Tuesday, March 30, 2010

Taking it to the next level

In my post earlier this week dear readers, I hinted at making important changes in my trading strategy. Well, here they are.

Firstly, the need for the changes. As the regular readers of this blog know, I trade with a small trading account. Though this account has grown over 300% since the beginning of last year, I still take a more than decent hit due to commissions. I had blogged a little while earlier on the difficulties of trading with small accounts. In fact, I decided to make these changes after going through my trading results for this quarter, trying to see where and how I could improve as a trader.

As you readers know, I am up  around 10% for this quarter. While going through my trades, I realized I would be up at least 20% if not for the commissions!! Now, that's a huge difference dear readers and totally unacceptable if something can be done about it. Why do the commissions cost me so much, literally and figuratively speaking, when my account has grown so much in the last two years? Read on.
I gave the above question some thought and here is the correct answer. When I had a much smaller account in the first half of last year, I had no choice but to go all in in all my trades. Now, as we all know that is a strategy fraught with danger. In fact, I had blogged about the  dangers of such a strategy a little while back. But as the account has grown, I have practiced position sizing and have become much better at risk management. No longer does my account have wild swings as it used to before. So, though my overall account value has increased, the size of individual positions has not changed much.

But seeing over half of my profits disappear in commissions this year, means its time to make some changes. Its time to get out of my comfort zone. So, I have decided to increase the minimum size of any position I take by ~ 50%. As I am sure you readers realize, this is a big change. The biggest challenge I face with this is getting mentally used to higher absolute value of losses. That will take time. But there are times in life, when man has got to do what a man has to do. If I continue trading the same way I have, I have no doubt I will continue being successful.

Another by product of this change in strategy is that hopefully I will be more disciplined now while getting into trades. As you readers know, my biggest problem in the last three months has been overtrading. Dealing with larger amounts will hopefully mean that I am more cautious while entering into trades.

So that is it, my dear readers. Going by the response I have received for the posts on trading with small accounts, I take it that most of you readers trade with small accounts, though small is a highly relative term. I will blog about the challenges I face with this new strategy and hopefully it will be of help to some of you readers too who are thinking of themselves taking it to the next level.

I will be back later tonight with some stocks that I like.

Wish me luck :)

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