When working on growing a small trading account, it can be tempting to take excessive risk. In fact, that's what a lot of trading sites will tell you to do.

But taking too much risk will ultimately end in a blown account.

So what's the solution?

Is growing a tiny account even possible?

Sure, but it takes some patience and creative thinking.

In this post, I'll give you 9 sustainable tips for growing a small trading account.

Remember that this also assumes that you already have a trading strategy that has an edge. If you don't have that yet, work on that first!

1. Use Proper Risk for Your Account Size

For starters, be sure that you are taking the right amount of risk per trade. For most traders this is less than 2% of their total account, per trade.

If you are just starting out, then consider taking 1% or less, and move up from there.

Yes, risking a small amount like this, seems like it won't grow your account very quickly.

But here's the thing…

Growing a small trading account is all about consistently. Consistent wins compound to big numbers, over time. 

…and if you lose all your money, you'll have no account to trade with.

So the key is to take a small amount of risk, but figure out ways to win a lot more than you lose. 

This can be done with either a high win rate, or a high multiple-of-risk return per trade. 

You might consider taking more risk on a case-by-case basis, like when you are super-sure about a trade.

It may seem like a step backwards, but it's the best way to establish a solid foundation. Once you are consistent, then you can consider risking more.

2. Don't Withdraw Money, Let It Compound

Once you start making money in trading, it can be tempting to take some out to pay your bills or buy some toys.

But if you want to grow your account as quickly as possible, you should resist the temptation to make a withdrawal.

Let the magic of compounding work for you. 

Find other ways to pay your bills, while you build your account.

3. Stop Comparing Yourself to Others

It can be easy to compare yourself to others. That's what most of us are wired to do from a young age.

But comparing yourself to others usually brings about feelings of impatience, frustration and inadequacy.

You are only really competing against yourself in trading.

So be happy for successful traders…but don't measure their success against where you think you “should” be.

There's no “should.”

Only the reality of where you are now and the work required to get where you want to be. 

So stop following #lifeofatrader and #bitcoinbillionaire on Instagram, and get to work.

4. Look For Ways to Amplify Your Trading Strategies

Alright, now let's talk about trading strategies.

Many struggling traders jump from system to system, in search of gigantic returns.

But in reality, you may be able to take a your consistently profitable strategy, and simply “turn up the volume.”

Here are some ideas to get you started:

• Can you add to your position, once it's in profit? This is one way to do it.
• Can you simply risk more per trade? This guy will risk up to 10% on trades that he's really sure of.
• Can you leverage your wins (or “house money”) on your next trade to double your return? If this interests you, test this concept.
• Can you set a closer profit target to improve your win rate? Consider testing a 1R profit target.
• Can you set a tighter stop loss? Tracking your MAE can help with that.
• Can you set a profit target that's further away, to improve your average return per winning trade?
• Can you trade 2 positions…one at a close profit target and one at a further profit target?

Give those methods a try and see if you can improve your returns with an existing trading strategy. 

Remember to test these ideas extensively before risking real money.

5. Focus on Your Trading Process

Your process and mindset are much more important than your actual trading strategy.

Implement Backtesting and Beta Testing before you trade in your live account. 

This process is important because it gives you important data about a trading strategy and how it works for you.

In addition, it allows you to focus on specific elements of your trading to see if they work individually. When you break them out like this, it's easier to see where your issues are.

If you jump into live trading right away, it's really hard to tell if your issues are in your risk management, strategy or psychology. 

To get a complete explanation of the process, read this post.

Backtesting

Backtesting is a fast way to find out if a strategy has an advantage. You can test hundreds of trades in a few days, whereas it could take weeks, months or even years to get the same data in Beta Testing alone.

It also removes the emotional element of trading, so you can evaluate the strategy itself, not your trading psychology.

Beta Testing

Beta Testing (or forward testing) brings your emotions and lifestyle into the picture. Now you can see if the strategy will be a good fit for the way you see the markets and your schedule.

If your Beta Testing does not line up with your Backtesting, then your Backtesting data can help you understand why. Without Backtesting, you are flying blind and are likely to give up on a strategy.

…and that usually leads to a ride on the Trading Silodrome.

Live Trading

Live Trading is the final step and now it's time to bring your money psychology into the picture. Is your psychology strong enough to handle the rigors of trading your full-sized account?

