Archive for July, 2006

How to Grow Your Trading Account, Part 1

July 5, 2006 at 9:24 am

You and I may have different trading strategies and styles, but our goal is the same: extract profits from the market. I love trading, and I hope to continue doing it one way or another for many years to come, no matter how large I can grow my account.

Account sizes vary from trader to trader, and not just due to different financial situations. Some traders sweep excess funds at the end of the month out of their trading account, while others leave the majority of their money in their trading account feeling like it’s the best place for it.

Better trading means a bigger account, right?

Isn’t a growing account the result of making profitable trades? Well, yes and no. It is not necessarily the same as just making money trading. After all, you can be a profitable trader and as long as you are withdrawing the profits from your account it won’t get any fatter! Growing your account is the result of profitable trades, yes, but also results from a decision on your part to commit to leaving those profits alone.

Why trade a larger account?

Trading a larger account has numerous benefits if you’re a disciplined trader:

* Your buying power increases exponentially.
* The same trading performance which led your account to the current levels will mean even greater profits going forward.
* Your money will have the ability to compound, getting you ever closer to those financial goals of yours.
* Making the same income you’ve come to expect from your trading will mean you won’t have to achieve the same percentage returns. In essence, it becomes easier to make the same money, because you can be a more selective trader and only participate when the market acts like you want it to.

Is bigger always better?

When it comes to your trading account, that’s a question only you can answer. Speaking generally, a trader with poor discipline needs the smallest trading account possible so that he can do the least amount of damage! The remaining traders who aren’t willing to risk blowing out their accounts can see the benefits shown above. Some trading styles are naturally more capital-intensive (pairs trading) or less capital-intensive (scalping one trade at a time). If your style isn’t one which requires a great deal of buying power, then you might want to pay off the house or cars with that excess capital and buy yourself some financial freedom in the future.

So how do you grow a trading account?

Good trading is the short answer, but there’s a longer answer if you want it. The decision to leave your profits in your account is an important one. Having a secondary income from another job or your spouse can help minimize the initial impact of leaving your profits intact. Having a savings or checking account big enough to get you through several months can also make it easier. By making the commitment to retain profits in your account, you’ll soon see that your current level of performance is going to mean even bigger profits going forward. In Part 2, we’ll take a look at a pair of hypothetical traders in different situations with different plans for their profits.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

[tags]Stock Trading, Trading Account, Trading Profits[/tags]

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