Almost every trader that is brand new to the market starts off by trading a small account, as they should. After all, why dive into the high-risk world of day trading with all of your hard-earned life savings at risk? It's best to start small and slowly grow your account, or even add more to your account in the future when you're more confident in your trading. However, most people dream of starting a small account of a few hundred or a few thousand dollars and growing it one trade at a time, which is obviously easier said than done. In this post I'll be sharing some tips and tricks that can help you grow a small trading account. Most of these I even used myself when I first got trading and I believe they played a big role in helping me grow my account.
Before getting to the good stuff, you may be wondering why it's actually more difficult to trade a small account than a large account. The main reason for this is because of the Pattern Day Trader (PDT) Rule. The PDT rule limits U.S. based traders with less than $25,000 in their trading account to only 3 day trades per 5 business days. Further limitations are placed on accounts that break the PDT rule by placing 4 or more day trades within a 5 business day period.
The PDT rule was put into place by the SEC with the hopes that it would protect new traders from trading too frequently and quickly losing their money. In reality, a lot of time what it actually does is forces traders to hold risky positions overnight that they would rather exit the same day, due to them not having anymore day trades available.
There are a few ways that new traders can, in a way, get around the PDT rule to be able to place more day trades. First, they can look into opening an offshore trading account. Now, I know it sounds a bit sketchy... but opening an account with a reputable brokerage based outside of the U.S. is a legitimate way to get around the PDT rule. The reason this works is because the PDT rule is for U.S. traders and if your money is in an account outside of the U.S, you're free to trade as much as you'd like!
Another way to increase your number of day trades, without opening an offshore account, is to have multiple brokerage accounts. For example, if you have $2,000 to start trading, you could open 2 separate brokerage accounts with $1,000 in each and will then have 6 total day trades per 5 business days (3 with each account). If you're starting with a larger amount of money, but still under the $25,000 PDT minimum, you can even open more than 2 trading account if you'd like and will have 3 day trades in each one!
One issue you may run into using this method is that you can only have one margin account per brokerage. Margin accounts are required if you're someone that short sells or plans on doing some short-selling. Because of this, you should have separate accounts with entirely different brokerages. For example, one account with Etrade and one with TD Ameritrade.
Aside from the broker that you're using to do your trading, there are of course actual trading techniques and strategies that you can do with you small account that will give you better chances of growing over the $25,000 PDT minimum too. One of those strategies is to simply learn swing trading. You'll still be able to use your 3 day trades per 5 business days, but if you really want to put your money to work while your account is under the PDT rule, being able to profitably swing trade is an incredible way to grow your small trading account.
A swing trade is just a position held anywhere from a few days to a few weeks. This is different from day trading, which is when you exit your position the same day that it was opened. The nice thing about swing trading is that there are no limitations on how many swing trades you can place, even with a small account. One great way to swing trade is to follow stocks that already have momentum. By doing this, you're following the stock's trend rather than trying to fight it! "Follow the trend. The trend is your friend." Jesse Livermore
You can use a free stock screener like the one here on finviz.com to find stocks that already have some upward momentum. The screenshot below shows you some of the criteria you may want to put into the screener to find some great swing trade candidates. This will give you a list of US stocks under $20 per share that have gone up at least 10% in the past week with their volume and average volume over 100,000 shares. While using this strategy you have to be careful that you're not "chasing" the stock. In other words, wait for pullbacks and dips to enter. Regardless, buying into momentum stock is generally a much safer strategy than trying to buy at the exact bottom in a downtrending stock.
The next tip for growing a small trading account is one that should be used regardless of the trading type that you're doing, whether it's day trading or swing trading. Risk proportionally to your account size. This means that, for example, if you would be risking $250 to $500 with a $25,000 account... you should only be risking $25 to $50 with a $2,500 account. It's important to know your max risk before entering a trade and using the proper position size based on your risk.
Doing this will help you prevent any major losses and save you from blowing your entire trading account with just one bad trade!
Hopefully instead of having to worry about blowing your trading account, you'll have to worry about my next tip. Do not remove your profits from your trading account. When you first start making some money it can be very tempting to move those profits straight into your bank account, but you'll never grow your trading account this way. In my opinion, you should maybe give yourself some milestone payments along the way, but keep a majority of your profits in your account until it's grown to your goal account size. By "milestone payments," I mean maybe withdraw some profits once you grow your account to $10,000 or $15,000, rather than randomly after you've made any profits at all.
Hopefully this post helps you understand some of the reasons growing a small trading account can be so difficult and helps you get started in successfully doing so! If you'd like to learn more about trading and even learn step-by-step trading strategies with proven success, check out the Master the Market courses! After signing up, you'll also be given access to 70 practice tests and our trading chatroom with over 1,000 active traders!
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