By Daniel Bustamante, Co-Founder and Lead Coach
I have long been an advocate for trading a small options account, especially for those new to trading. The concepts that we teach are straightforward but consistent. Even better, they work for small accounts.
It really comes down to having a blueprint for small account trading as well as having the right mindset. Growing a trading account, especially by trading options, can be done, but there are some things to bear in mind.
Keep the risk level to a maximum of $600 per trade. You may think this is a lot, and for some people, it is. Some of you may be comfortable risking $600 or much more. If you fall into the ‘much more’ camp, please reign it back in.
You see, it’s easy to swing for the fence when you’re on a good run. That is the natural route to take, but you need to keep it slow and steady. Why? Because when you get to $20,000, you can start doing more things to increase the velocity of the account returns, and that is where you want to be.
Focus on a few stocks
You want to focus on trading a maximum of seven stocks. You may be asking why only seven stocks? The more you understand how your chosen stocks move, the better. Think of it this way, you become a specialist instead of a generalist, and in any industry, being a specialist is the key.
Take profits! With options trading, it is easy to get greedy, believe me. You need to get used to taking profits on trades so you can realize the gains. Again, slow and steady wins the race.
Take it slow
If I haven’t said it enough, remember to take it slow. Whether you’ve decided to start trading for additional income, replacement income, or another reason, the point is you’ve started trading to make money.
That excitement of making your first winning trade or seeing stocks move is enthralling. I remember when I started trading over 14 years ago (we call it catching the bug) how excited I was. Eventually, that excitement wears down a bit (I still enjoy what I do), and you become like a machine trading. But until you get there, remember to take it slow.
This is a journey. Whether you are about to embark on your trading journey or already dabbling, it’s a process. The aim is to learn. You will undoubtedly hit some bumps, but as long as you learn from them, that’s the main thing.
Overtrading is the biggest pitfall I see and one that can really hurt a small options account. It is also the thing that we see people do all the time. Most of us want to trade and trade and trade, and it is far too easy to get to the point where that happens. Less is more. You want to learn to take the ‘lay-up’ trades vs. taking trades just to take them.
Focus on the bigger picture
Hard as it may be, don’t focus on your daily profit and loss. This is another easy pitfall to get into, especially for newer options traders. I call it the ‘daily P&L mindset.’ What we teach is that it doesn’t matter if you make money every day. What matters is if you make money every month.
Look at it like this. Let’s say you want to make $5,000 a quarter. That’s a nice number. We can break this down into a monthly number of say $1650. (I know the math is off a bit but stick with me.) Part of being a good trader, in general, is running the numbers, so we’re doing that here.
If we have a goal of $1,650 a month, that breaks down to roughly $415 a week. So now, we have a weekly goal. If you make $450 in one day or one week, you’re done. It keeps you from over trading, and you’re on target for your goals. That’s not to say you can’t trade more if trades occur that follow your plan, but you won’t feel compelled to because you aren’t focusing on your daily profits.
Have a plan
Did you notice something? This article started to put together a plan to help you reach your goals by outlining fundamental trading principles for small accounts. Not once did we talk about moving averages, bollinger bands, or any indicators. We talked more about a blueprint, if you will, to get you to learn to run a business.
Trading is a business, a model, a system. That system, that mindset that we just dug into lightly, is something you want to refine to your own personality and interests. If you want to learn more about how psychology plays a role, check out our video ‘Sharpening Your Mental Edge.’
I hope that reading this has helped and inspired you to start to trade your own small options trading account.