Turning Your Account from Rags to Riches💰

Hey there! My name is Nate and I write about trading for the WOLF Financial newsletter. If you are looking for more trading tips and tricks, I guarantee you’ll enjoy my content on 𝕏, @tradernatehere. Thanks for reading!

This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.

A key difference between trading with a limited amount of cash and trading with a large account is the amount of flexibility you have.

This is a real impact to your trading.

In a large account you can take a small loss quickly and know you have plenty of trades yet to make that day to recoup any losses.

Why hang on to a losing trade when you can exit, take the small loss, and wait for a better set up?

Small accounts are not afforded this luxury. Once you have traded your capital for the day you are done. This is because of the pattern day trading (PDT) rule which requires you to have a cash account.

A cash account means you can make as many trades as you like in a day as long as they are covered by the cash you start the day with.

If you only have $1,000 to start and you take two trades for $250 each, you have used half of your cash for the day.

Compare that to a $50,000 account that can make a couple hundred of these trades in a single day. (Not that it would be advisable.)

For small accounts, this leads to waiting and hanging on to trades in hopes of a recovery while the price moves in the wrong direction.

You never want to be in a trade that relies on hope.

It helps to be aware of the constraints you face as a trader and having a limited amount of capital presents a few.

The top reasons (in my opinion) small accounts are harder to trade:

1. Limited Number of Trades: This is due to trading rules (like PDT) and decreases your overall flexibility as a trader.

2. Wins Feel Like Losses: Profits do not feel large enough which creates a tendency to stay in trades too long and miss taking targeted exits.

3. Limited Size of Each Trade: You only get to sell once, maybe twice which makes each sell decision more important and therefore more difficult.

4. Forced to Close Red: It is difficult to end the day early and losing. Without more cash to put to work, losing trades are held in hopes of recovering losses.

5. FOMO is Magnified: The fear of missing out is far more intense when you only have a limited number of trades to make and see big moves happening early.

There are simple solutions to these problems faced by small accounts.

The biggest impact these solutions have is to your mentality while trading with limited funds.

The first thing to do is embrace these limitations and accept them for what they are.

When you overcome the obstacles of trading with a small account, you will have the confidence and tools needed to absolutely crush it when you have built up enough funds for large account trading.

It is possible to trade a small account successfully, but it does require discipline and some knowledge of how to work around these constraints.

My top solutions:

1. Rule of 3: Finds stocks/options that allow you to take a minimum of three separate trades before using all of your cash for the day ($300 max trades for a $900 account).

2. Wins Add Up Fast: Remind yourself that $150 weekly profits x 52 weeks = $7,800. Add that to your original $1,000 and you’re almost to $10k in just one year.

3. Two Contract Minimum: Buying at least two contracts allows you to take some profits early while staying in the trade for more upside. Trading a single contract is much harder to do.

4. Minimizing Red Days: Scaling in and out of trades is the key here, take early profits and then leave a runner to try for more.

5. No FOMO: If you follow the first four, FOMO will actually reduce a lot. You still need to get past this by simply being happy for others and recognizing every day brings new opportunities.

The last solution is really about having what is known as an abundance mindset.

Recognizing there are always new trades to make because of the endless number of opportunities presented by the market is a trading superpower.

Trading success with a small account is possible!

It does require discipline and consistency, but you can do this.

Have a great week ahead.

-Nate

 @tradernatehere