How to grow a small trading account
This was originally supposed to be a Twitter thread, but after finishing the whole thing, I got an unexpected error, and only the first tweet was posted.
Rather than doing it again on Twitter, I figured out this is actually a decent topic for a shorter article on the blog.
Before we get into things, always remember that trading is hard and risky.
There is no “easy hack” to grow an account quickly without losses.
People who grew accounts quickly usually risked close to everything doing that.
This article will not be about how you should be supposed to wait for good conditions and yolo into things.
I will present you the ways of growing accounts fairly quickly and, more importantly, in a way where you can still keep your risk fairly tight.
Also if simple risk-management terms sound alien to you, I highly recommend you to read this article about Risk management first.
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Trading obscure shit
If you decide to trade markets like BTC, ES, Forex majors, Gold, etc.
You are immediately paired against retail traders like yourself and large institutional players, quant firms, etc.
It is simply because these large markets are liquid, allowing traders with large sizes to compete without many problems.
Trading these markets is not impossible, and I will cover them in further points, but if you do not have a large capital, you have an advantage of trading markets where these large players can’t compete due to lower volumes.
A lot of altcoin derivatives, NFTs or on-chain coins are not attractive for large players because they won’t be bothered to trade the size they want to.
When I started to look into altcoins several months ago, I often found the cleanest signals in very illiquid markets.
At first, I was very happy to see this easy environment, but when I wanted to execute a large position size and saw my order stick out like a sore thumb in the order book, I quickly realized the disadvantage.
With a small account, you don’t need to care much, as you won’t face these issues until the order size is not in high 5-6 figure amounts.
As we can see on this chart of Lina on coinalyze, spotting the potential breakout on Lina days before it happened was possible.
This would, of course, result in large gains, but we also need to think about the possible downside.
Looking at Volume and Open interest on Laevitas, we can see that before the break occurred, Lina had 16 million daily volume with 4.5 million open interest.
In the scenario of this trade not working out and you are in with large position, your stop-loss would very likely get slipped, and you would occur a much large loss than anticipated, not something traders with a smaller account have to deal with as they would get taken out very close to their invalidation.
Low-cap alt derivatives are not the only thing where you can participate. The same goes for on-chain coins or NFTs.
As much as some people might think charting NFTs is a meme, looking at this chart of Famous Fox Federation on Tensor trade, the chart doesn’t look that different from any other coin you would chart.
You can clearly see a pick-up in volume with a break outside of consolidation and a nice buying opportunity on the retest.
At the end of the day, trading NFTs evolve around the same psychological principles as trading anything else.
People chase breakouts in price only to puke once the market starts to pull back to find support in the area where large buying originally occurred.
The same goes for coins that are traded on-chain.
Your advantage with obscure shit is that you compete with your average fomo-fueled apes that buy high and sell low and don’t take rocket science to outsmart those people.
Of course, the disadvantage is that these markets can be very quickly moved against you by large participants; you are always one fud/large sell away from getting taken out.
Because of that, you should not be greedy and not aim for 10x with every single trade. Keep your risk tight, and take profits along the way.
Price is fractal; that essentially means that if I show you the chart, you won’t really be able to tell if you are looking at the daily, monthly or 5-minute timeframe.
On top of that, you won’t be able to tell what market you are looking at for most liquid markets unless you are very familiar with it.
For those interested, above is XRP 5-minute chart.
If you swing trade, your trade frequency is quite low.
So even if you are profitable, you are mostly sitting on your hands and just waiting for an opportunity to come, which usually happens 1-2 a week per market you trade.
I will talk about swing trading more later, but day trading gives you this instant feedback with plenty of small rotations during the day.
Because of that, if you day trade and take a handful of trades each session, in theory, your account will grow much faster.
That being said, day trading is one (not if) the hardest things you can do in trading.
You can lose money in the same fast way you made it within minutes if you stop paying attention and make even the smallest mistakes.
I believe everyone should day trade when they start out as they will get instant market feedback and learn things much quicker.
The big advantage of day trading is that you are trading big liquid markets, so it is easily scalable, and you won’t really size issues if stick to trading BTC, ETH, ES, NQ, Gold or FX majors.
As I said, day trading is very hard and definitely not for everyone; it requires a lot of focus, quick decision-making, the ability to cut trades quickly and many other things.
It is extremely important to prepare your trading plan and strategy for every step of the way, as once you are in the trade and full of emotions, it will definitely come in handy.
You can day trade price action, orderflow, news, use different indicators and so on, there are plenty of ways of doing things, and there is not necessarily one way better than another.
If you are interested in my approach to day trading and also swing trading, you can check out Tradingriot Bootcamp.
Higher timeframe levels, lower timeframe execution
If day trading is not for you, there is no need to be upset. This approach can also grow your account quickly and evolves around a much more laid-back approach.
In fact, this is not only for small accounts; several months ago, I switched to this trading style completely as I decided I don’t want to spend long hours staring at charts anymore.
That being said, I can’t stress enough how important for me the experience of day trading different futures markets throughout the years and understanding of market microstructure was and how glad I am I did that in the past.
Although I mentioned that price is fractal, markets tend to provide bigger reactions from levels that are seen on daily, weekly or monthly timeframes much more than something you found on the 1-minute chart.
This is simply because of the fact that more people and their algorithms see these higher timeframe levels and act on them.
Without overcomplicating things, we can take a look at Solana, which rallied towards the daily resistance towards the end of February and sold off from there into the next daily support.
Entering the short position at daily close with 1-Day ATR-based stop loss would result in a 2.5 return on risk (R) in 18 days.
Don’t take me wrong, making 2.5 times your money in 18 days is great, but if you have a small account and risk $100 on a single trade, making $250 in 18 days doesn’t sound that great compared to risking $10,000 and making $25,000 in return.
If you want to grow your account, you can zoom in to lower timeframes, keeping your HTF trading idea in mind, meaning your target remains the same. You will execute the trade on LTF to narrow down your stop loss, increasing the position size.
You don’t need to go to 1-minute or 5-minute charts for this. Looking at H1 or H4 is more than enough. Going too much lower timeframes can increase your risk to reward but will also largely increase the risk of you getting shaken out before the move happens.
If you stick to H1/H4, there is still change; you won’t get your desired LTF entry, or you get stopped before the move plays out, but giving your higher timeframe ideas 1-3 attempts on LTF execution will still, from my experience, bring bigger results than just trading daily timeframe solely.
Trading is hard and takes time, but it is possible to grow a small amount of money to a large amount of money while keeping your risk reasonable.
Always try to think outside of the box with your trading ideas, stay patient with execution and have a well robust trading plan.