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Trading with a Small Account – Can YOU Succeed with $1,000?

I wish I had a dollar for every time I heard this question.  The answer is — I don’t know!  Yes, it can be done but, honestly, it’s doubtful.  I hate to disappoint you.  Most traders do not succeed.  Whether you have a small account or a large account, it probably doesn’t matter nearly as much as whether you have taken the time to learn how to trade and to master yourself.  Traders usually fail for reasons that have nothing to do with their available trade capital.

Now that I have that disclaimer is out of the way, I will offer you a more optimistic viewpoint.  YES, it can be done.  There are steps you can take to succeed with a $1,000 trade account.  Let’s take a look at them one at a time.

STEP 1: You Are Limited to Forex.

That’s it.  Forget futures and forget stocks.  You will need a broker that allows you to trade micro lots.  Do not even consider trading anything else.  By trading micro lots, you can put small risk on every trade and build your account slowly but steadily.

STEP 2: You Must Invest in Yourself and Your Training.

Key elements to success, whether you are trading small or large cannot be overlooked or you will fail.

Foundation:  You have to do research.  This can only be achieved by manual backtesting.  There’s no substitute for this important first step.  I call it the ‘ditch-digging’ of trading because in order to create a strong foundation, you have to dig ditches to pour the concrete.  Backtesting will give you the preliminary knowledge and understanding you need for your chosen market(s). There is NO other way, in my opinion.

Trade Plan:  You need to do the necessary research to create a trade plan that gives you a winning edge in the market trading forex.  Whether you are swing trading, day trading or a combination of both, you need to have a trade plan that puts the odds in your favor on every trade.  Without one, you’re dead in the water.  You’re better off ordering vegetable seeds from the back of Boys Life Magazine with your $1,000 and selling them door-to-door, like I did when I was nine years old.  At least that way you’ll get used to doors being slammed in your face, which will help prepare you for facing a losing trade with the proper point of view.

Discipline:  This is an acquired skill.  You might think you can sit in front of your charts consistently, day in and day out, and follow your trade plan.  It might look easy when browsing charts when the market is closed.  Doing it for real is an entirely different thing.  Can you do it?  Only you can answer that and it won’t be answered with words.  It will be answered only with your own actions.

Can you follow your trade plan?  Make sure you spend all the time and effort necessary to PROVE you are a disciplined trader or you will NOT succeed with a $1,000 account or even a $1,000,000 account.

Perspective:  So many traders fail to realize how important this is.  Can you elevate yourself above your forest or are you a trader who is constantly running around amongst the trees trying to avoid getting crushed by those that fall?  You have to trade the edge that your trade plan gives you and NOT worry about whether a trade wins or loses.  They will.  Both will occur.  With a small account, you will only succeed by trading the edge you achieve by your trade plan and then applying it.

Money Management:  If you have achieved discipline and the proper perspective, you should be capable of employing the proper money management techniques required to trade a $1,000 up to a substantial sum.

I like to point to the example of Chris ‘Jesus’ Fergusen, the great professional poker player.  He showed how it can be done in much the same way that we would want to do it.  He determined that due to his higher level of skill, that he would make the money round of a 9-person ‘sit and go’ poker tournament fifty percent of the time.  In other words, part of his edge was to make money 50% of the time he played an online poker tournament.  The other part of his ‘winning edge’ was the money management strategy he employed.  He would only risk 5% of his bankroll (his trade capital) on any tournament.  That way, he was always sure to win more when he won, than lose when he lost.  He could lose 50% of the time, but it would be less than the amount he won, the other 50% of the time.

Ask yourself this:  Did he care if he lost a tournament, so long as he stuck with his winning trade plan?  He would NOT serve his purpose if he did.  There’s no room for that kind of frivolity in executing a winning trade plan in the market.  The market doesn’t care, right?  Nor should you!  You should care about executing the plan correctly.  That’s it!  Easier said than done though.  ACTIONS speak here.  Not words.  Prove it!

Jesus Fergusen turned $1.00 into $20,000 in two years following his plan.  He proved it by doing it!  He started entering .05 tournaments, which was 5% of his starting $1.00 bankroll.  After some time, he had doubled his money and was entering 10-cent tournaments and so forth until he had amassed a $20,000 bankroll.