If your Backtesting hit your goals, and your Beta Testing was similar…but your Live Trading sucks, then it's time to consider lowering your risk per trade, or improving your psychology.

Also, don't put unnecessary pressure on yourself by setting daily or weekly goals.

Take what the market gives you, journal your trades, review if you are missing trades, and keep getting incrementally better every day.

6. Add More Trading Strategies

Some traders get so focused on maxing out their current strategy, that they forget that they can also add more strategies to increase their returns.

If you have something that's working and you don't want to mess with it, then don't.

Just look for a new strategy. Be sure that the new strategy doesn't take similar trades to your first strategy. 

So if you have a trend trading strategy, then consider testing countertrend strategies.

How were the pyramids in Egypt built?

One block at a time.

Take the same approach to your trading skills.

Add one strategy at a time and you can build an impressive trading account. 

7. Review Your Discretionary Spending

This is an area that you might not have thought to look when building a trading account, but it can be an easy win.

To get started, track your expenses for 30 days.

Use an app, spreadsheet, or a notebook…whatever works for you.

Be sure to record every single thing that you buy.

At the end of the month, take a look at what you spent money on.

Is there any way that you can reduce your expenses?

Maybe you can, maybe you can't.

I'm not saying that you should live like a monk and not buy a coffee in the morning.

But maybe you don't need to go the tanning salon every week…

…just sayin'.

If there are a few things that you could cut out and wouldn't miss, then put the money you would have spent on those things into a separate bank account.

At the end of the month, move that money to your trading account.

Growing a small trading account isn't just about how much money you make. It's also about how much money you can add to the account. 

8. Sort Out Your Job Situation

Did you quit your job to trade for a living?

I've never heard of that working, unless someone was already making enough money in trading to cover their expenses several times over.

If you did quit your job and trading isn't paying your bills, then go find another job.

Seriously.

You'll need that stable income to maintain the correct mindset for trading.

Maslow's Hierarchy of Needs comes to mind here.

If you don't take care of your psychological and safety needs (will I go hungry?) first, it's almost impossible achieve the higher levels of esteem and self-actualization…which are required for successful trading.

So take care of your basic needs first.

Then go after those big trading goals…

Already have a job? Great!

Keep that job until you can cover your monthly expenses by several multiples with trading.

Trading usually won't provide the same consistent pay every month, like your job. So take that into account.

Hate your job?

That's the biggest reason a lot of traders quit their jobs prematurely.

Find another one. 

It can be easy get stuck in a rut at your current job. There are options out there, explore them. 

But for your next job, prioritize:

• Lower stress
• More interesting work
• Less commute time
• Better hours
• Co-workers you actually like

Sure, you may have to take a slight pay cut. But you can also work on lowering your expenses.

…or maybe not. You might actually find a job that pays more!

You will never know until you try.

Be willing the explore all of the possibilities. It might be a job in an industry that you've never worked in before.

Having a job that you like can free up a lot more energy and mental capacity for trading.

9.  Look For New Cashflow Sources

Finally, find ways to add new sources of low-maintenance cashflow to your life.

In most places in the world, there is an abundance of money lying around.

Well, not money per se, but opportunities to make money.

The skill is to be able to identify these resources and turn them into steady streams of income.

Here are a few ideas to get you started…

• You may be surprised how much some of your “old stuff” is worth. Those items can be sold locally or online.
• If you have skills that are in demand, you can setup an online store to sell your products, or offer consulting services.

To get more ideas, read this blog post.

Put all of the profits from your new endeavor into your growing trading account.

Just one additional income source can help you grow your trading account balance significantly.

So always be open to new ideas to make money. 

Final Thoughts on Growing a Small Trading Account

Building a small trading account to a point where you can start trading for a living isn't only about having a high win percentage, or taking high-risk trades.

It's about taking inventory of all the skills and opportunties that you have in your life and growing your account in a sustainable way. 

Be willing to consider all of the possibilities, from both inside and outside trading.

Is there something that wasn't mentioned above that has helped you build your small trading account? Let us know in the comments below…

The post 9 Strategies for Growing a Small Trading Account appeared first on Trading Heroes.

One common objection that people have to Swing Trading is that they think that they won't get enough trades to build their account.

Of course, this is nonsense. 

If you understand your options and implement the right strategies, you can make more money. But you have to be smart about it.

In this post, I'll give you five ways that you can make more money with Swing Trading.

