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How to Grow Your Trading Account,

Jack and Jill are two hypothetical traders with different personal motives which lead to different plans for their trading profits. Keep in mind that both Jack and Jill have the same trading strategy.

Jack is a part-time trader looking to pull some money out of the market each year to supplement his income and help pay for his boat. Hypothetically, the same trading results will cap his earnings going forward, although it allows him some additional income each year. Every year, though, Jack’s account resembles these figures:

Jack: $100,000 trading account, withdrawing profits annually:
Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $20,000.00
Ending: $100,000.00

Jill is a full-time trader who is performing the same as Jack each year, making 20%. Her husband works and they live off his income, which allows Jill to leave her trading account and subsequent profits intact. Jill begins to make more and more money every year with the same 20% performance. Look at the rapid growth Jill enjoys in her account:

Jill: $100,000 trading account, leaving profits intact:
Year 1 Beginning: $100,000.00
Profits: $20,000.00 (20% return)
Withdraw: $0.00
Ending: $120,000.00
Year 2 Beginning: $120,000.00
Profits: $24,000.00 (20% return)
Withdraw: $0.00
Ending: $144,000.00
Year 3 Beginning: $144,000.00
Profits: $28,800.00 (20% return)
Withdraw: $0.00
Ending: $172,800.00
Year 4 Beginning: $172,800.00
Profits: $34,560.00 (20% return)
Withdraw: $0.00
Ending: $207,360.00

WOW! Jill more than doubled her trading account in 4 years, whereas it will take Jack 5 years to double his initial stake. For Year 5, Jill would only need to make 9.7% to match Jack’s profit of $20,000! Or, she could match his 20% performance and more than double his profits for the year.

We all know the amazing results of compounding money, but hopefully this example of two hypothetical traders will get you thinking about what to do with your trading profits. If the freedom to access your trading profits each year is something you need, then regular withdrawals are for you. However, if you’ve got the savings put aside or an additional income to get you by, leaving your profits in your trading account even for a few years can do wonders for your trading results, even if your methodology never improves!

Is bigger always better?

When it comes to your trading account, that’s a question only you can answer. Speaking generally, a trader with poor discipline needs the smallest trading account possible so that he can do the least amount of damage! The remaining traders who aren’t willing to risk blowing out their accounts can see the benefits shown above. Some trading styles are naturally more capital-intensive (pairs trading) or less capital-intensive (scalping one trade at a time). If your style isn’t one which requires a great deal of buying power, then you might want to pay off the house or cars with that excess capital and buy yourself some financial freedom in the future.

So how do you grow a trading account?

Good trading is the short answer, but there’s a longer answer if you want it. The decision to leave your profits in your account is an important one. Having a secondary income from another job or your spouse can help minimize the initial impact of leaving your profits intact. Having a savings or checking account big enough to get you through several months can also make it easier. By making the commitment to retain profits in your account, you’ll soon see that your current level of performance is going to mean even bigger profits going forward. In Part 2, we’ll take a look at a pair of hypothetical traders in different situations with different plans for their profits.

How to Grow Your Trading Account

You and I may have different trading strategies and styles, but our goal is the same: extract profits from the market. I love trading, and I hope to continue doing it one way or another for many years to come, no matter how large I can grow my account.

Account sizes vary from trader to trader, and not just due to different financial situations. Some traders sweep excess funds at the end of the month out of their trading account, while others leave the majority of their money in their trading account feeling like it’s the best place for it.

Better trading means a bigger account, right?

Isn’t a growing account the result of making profitable trades? Well, yes and no. It is not necessarily the same as just making money trading. After all, you can be a profitable trader and as long as you are withdrawing the profits from your account it won’t get any fatter! Growing your account is the result of profitable trades, yes, but also results from a decision on your part to commit to leaving those profits alone.

Why trade a larger account?

Trading a larger account has numerous benefits if you’re a disciplined trader:

* Your buying power increases exponentially.

* The same trading performance which led your account to the current levels will mean even greater profits going forward.

* Your money will have the ability to compound, getting you ever closer to those financial goals of yours.

* Making the same income you’ve come to expect from your trading will mean you won’t have to achieve the same percentage returns. In essence, it becomes easier to make the same money, because you can be a more selective trader and only participate when the market acts like you want it to.

