Trading is different from just about any other business I know.
You can start with a small amount – maybe as little as a thousand dollars.
And there’s no cap on how high you can go… or how fast you can get there.
But therein lies the challenge…
Some traders burst out of the blocks – but flame out just as quickly. Others come undone from just a single trade.
That’s because they approach trading the wrong way.
They focus too much on gains rather than the most important aspect of all…
Focus on Risk
The problem with only focusing on wins is that it’s only a matter of time before you make the wrong call…
I’ve seen traders start with a run of big wins. They soon thought they had the market on a string.
As each successive trade went their way, they’d bet an even higher amount on the next trade.
When a trade or three finally went against them, they tore a hole right through their account. It shattered their confidence as well.
The mistake was only focusing on the size of their potential profits… and not the amount they were risking.
It’s something I did as well…
When I started in the pits of the Chicago Board Options Exchange 40 years ago, I blew up my account several times over.
And I had to go through the heart-wrenching process of starting over again.
I only turned things around when I finally realized that risk management was critical to trading success.
Banking Wins
I learned to take smaller wins frequently instead of aiming for moonshots.
It’s hard to overstate how important this is… Get into the habit of continually banking winners.
It’s a matter of working the odds. There are a lot more smaller winners than larger gains.
So, start small…
Try to regularly bank just a hundred dollars. Once you’re doing that consistently, you can aim to build up to $500… and then eventually $1,000.
That’s what I did. And eventually, I was regularly banking over a million dollars a trade while running my hedge fund.
Throughout my career, I made a million dollars or more on a single trade more than 500 times.
But even if you don’t have access to hedge fund levels of capital, you can still make a significant difference in your life simply by consistently banking wins of whatever size.
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Snowballing Your Account
The other key factor is to never overcommit capital to any trade.
In general, I recommend risking no more than 2-3% of your trading money on any one trade. And if you have a series of losses, I’d make that even smaller (1-2%) until you get back on track.
By banking whatever gains I could, my account steadily began to build.
So using a percentage allowed me to organically grow my position size.
For example, 3% of $10,000 is $300 put toward a trade. Once your trading capital hits $15,000, 3% becomes $450 per trade. And so on.
That’s how you snowball your account to something much larger.
Contrast this approach with traders who bet big in the hope of recouping past losses…
If the trade goes against them, they lose an even bigger chunk of their account. It’s a spiral that almost always leads to an account wipeout.
So instead, focus on managing risk and regularly banking winners. You’ll steadily build your trading account – and confidence.
And that’s what will lead you to substantive wealth over time.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict