And God said, Let there be light: and there was light.
And God saw the light, that it was good: and God divided the light from the darkness.”
- Genesis 1:3-4 KJV
Not to worry this isn’t a bible thumping lesson.
This is a quick primer on trading smaller accounts.
I do have John 8:32 on my shoulder, but I’m far more spiritual than I am religious.
If this were a biblical lesson I’d have done far better by opening with:
“And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the moneychangers, and the seats of them that sold doves,
And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.”
- Matthew 21:12-13 KJV
That’s right Forex traders. You’re sinners. I guess technically if one is to read that literally, all of us active in these modern markets…we are all indeed sinners.
Only the good die young though, right?
So back to the point.
I was asked in my trading room last week about my thoughts on managing smaller accounts….what strategies to apply, what sort of allocations, etc…
Here’s how that chat broke down…
So I hate to be the bearer of bad news. But the stock market will not make you rich overnight.
Maybe one out of every 100 of you that read this might hit it big on some trade and just literally become an overnight millionaire.
Some weekly $CMG calls yesterday would’ve yielded you 8000% (as another room member whined about missing).
You can’t beat yourself up for missing a monstrous trade like that.
Well, you could. But you shouldn’t.
If you’re starting off with a small portfolio, that’s fine.
The majority of us had to start with small portfolios. Mine started tiny. But as I learned the rules through mostly trial and error, I figured out what to stop doing. And what to do instead to keep me and my capital safe.
That doesn’t mean you shouldn’t swing for the fences. Every now and then the third base coach is wrong and even though he said to hold back….you see that pitch and just need to take it. If the count is 3-1…take it. Ironically enough (or is it really?) the ideal risk to reward ratio most of the big boys are looking for is 3:1. Yes, it’s different because at any given at-bat unless you keep fouling things off you’ve got 7 pitches. So the odds are different but my point is made.
What’s The Point?
That point is this; trade small…and until you’re consistent…keep doing that. Go and read some of the advice above again. Trading small with the proper capital allocations means you can ignore the third base coach but still have the safety of missing the pitch that would’ve been a ball anyway. It’s all about remaining dynamic and staying within your limits. Nobody will mind if you bat .400 with all singles. That’s still one hell of a batting average. And that’s the batter mostly holding back on a Mark or Sammy ‘this is going to the moon’ sort of swings. But when he sees the opportunity he takes them. And his on-base percentage and RBIs will make him way more of an asset to the team than the .280 slugger.
Yeah, lots of baseball metaphors. If you aren’t familiar with the sport, disregard them and just go read those screenshots.
If you’re just joining the game, those tips will save you a ton of heartbreak.
And come join us in the room.
Today in History
In 1773, British Parliament passed the Tea Act…essentially saving the East India Tea Company by lowering its’ effective tax rate and essentially granting it a monopoly on the export of American Tea. But didn’t Trump just past all those tax re…yes. He did. History repeats itself.