Eyes on the Prize – Goals are the heart of our expectations, but the groundwork needed to be put down before we tackled this topic. Having a target to aim for is imperative in any endeavor, and trading is the same way. Goals will allow you to measure your progress and stay on course as you strive to reach them. When setting goals for your trading, be realistic, be willing to adjust, include your emotions, monitor your progress, and most importantly put your written goals where you will see them. Your trading goals will keep you on track and motivate you to grow your abilities as well as your trading account!

The Chameleon Trader – Successful trading requires adaptation. Being willing to change, expecting change, and learning how to change will be the keys to your survival as a trader. You may need to adjust your trading method, your position sizing, and your personal spending habits along the way in order to continue growing and succeeding as a trader. Ultimately, you’ll only be a complete trader once you’re willing and able to adapt and change when what you’ve been doing no longer works as it should.

Writing this series has forced me to take a look at my current situation and trading goals, which is always a good thing. Trading sure isn’t easy, but deciding on a direction to go with your own trading should show you some immediate improvement. I certainly hope you’ve benefited from this series. If you have, please feel free to share your comments and insights here with the rest of us! Your ideas just might be the missing ingredient for the next person who comes along. Thanks for reading and I’ll look forward to more interaction with you going forward!

Great Expectations Series – Conclusion

The Great Expectations Series for traders has been fun to write and I hope you’ve gained something from it. The aim was to take a closer look at several aspects which combine to make up our expectations when it comes to trading. Although “expectations” could be interchangeable with “goals,” there is definitely more to the story! Let’s hit the highlights and wrap this up.

Personal Inventory – Take a good look at your resources available to you. This includes your time availability, your tolerance for risk, your personality traits, and of course trading capital. Each of these elements are separate but related things to consider when setting out to determine what you can expect from your trading.

Blending Your Style With the Current Environment – Gauging how the market is behaving on your timeframe will allow you to trade aggressively or walk away when the time is right in order to improve your profits and limit your losses. Networking with other traders is a great way to keep tabs on several trading methods and timeframes, helping you to know what is working and what isn’t. Knowing how and when to apply your abilities and resources will help you reach your goals faster and easier.

The Edge of Greatness – Every trader wants to become an overnight success, but the reality is that it might take some time. There is definitely a learning curve involved, and knowing that on the front end will help you remain patient and make good trading decisions. Starting out slowly and trading in small size can build confidence, allowing you to step things up when the time is right. You’ll also be able to improve your trading by adding new methods as time goes by, giving you opportunities to locate profits in different kinds of markets.

The Road Map – Good trading involves having a game plan, and your road map is the trading strategy you will implement. Whether you’re day trading or swing trading, knowing your timeframe and some entry and exit parameters will put you miles ahead of the crowd. Lasting success as a trader will come from practicing and refining your trading strategy day in and day out.

Your position sizing should be varied as you endure stretches of profits and losses. Your account will swell at times, and on other occasions it will shrink. Knowing this ahead of time shouldn’t scare you, but rather help you prepare for how to respond when it happens. The idea is to press things when you’re right and back away when you’re wrong. So, when you have a great month, for example, it is likely you’ll want to increase your trading size to go along with your larger account balance (unless you wire out all profits at the end of the month, which I do not). Notice I did not say increase your risk, as that’s a completely different subject. The objective is to keep your risk level proportional to your account size, which will mean naturally larger positions as your profitability expands your account balance.

Finally, stay aware of your personal spending habits. That might catch some of you off guard, and although it is rarely mentioned, I still think it’s incredibly important. A good week or month or year can easily lead to excessive spending with the surplus of cash on hand. There is nothing wrong with this at face value, but it’s all relative to how much of your profits you’re spending. What you want to avoid is the pressure you will face if you’re required to take on more trading risk in order to support your spending habits. Living well within your means (especially early in your trading career) will build a great foundation which you can always build on. It’s easy to increase your personal spending, but it’s very difficult to decrease it once you’ve grown accustomed to a certain lifestyle or level of comfort. Strive for a balance with your trading AND your spending. Creating big monetary needs early on in your trading career (or right after one outstanding stretch which may be hard to reproduce) will likely only lead to more pressure on your trading, which is NOT a good thing! Always keep that in mind. There will be some rough stretches of road in trading which aren’t fun, but they are far easier to navigate when the financial pressure is diminished.

In the end, you’re not a complete trader until you are willing and able to adapt. The best-capitalized trader with a sound method and excellent discipline will at some point encounter a changing market, and only his ability to change his approach will allow him to continue growing and succeeding as a trader.