1. Increase Your Bandwidth: Learn More Trading Systems or Trade More Currency Pairs

If you trade one system and a handful of pairs, then yes…your earning power might be limited. But what if you simply increased the number of opportunities that are available to you?

Instead of just trading 5 currency pairs, try 10…or even 27.

This will give you more trades, without having to learn a new trading method.

Already maxed out on currency pairs?

Then learn another trading strategy.

Ideally, you should find a method that is not similar to your current system. For example, if you are trading a trend following system, you might want to look for a countertrend system or a breakout system.

Regardless of what you choose to do, always be sure to backtest and forward test your new trading method and be sure that you are not doing more harm than good.

Some trading methods don't work well with some currency pairs. So don't assume that adding systems and/or currency pairs will automatically lead to increased profits.

If you don't test your new method, you could actually make things worse.

2. Trade the 4-Hour Charts

When people hear about Swing Trading, they usually assume that you are trading on the daily charts. But I have found that the 4-hour charts offer the best balance of not checking your charts too often, and providing ample opportunities to find good trades.

So if you are Swing Trading the daily and weekly charts, consider adding the 4-hour chart too.

I can usually backtest the complete history of a trading strategy on the 4-hour charts in about 2 hours. This is is pretty quick and a good use of my time.

In live trading, I can usually find about 3 to 5 good trading opportunities a week, on the H4 chart. So if you are struggling to find trades, using the 4-hour chart can be a welcomed addition to your trading.

3. Reduce Your Portfolio Risk

Focusing on making more money is great, but sometimes you can increase your profits by simply losing less. The first place to start is with your risk per trade.

I hope that you are using fixed fractional risk management. In other words, risking the same percentage of your total account on every trade.

If you are, then great! But you may need to scale back your risk per trade.

When you are just starting out, I recommend risking 0.25% per trade. With a little more experience, 1% is usually good.

Risking 2% can work, but only after you have tested it and are comfortable with the ups and downs of that much risk.

Any more than 2% risk per trade is too much, in my opinion.

Once you have your fixed fractional risk under control, it's time to look at your correlation risk. For example, if you are you trading too may pairs that contain the British Pound, you are compounding your risk if the market moves against your positions.

So you may want to create a rule that doesn't let you trade if you have more than 2% risk related to any one currency.

If you do want to trade all of the pairs, then you could also risk less per pair, so you can still fit them all into your total 2% risk…or whatever you think is best for you.

4. Optimize Your Entry

Having a great entry can make your job as a trader so much easier. That's why I believe that the entry is much more important than the exit.

For example, in this chart, would you make more money if you went short at point 1 or 2? Well, the answer is obvious.

Of course, this example is a bit exaggerated, but it illustrates an important point. If your exit was the same on both trades, then point 1 would be much more profitable.

Ask yourself, how often do you enter a trade at a less than ideal entry point? Go back to your trading journal and find out.

In order to optimize your entry, first you need to come up with some ideas on how you could possibly improve. Create a list of about 5 optimizations in the beginning.

Do not overwhelm yourself with too many ideas. Yeah, this can be easy to do.

Then backtest your entry ideas, keeping everything else about your trading system the same. Once you complete a few tests, you will start to see which ideas could work and which ones won't.

Remember to test each idea multiple times. You want to make sure that it's not a fluke

Also remember that it may not be possible to get a better entry. But it is worth an honest try.

5. Target Higher R Multiples

On the other side of the coin, you could also try to target more profit. Of course, the bigger your profit target, the less likely it is to be to be hit.

So again, your mission is to backtest your ideas, one at a time. Keep track of your results and find out if increasing your profit target might help you make more money per trade.

Conclusion

If you thought that you cannot make enough money swing trading, then I hope that this post has given you some ideas on things that you could possibly test. Just like with anything else in trading, there are no guarantees.

But implementing even just one of these ideas could greatly expand your opportunities.

The post 5 Ways to Make More Money Swing Trading appeared first on Trading Heroes.

We all know Pareto principle or the 80/20 rule and how powerful it can be for everything from time management to language learning.

I you have never heard of it before, then it basically says that 80% of your results will come from 20% of your efforts.

Approximately.

But does it work in trading? You bet it does!

In this post, I'll show you how this simple tweak can help you improve what you are already doing and give you a game plan to figure out if it is the right strategy for you or not.

I will also show you my own results and how to implement this strategy, when it seems like you can't.

Ready? Here we go…

How the 80/20 Can be Used in Trading

OK, so the first thing we need to do is define where we will be using the 80/20 rule.

