Showing posts with label Trading with small accounts. Show all posts
Showing posts with label Trading with small accounts. Show all posts

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 :)

Saturday, March 27, 2010

An Inspiration to all those who trade with small accounts

A couple of weeks ago, I wrote a series of posts on difficulties of trading with small accounts but concluded that if one had the right attitude and was willing to learn, one could still be very successful. An article I was just reading seems very relevant to the above posts and I thought I would share it with you readers. The article was about Richard Dennis. 

Richard Dennis, once known as "Prince of the Pit" and of teaching the Turtles fame, started trading with just $400 and converted it into $200,000,000!! Obviously, this is an exceptional case but truly an inspirational figure for all those who trade with small accounts. To read more about him, here is the Wikipedia link: Richard Dennis.

And here is the link to the series of posts I wrote about trading with small accounts:

Enjoy the weekend.

Monday, March 15, 2010

Of trading with small accounts, commissions, a lot of mistakes and a few lessons....Part 2

The Part 1 of this series was started as a post on the effect of commissions on small trading accounts, but due to my fondness/weakness for reminiscing, quickly turned into a post on the mistakes committed in my early trading days. I promise to do a better job of sticking to the topic at hand this time but now that I think of it, I believe Part 1 was necessary to get a grasp of where I was coming from and I would highly recommend all those readers who haven't read it, to take out a moment and have a look at that first. Also, I am sure that to many of you readers, my humble beginnings might have reminded you of your own. I feel this sense of relating to others' experiences and the feeling of not being alone is important in an endeavor as challenging and solitary as short term trading, and even more important to all the newer traders who are facing the same problems and striving for the same improvements in their own trading.

So, last time I left you readers at the beginning of 2009 (I like how that sounds like a time-travel experience!). It suffices to say that I slowly but constantly learned from the mistakes I had made and kept on making along the way. The mistakes I made and the changes resulting from them would be left for another day as I have promised you readers to stick to the subject at hand in this post. In short, 2009 was a success. How much of a success? Let's see.

If you have read Part 1, you not only know that I had started short term trading with a very small account but also know the reason for it. Well, here are some numbers that I had a strong inkling of, but came to know definitely only while preparing my Schedule D this weekend. 

Last year, i.e. 2009, my account up 175.2% for the year, after commissions. I would like to thank the Stock Market Gods for bestowing me with these generous gains! And no, in case you readers are wondering, there were no penny stocks involved. It was done trading the same type of stocks I do now. I am under no illusions of repeating these kind of gains again :).

All sounds wonderful, right? That's an amazing number. But here is what I didn't know exactly and only found out this weekend. Without accounting for commissions, these gains would have been 229.9%!!

There you have it dear readers. That's what trading with a small account can do to your profits. Just compare the numbers - 230% to 175%!! To all you readers out there, keep this effect of commissions in your account in mind but at the same time, I would like to say its very much possible to achieve success with a small trading account, just a tad harder.

Do I have any regrets on the lost profits? Hell, no!! I am still pretty glad and feel fortunate with how the past year went. But it does make me think about the present year. My account now stands up 200% up from what I started last year, after commissions. A sizable change, but still a small account. I can't help but think whether I should slowly step it up? I am pleased with how I have performed this year so far and managed to control risk (you can check all my trades under the "weekly review" label). But stepping it up also means, accepting larger absolute losses for the same percentage loss. That's a mental change I would have to adapt to. Would right now be a good time to do it with markets overextended? 

Well, as you can see dear readers, a lot of questions and very few answers. Sometime in the near future, I will make a decision. I don't know what I will decide and what changes I will make to my trading strategy to adapt to the new variables, but rest assured, you readers will be informed about my decision and the thinking behind it. Meanwhile, I welcome any suggestions from any of you readers out there who have gone through the process of trading bigger positions themselves and also if there is something you would just like to say.

Take care and Good Luck!

Saturday, March 13, 2010

Of trading with small accounts, commissions, a lot of mistakes and a few lessons....Part 1

So dear readers, I have spent most of the day so far working on my taxes. The gloomy weather outside inspired me to tackle this morbid task. Anyway, while laboring over my Schedule D, I came to know the exact amount I paid in commissions and fees last year. So, I thought I would blog about the effect of commissions on small accounts. While working on the Schedule D, I also came across some quite a few trades, more than I had expected to actually, that I remembered quite distinctly. A few I have fond memories of and actually am quite proud of, especially if they came during struggling days. But more than those winners, its the big losers that I remember quite distinctly. Some of those rookie mistakes still make me cringe. So, pardon me dear readers if I just can't help but reminisce a little.

If you are a regular reader of this blog or have read my introduction, you know I trade with a very small account. Well, it started as very small and has now progressed to small. The short answer to why I  started trading with such a small account is because I basically started short term trading over one and a half ago after a "decent" bit of losses investing naively with buy-and-hold strategy when the DOW touched 13000. So, (a) Being a grad student then, I couldn't afford to lose any more money (b) I thought I had learned a lot from the follies of my buy-and-hold approach, read about TA and was anxious to implement what I had learned, or at least thought I had learned, from my mistakes. I admit there was a little bit of another reason involved too - I wanted to trade because I wanted my hard earned, though foolishly squandered, money back from the markets. Now, I do realize and accept, the last reason is the perfectly wrong reason to trade and I would advise any of you newbie traders to try and get this emotion out of your head. It will do your trading more harm than good.

It didn't take me long to realize, that you can read all you can about trading, but you are still on your own when it comes to trading with real money. During the first three-four months, I had good days and bad, struggled to stick to my stop losses and did have crazy swings in my account. I consider it no small achievement that I was able to end 2008 with pretty much the same amount of money in my account that I had started with three months back.

And then came 2009. 2009 was different....very different. It seems I haven't written anything in this post about the effect of commissions on small accounts, the reason why I had actually started writing this post. Oh well....As I get older and older and age begins to catch up with me (I am on the wrong side of 20s), I find myself thinking and talking about the good ol' days more and more. Sigh! Anyway, I will continue with this post very soon. I go into how I started and what mistakes I made in my early days of "investing" (I would call it gambling now) in my introduction. I am sure a lot of you experienced readers will be able to relate to some of the mistakes there (because I have made them all!) and hopefully, the newer traders will be able to learn something from my mistakes.

Take care.