Fwd: How to grow your account

Ready to take the big step and start trading live?

So... you've studied your chosen system, done
your backtesting, participated in training, and you can
confidently and accurately identify trade setups, traded
in simulation mode and know how to operate your
broker's platform. Phew!!

If you haven't, do not rush all these steps - the
market will still be there tomorrow, and in six months
from now if that is how long it takes you to be able
to place and manage trades with confidence. You should
have also already decided which market and time frame
you are going to trade, and when you start, you are
only going to trade one market.

The next step is to start with a small account size
and look forward to it growing steadily - remember the
good systems are not a big bang story. Your account
will not explode upwards in a matter of days with any
reputable trading system.

Rather it will consistently go two steps forward and
one step backwards. Though, rest assured it will keep
growing steadily upwards as long as you follow your
rules and resist temptation to change markets or
strategies.

There will be times when you will see repeated losing
trades and this will challenge you. That is when you
should review your backtesting spreadsheet to see that
periods of drawdown have occurred in the past, and
that you quickly recovered from them.

Start with a market that has small trade profiles, and
correspondingly smaller risks. Markets like the
Nasdaq, forex minis and the Dow are ideal for this. As
your account starts to grow you can then look at
adding more contracts. Then, in time you can look at
trading a different market, with bigger profiles, or
even an additional market.

Here is a list of suggested account sizes that you
need to trade different markets. You should use this
list as a guide and a starting point for your trading:

$500 - trade forex micros
$1,000 - trade one forex mini
$5,000 - trade 1 Nasdaq (NQ) e-mini or one Dow (YM) e-mini
$10,000 - trade one Russell (TF) e-mini, or one forex standard contract or one soybeans (S.C) contract
$15,000 - trade one crude oil (CL) contract
$20,000 - trade one DAX (FDAX) contract

Next, when your account size has doubled you can look
at adding another contract. Then you will start to
experience the power of compounding.

For example, if we are starting with a $10,000 account
and we decide to trade the Russell 2000. We will
backtest the strategy and timeframe we want to trade
and then wait to have over 100 trades in the
spreadsheet. This will give us some confidence in the
accuracy of the backtesting. From the backtesting
spreadsheet we can see that the average daily return
is 1.0 points or $100, and because this is an average
return, it takes into account the periods of drawdown.

We will assume that slippage and brokerage fees have
been included in this exercise (to keep it simple),
but remember that when you do your backtesting, these
costs are not accounted for and they are a real
component of your trading costs.

After around 50 trading days, our account has grown
from $5,000 to $10,000. Now we can trade a second
contract without exceeding our risk management rules.
When the account grows to $15,000 we can add a third
contract. This time it only takes around 25 days to
get another $5,000 - wow!

At this stage you start to get excited when you
realize that it is possible to grow your account from
$5,000 to over $30,000 in only 125 trading days (or
about 7 months), and from then on it is pure blue sky.

Is this really possible? Well in theory yes it is - in
reality it is not as easy as it looks.

Stay tuned for part 2 and we'll explain the reality...


Good Trading,

Mark Soberman

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