Should we cut our screen time to only 20% of our current total? Should we only trade 20% of the available currency pairs?

Perhaps.

But what I'm talking about is splitting up our trade entry into two parts, with two different profit targets.

The first profit target will be 80% of our total position, while the second part will be 20% of our total position.

Don't think that's possible?

Watch this…

A 80/20 Trading Example

This example is an Outside (or Engulfing) Bar setup on the $GBPAUD.

Here is where the bar printed nicely on a support level. If you want to follow along at home, this the H4 chart on April 20, 2016.

Don't you wish that they were all that sweet?

I'm only showing you this ideal entry because it illustrates a good point. In reality, not all trades will work out this well.

When you enter the trade, you have several options. Here are some of the common ones:

1. 1 position, 1 profit target
2. 2 positions (50/50), 2 profit targets
3. 2 positions (50/50), 1 profit target, 1 trailing stop
4. 2 positions (80/20), 1 profit target, 1 trailing stop

So which one works best?

Obviously, there are many other variations, but those are the ones that people commonly use.

Here's how they would have performed, risking 2% per trade, on a $1,000 account.

To make the calculations easy, let's say that we are using nano lots, so we can get the exact risk that we need. Also, 1 nano lot will be worth $0.001 and the spread/swap are negligible and there is no slippage.

In real trading, you can use nano lots to get this kind of risk customization, but the pip values will differ by pair and time of day.

The spread/swap/slippage will factor into your profit and loss, but if you are using reasonable leverage, it won't be much, if you are trading during active hours.

Scenario #1: 1 Position, 1 Profit Target

This is the most basic entry and one that you have probably used before. In this example, using a 1R (or 1X the risk) profit target would have resulted in a 2% gain, or $20.

The stop loss was at 143 pips and the take profit was at 143 pips. So you would have used 140 nano lots.  The calculation is as follows:

$20 (total risk) = 143 pips (risk) X 140 nano lots X $0.001 (/nano lot/pip)

Here's the entry (blue), stop (red) and take profit (green) lines.

Cool. But look at all that sweet profit you missed out on!

The upside of having a 1R profit target is that you will win often.

Some trading methods have as much as an 80%-90% win rate on a 1R profit target.

The downside is that your account balance can go up and down a lot because you don't take advantage of the big runs, so the losses can have a bigger effect on your account.

What happens if the 10%-20% of your losses come all at once?

That can hurt and really mess with your head.

So a good balance of a good winning percentage and the occasional multi-R trade is ideal. 

…which brings us to the next entry technique.

Scenario #2: 2 Positions (50/50), 2 Profit Targets

Now, if we had two profit targets, risking 1% on each (or 70 nano lots), that might help us catch more profit. In this case, it would have worked, and we would have made the following:

• Position #1: 143 pips X 70 nano lots X $0.001/nano lot/pip = $10
• Position #2: 246 pips X 70 nano lots X $0.001/nano lot/pip = $17.22
• Grand total: $27.22 or a 2.72% gain

So when we break it down, we only make an extra 0.72% over the 1 position entry strategy, in an ideal situation.

Not bad, but let's also consider the more likely scenario, where the second position gets stopped out at breakeven.

Remember, when you go for 2R, you lower your probability for success by a lot. Sometimes it can drop to 30% or less, depending on the system. 

• Position #1 (hits profit target): 143 pips X 70 nano lots X $0.001/nano lot/pip = $10
• Position #2 (move stop to breakeven when first target is hit, then gets stopped out): $0
• Grand total: $10 or a 1% gain

So your net reward/risk ratio is actually 0.5R. This is not completely terrible, but you are fighting an uphill battle.

Your win rate (especially on the second position) will have to be high to overcome a less than 1R outcome on some trades.

Side note: I was doing this for years, wondering why I couldn't get ahead. This wasn't the only reason obviously, but it was one of the big ones. 

We can do better…

Scenario #3: 2 positions (50/50), 1 profit target, 1 trailing stop

Now here's where things start to get interesting.

What if we could lock in more than 2R when price really starts to rip? 

…like in this GBPAUD example.

So, in this scenario, we will move the stop to breakeven when price hits the first profit target. Then we will trail the stop by 1R.

