Growing your trading account into something respectable can seem like quite a daunting task if you’re new to trading or struggling just to keep your account above water. Too often, when you search for information on how to build your trading account you don’t find any type of methodical guide that you can follow nor practical information to assist you; it all seems to be vague and general information like “cut your losses and let your winners run”, etc. What you need is some practical and honest insight into what it takes to build a trading account from the ground up, because most traders simply have no clue how to do this since it’s so hard to find solid information on it.
In today’s lesson, I am going to lay out some guidelines that will help you build your trading account and that will remove a lot of the “mystery” of what it takes to start growing your trading account…
1. Stop trying so hard to turn your small account into a big one
The main attraction to trading for most people is the notion that they can make some fast money. The thought of taking one or two thousand dollars and turning into tens of thousands is extremely enticing to most people, and it’s this very type of thinking that sucks most people into the markets and also spits them back out.
Most retail traders with relatively small trading accounts have what I call “small account mentality”, and it’s this mentality that is the reason they struggle and continuously fail to make money in the market.
Traders with big accounts do not feel pressure or a “need” to trade…they are more relaxed and patient, and this results in them making money faster than the small-account mentality trader who is constantly looking for trades and desperately trying to force money out of the market. In essence, you have to play a “trick” on your mind and just mentally add two or three extra zeros on the end of your trading account balance, if you do this it will take a lot of the “urgency” out of trading that you might be feeling now.
It’s a funny thing that feeling this urgency and pressure to make money in the markets actually causes traders to lose money, but it’s all part of the game and in the end it really just comes down to the fact that urgency and pressure create emotional / impulsive trading decisions whereas relaxation and mental clarity create logical trading decisions that ultimate make you money faster and more consistently.
If you have twenty thousand dollars to throw around in the market, you can make some very decent money each month off that account size IF you’ve first learned how to trade properly. However, if you have a two grand account, you’re not going to make a lot of money each month even if you know how to trade properly, simply because you can’t trade very big position sizes on such a small account, assuming you want to manage your risk properly that is. However, what you need to do is think of your two grand account AS IF it’s a 20 grand account…because the mental and physical processes involved are EXACTLY THE SAME. What you need is a “big account mentality”….even if you’re trading a small account.
You should know that if you do trade a two grand or similar smaller-sized account very well and you end up making a solid return on it over a year’s time of sticking to your trading strategy and being disciplined, you will naturally attract more money to yourself. I would invite any of you reading this to study up on the “law of attraction” by Napoleon Hill, you will see that it really applies to trading in that the more you follow the right trading path and operate with a positive trading attitude, the more you will attract money to yourself. That can mean you attract investors to fund your trading, because if you are making solid returns over a year’s time even on a small live trading account, I can promise you that it’s a very big thing to have on your trading resume and will instantly earn the respect of anyone in the trading world and of anyone with money to invest.
So, the first thing you need to do to build your trading account is to simply stop trying so hard. By that I mean, stop trying to force money out of the market by ineffective means such as “loading up” on a trade or trading when you know you shouldn’t. Instead, trade in a disciplined and patient manner and follow a logical strategy like my price action trading methods and be realistic….this way you are trading “naturally” and not forcing the issue. This creates positive habits and a solid foundation that will serve you well as your account does start growing over time. Traders who get lucky on a few trades and make some fast money, typically see all their profits vanish very soon after making them because they got them on poor trading habits and out of greedy emotional trading behavior.
2. Focus on the “forest”, not the “trees”
To say that most traders put too much emphasis on any one trade is a big understatement. Most traders treat each trade as if it’s a lot more important than it really is…and if they’ve risked too much money on the trade it might actually be a lot more important than it should be. But, it’s important to understand the fact that your trading success is not determined by any one trade, but instead by a series of trades over time.
The other thing that traders put too much focus and mental energy on is making money. I know it sounds like a paradox, but it’s true that traders who focus and think too much about money, profits and rewards, have a much harder time making that money than traders who focus more on actually learning to trade.
Typically, traders who think too much about making money in the markets end up “forcing” the issue by risking more than they know they should or over-trading. By focusing too much on the money they actually create the opposite of what they want and that means losing money rather than making it. You have to understand that there is no big “short-cut” in the markets; you have to put in the time to learn how to trade and then you have to manage your risk effectively according to your account size (which we will discuss next).
Your goal should be to transmutate your brain energy from thinking about money and reward into thinking about the actual process of trading and managing risk. If you do this, you will see your trading account slowly start to grow.
