been testing out this shorter-term strategy for a good bit now with this small account and have seen some solid results. I will make a detailed post about the strategy I will use for this small account very soon!
Again…sign up for my email list and I will notify you when I make a post.