Here's how the stop loss on the second position will look:

• Entry: -1R
• Price hits first profit target: move stop to breakeven
• Price hits 2R: move stop to +1R
• Price hits 3R: move stop to +2R
• And so on…

I've marked off the 1R intervals on the chart, so it looks like this.

It was really close, but you might not have moved your stop when price hit 6R. But let's just say you did.

In that case, the second position would have captured 5R. So in this scenario, we get the following results:

• Position #1: 143 pips X 70 nano lots X $0.001/nano lot/pip = $10
• Position #2: 715 pips X 70 nano lots X $0.001/nano lot/pip = $50
• Grand total: $60 or a 6% gain

Now we're talking! A 3X of the initial risk of 2%.

OK, before we go out and buy a Ferrari, let's take a look at the more probable scenario again: 

• Position #1 (hits profit target): 143 pips X 70 nano lots X $0.001/nano lot/pip = $10
• Position #2 (move stop to breakeven when first target is hit, then gets stopped out): $0
• Grand total: $10 or a 1% gain

Still blows, right?!

It's much better because we have given ourselves the potential to capture big moves, but we are still fighting uphill if the second position never hits.

We will still have to have 3 winning trades for every loss (75% win rate or better), or have a net 3R win on each position, in order to be net profitable.

…and it will really depends on how many big runs you have a year.

Not impossible, but we can probably do better.

Here's where 80/20 comes in…

Scenario #4: 2 positions (80/20), 1 profit target, 1 trailing stop

This is where we find balance.

In this scenario, let's do the same thing as in scenario #3, but tweak the entry parameters, so you put 80% of your risk into the first position and 20% in the second.

This is what the calculation looks like:  

• Position 1: 140 nano lots X 0.8 = 112 nano lots
• Position 2: 140 nano lots X 0.2 = 28 nano lots

So the results in the ideal 5R scenario above are: 

• Position #1: 143 pips X 112 nano lots X $0.001/nano lot/pip = $16
• Position #2: 715 pips X 28 nano lots X $0.001/nano lot/pip = $20
• Grand total: $36 or a 3.6% gain

Which is less than in scenario #3.

Buuuut….you make more when only the first profit target is hit:

• Position #1: 143 pips X 112 nano lots X $0.001/nano lot/pip = $16
• Position #2: 0 pips X 28 nano lots X $0.001/nano lot/pip = $0
• Grand total: $16 or a 1.6% gain

Remember, we aren't looking at just the total potential return per trade here, we are also looking at the probability of a positive return.

To get an idea of how this works, let's say that you apply this advantage over 1,000 trades and you have an 80% chance of hitting the 1R profit target.

• Using Scenario #4:
  • You will have 800 winning trades (1,000 X 0.8) and 200 losing trades.
  • If you multiply that by 1.6% per trade, you will end up with a 1,280% gain, not including compounding.
  • Then you will have 200 losing trades, multiplied by 2% risk, or a 400% loss .
  • This gives you a net gain of 880%, not including compounding. 
• Using Scenario #3:
  • You will also have 800 winning trades and 200 losing trades.
  • But at only 1% per trade, you will have a 800% gain, not including compounding.
  • You will still have the same 400% loss.
  • The net gain is 400%, not including compounding. 

Again, these are very simplified numbers, but they illustrate the point that a tiny tweak in the entry can result in a huge gain in your final results.

Same system, same risk, different position sizing.

Think about how much more money that is over your trading career!

But, this isn't a magic bullet.

Here's what else you need to know…

When to Use the 80/20 Rule (The Catch)

Before you rush out and use this, consider this…

I'm not saying that everyone should do this. Like anything else in trading, this only makes sense in the context of certain trading styles. 

Situations Where This Could Help You

• You have a high winning percentage on your first profit target
• You trade a swing trading or position trading method
• You have multiple profit targets
• You have access to trading nano lots
• Your current second or third profit target is fixed and is not taking advantage of big runs

Situations to Avoid

• Your first profit target has a lot probability of success
• You are a daytrader or scalper. Management of two positions might be a bitch.
• You don't have a tested method with positive expectancy
• You can't trade nano lots

Conclusion

In the end, the entry method you use is totally up to you. It will have to fit with your personality and there is no way that I can tell you what is right or wrong for you.

It is vital that you backtest this for yourself and see what works best for you.

But as you can see, using the 80/20 entry can improve your return on a trading method that already works. In our example, it actually doubled the return. 

The post How the 80/20 Rule Can 2X Your Current Trading System appeared first on Trading Heroes.