Record Keeping and Tracking Your Progress:  You have to measure your results.  The more detail you have on your trade data, the better off you will be.  I use a tool called the Ultimate Trade Analyzer (UTA), which is a powerful pre-programmed spreadsheet that allows me to track the stats of my trades.  It also allows me to apply a similar money management strategy as Jesus Fergusen used.  It’s a ‘Fixed Fractional’ money management strategy and by adhering to it, you CAN trade a small account into a big one IF you’ve covered the above points.

Practice Makes Perfect:  Prove you can execute your trade plan.  Make 25 mistake-free trades in a row in a simulated account.  If you make a mistake, start over again.  If you can’t do this important step in a sim account, what makes you think you can do it with real money?  You won’t be able to.  Make this your final step before implementing your trade plan with your precious $1,000 trade account.  Track your results in your spreadsheet.  Apply your money management technique and increase (or decrease) the stakes per your trade plan like you would in real trading.

STEP 3:  Patience and Professionalism:  Treat your trading as a business.  Be the facilitator of your trade plan and the operator of your trade business. Learn to “lean on your system” and let the edge of your trade plan do all the heavy lifting.

I began tracking the real live trades I was calling in the trade room with the EURUSD 5 minute chart using the Seven Summits Trader (SST) trade plan that was published in the SST Owner’s Club.  Traders were taking these trades as I called them.  I don’t know of anyone who stayed with the plan but I tracked all the trades.  I began with a $1,000 account size and applied 3% risk on every trade using the Fixed Fractional Money Management Strategy with the UTA.  I tracked the first trade, beginning on July 29th up until December 22nd, when I took an end of year holiday vacation.  Sticking to the trade plan, with discipline and all the steps described above, here are some numbers that should offer you encouragement and inspiration:

Trading a standard SST, 2 position approach, beginning with micro lots (10 cents per pip) and NOT applying the fixed fractional plan resulted in +2,807 pips of profit.  At 10 cents per pip and applying a 1 pip spread cost resulted in an ending balance of $1,280.70.  In other words, the trades made a 28% return in about 4.5 months. That’s about a 70% annualized return.  Not bad, right?  Who wouldn’t want to make a 70% per year.  Of course it’s hard to get excited about making just $280.70 with 4.5 months of trading, 2.5 hours per day, right?  Hey!  You only got a $1,000 bucks so what did you expect?  That being said, let’s take a look at the result of the very same trades, using a smart, fixed fractional money management strategy, a la Jesus Fergusen.  He used 5%.  We’re going to look at 2% and then 3%.

Using a 2% risk profile, with the exact same trades, one would have traded up to 128 micro lots by the final trade and would have ended with an account balance of $12,790.60.  That’s sounding a lot better than the above example of just 2 single micro positions, right?  This trade plan won 72.46% of its trades, which is quite a bit better than the 50% edge Jesus Fergusen had.  With such a good winning percentage, maybe one could justify bumping the stakes up a little.  3% maybe?

Using a 3% risk profile, one could have traded up to 660 micro lots per position, which is 6.60 full size lots.  The ending balance in the account would be $43,420.20, with most of the profit coming in the last month of trading.  There is an exponential curve that occurs with this kind of money management strategy.  Lean on your system and be patient.

How about 5%?  I wouldn’t recommend it.  The next 4.5 months might not do so well.  Markets change.  You need to be able to weather the drawdowns and survive the one-step-backwards so that you are there to take advantage of the two-steps-forward when they occur, which is how all winning trade plans work.  The beginning of 2012 was tough.  It has been profitable and is at new record profit levels but 5% risk might have knocked you out of the markets.  But just out of curiosity, let’s take a look anyway.

Using a 5% risk profile, one would have traded up to 10,000 micro lots, which is 100 full size lots per position. The account would have grown to $385,882.91!!  Wow!  Makes you think, right?

STEP 4: Do It!  Begin Trading Your Real Funds:  If you have accomplished the above, you will be in the best possible position to succeed with your $1000.  Can it be done?  Yes!  Can YOU do it?  I don’t know.  Only you can answer that and that can only be answered by doing it.  Forget words.  Words are cheap.  Your actions and deeds will reveal the answer over time.  Prove it by doing it.

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