3. Understand risk reward and the importance of money management
Obviously, to build your trading account you need to understand how to manage your risk appropriately, but you might not be 100% clear on what that means.
As I just alluded to, many traders tend to focus most of their brain energy on profits and winning percentages when trading, and unfortunately for them these are all the least important topics in trading. In fact, I recently wrote an article on why winning percentages are irrelevant. What’s critical to a trader’s longevity and success in the market is focusing on controlling their risk per trade and overall money management.
Here are some practical money management tips to get you started on the right track:
• First, determine how much you are comfortable with potentially losing per trade. Remember that ANY trade could be a loser so don’t ignore the real risk involved with every trade you take. Risk only an amount that allows you to really “set and forget” your trades, if you’re thinking about your trades all the time then you’ve probably risked too much.
• Once you’ve determined your 1R (risk amount per trade), make sure that you NEVER lose more than that amount on any one trade. Your first goal should be to make sure that any one individual trade has a maximum dollar loss point, and you ONLY lose that much OR LESS on any losing trade.
• ALWAYS determine the most logical stop loss placement for a trade before calculating how many lots you can trade. After determining the best place for your stop loss you then calculate how many lots you can trade while staying below your 1R per-trade dollar risk amount that we discussed above. Many traders seem to arbitrarily pick a place to put their stop loss and trade position sizes that are way too big for their accounts. You might get lucky a few times trading this way, but I can promise that it will lead to much larger losses than you are comfortable with which ultimately leads to a blown out trading account.
4. Take profits: don’t worry about catching the whole move
Far too often, traders fail to secure solid profits because they are hoping for a bigger move, in other words they are being greedy. A simple reality of markets is that they tend to rotate a lot, meaning they don’t typically move in straight lines for very long before retracing. I would much rather take a solid 1:1.5 , 1:2, or 1:3 risk reward than let that profit go simply because I wanted more money.
Obviously, there are times when you can try to let your profits run, such as in very strong trends like we are seeing in the yen pairs right now. Gauging when to let a trade run and when to take the profit off the table is something you’ll improve through training and screen time, but it’s worth noting that the majority of the time you are going to be better served by aiming for a realistic profit of 2 or 3 times your risk.
One good way to begin building your trading account is to take profits as they are available; start taking 1R or 1.5R gains as they are available. In other words, you’re taking profit when you’re up 1 times your risk or 1.5 times your risk. This is not really a good long-term way to make money in the markets, but for a beginner it can be a good way to build confidence and their trading account at the same time.
5. Hold on tight to your profits!
Perhaps the most critical step to building your trading account is to not give back profits after a winning trade. It seems to be that humans are wired to want to jump right back into the market after a winning trade and “play around” with the money they’ve just made. Since making money on a winning trade “feels” easy after you’ve secured the money, your perception of risk in the market gets altered. I have even personally struggled with the feeling of wanting to jump back into the market after a good winning trade. However, it’s at this time, after a winning trade, that we are most vulnerable and exposed to the temptation of over-trading.
I’m sure most of you know what I’m talking about here and have experienced this for yourself. So, I’ve written out some affirmations that you can use to remind yourself of how vulnerable you are after a winning trade and give you some ideas to help avoid over-trading after a winner…
After a winning trade (or losing trade), remind yourself of these very important facts:
• “Despite how disciplined and unemotional I’ve been recently, I am at my MOST emotional right now after this trade has just ended. In order to completely eliminate the potential to lose money from an emotion-based trade, I need to remove myself from my trading platform for at least 24 hours”.
• “I have just made (or lost) money on a trade, is there a valid reason to enter another trade that agrees with my trading strategy and trading plan? If not, then understand that the market is not going anywhere and close up my platform until tomorrow, other opportunities will arise in the near-future. There is no sense in entering a trade based on euphoria or revenge.
• “The outcome of my last trade has no bearing on the outcome of my next one. Do not enter the market just because I “feel” like I’m on a winning streak, my trading edge has a random distribution of winners and losers so there’s absolutely no reason to be influenced by the outcome of my previous trade.”
Building your trading account can seem like a difficult task if you are trying to “force” money out of the market. However, it doesn’t have to be this way; if you just relax and focus on learning to be a good trader, your account will start to grow “naturally”. I have to be frank with you, if you have a small trading account you aren’t going to be able to build it “really” fast, but if you follow the tips in today’s lesson and combine them with an effective trading method like the price action strategies I teach in my trading courses, you will be on the track to slowly but surely building your trading account.