Top 3 Strategies to Grow a Small Account

According to the latest Modern Trader report, over 50% of new traders deposit less than $500 in their first trading account. The reality is, very few people start out with a huge trading account, as it requires a different approach than trading with a larger account.

According to the latest Modern Trader report, over 50% of new traders deposit less than $500 in their first trading account. The reality is, very few people start out with a huge trading account, as it requires a different approach than trading with a larger account.

Trading a $500 account is somewhat different than trading a significantly larger account: You need to pay attention to your free margin and be pickier with the setups that you’re going to trade.

The smaller your account, the more each individual action that you take is going to matter.  Therefore, it is important to keep level-headed by having a plan and sticking to it, if you want to turn your opportunities into profitable trades.

Here are some tips on how to take a disciplined approach and make your trading experience more profitable, less risky, and far less stressful:

 

I. Take Only High-Probability Trades

There are hundreds of opportunities coming your way every single day in the stock market. With a small account, you are risking more (as a percentage) per trade. You need to be aware of that, and keep looking out for top opportunities to be profitable.

Since you are trading with a small account, remember that you have less money to trade with, so each trade will need to do more for you.

Trade only high-probability trade setups to increase your potential profits. Traders with smaller accounts should be comfortable with 5-10% of net capital in each position.

How you define high-probability setups depends on your trading strategy and style, but make sure that you have a process in place that ranks your trades from low-probability to high-probability setups.

2. Don’t Overtrade

When trading with smaller accounts, it’s easy to fall into the trap of overtrading. Overtrading refers to opening multiple leveraged trades, with high sizes, which can lead to high trading losses.

Instead, focus on discipline and patience. Once you spot an opportunity, get in. Don’t try to time the market to get a better price by speculating how it will move over the next few days. 

As soon as you enter a trade, make sure you immediately enter the order to exit at your profit target. This will take the emotions out of your decision to take profits. You’ll be surprised at how often you will be getting alerts, that you have made profits in your account.

3. Follow Risk Management Rules

Nothing is worse for a small account than watching a profitable position go negative. The financial damage is one thing, but the psychological impact is even worse.

One important step to growing a small trading account is to clearly define your risk management rules. Without risk management, there is a high chance that you’ll blow your account, whether it’s a small account or a large trading account.

Don’t use stop-loss with trading options,  because they get hit and take people out of good trades. Instead, define your stop loss based on time in the trade, or risk percentage you can accept like 25%. 

When you have rules, you know exactly when to enter and exit a position, which should significantly reduce your fear. Risk is the only thing that traders have control over, so make sure that you set the rules to decrease your losses and increase your profits.

Conclusion

One of the best advantages you can get with a small trading account is experience. Traders need to minimize their fear of the markets, and the best way to achieve this is by gaining trading experience and defining their trading rules.

Trading in a smaller account will help you develop the skills and habits that is useful when trading in larger accounts. Don’t spend too much time demo trading. Although it is good to get acquainted with your trading platform and understand the basics of trading, decide to switch to a real account as soon as you are ready.

Remember that smaller accounts can be advantageous in the financial markets if you approach them right. And those who follow these commandments can be just as successful and profitable as larger accounts, if not more so.