One of the most frustrating things about trading small accounts is that your perception of success is always skewed. When you have a job, when you go shopping, you realize what things cost, how much you could make, and what a significant amount of money is in the real world. Want to go on a vacation, maybe you need $1000-10,000. A fancy dinner out? $200-400. Filling up a tank of gas? $70.
The trouble with small accounts is that our perception of success and money in the real world, does not match what success looks like in a small account. If you trade a $10,000-$20,000 account with a goal to beat the market at around 8-10% per year growth (note: your goals if actively trading are likely higher than this, but it’s important to see the real numbers), then you are looking at a net gain over the year of only $1000-2000 in order to be successful. In the real world, that doesn’t feel like it gets you very far. On a per diem basis, you are looking at 253 trading days in a year. Per day - that $1000 goal is just under 4 dollars (8 for the 20,000 scenario). The problem is this: 4 dollars doesn’t do much in the real world. It doesn’t feel like a lot of money. It certainly doesn’t feel like money that will get you success. And it certainly doesn’t feel like a big loss on any given trade.
The impact of this is several fold: First, it becomes more and more attractive to focus on high-flyers, get rich quick trades and lotto trades. Second, it becomes easy to feel frustrated, or that you’re always falling behind everyone else trading. Third, it becomes easy to skip making a process out of trading, because it’s easy to let 4 dollar stops become 30 dollar stops - since the money in real life perspective still seems so insignificant.
Trading in general requires realistic goals and concrete measures of success (percent gains, consistent stops and targets, risk management) but in a small account these added difficulties make the necessity for concrete success measurements absolutely essential.
Here are some things you can do to help:
- Have REALISTIC targets. Make sure you absolutely know what each trade represents percentage wise and dollar wise. If you have the ability to be aggressive in order to look for exponential growth - by all means - but you still need to know what each trade represents as far as future growth potential on a percent basis.
- Turn off dollar P&L in favor of percent P&L. This will allow you to keep track of your trading success in relation to your goals, while avoiding the pitfall of it all feeling worthless.
- Look for ways to add to your trading account outside the markets. Doubling those four dollars per day by injecting extra money (if you can afford it, and if your trading methods are successful) into your trading account will make a big difference on your ability to increase your percent gains at a faster rate.