Little Steps, Big Moves – Trade With A Small Account

2022-04-29

When traders begin their trading journey, they may be intimidated by the large account sizes of successful traders. Sometimes this causes those with less capital to fear their trading strategies won’t have big results.

Trading with less money is not only possible, it can be beneficial when the market is making unpredictable moves. Take little steps to catch these big moves when you want to trade with a small account.

Self-discipline is a critical trait for traders and having less capital forces traders to take seriously their stock selections and setups.

The team at Simpler Trading has helped many traders get going and gain the confidence needed to move from little to big setups that can result in winning trades.

(Check out the free video, above, for insight into trading this changing market.)

Day trade with a small account

Day trading is a viable solution for traders with small accounts trying to navigate a volatile market.

When traders select day trading strategies, they can have more control of the smaller, micro-environment of the market. These strategies focus on analyzing shorter market time frames instead of trying to challenge the more uncertain and bigger picture of the market environment.

Many of Simpler’s traders have used day trading strategies to grow their accounts – especially during choppy markets. There will be opportunities every day for day traders

When traders work with small trading accounts, they have the possibility to gain a high percentage of profits. With day trading, the focus is not as much about the amount gained, but the percentages of the return.

Multiple day trades potentially lead to a bigger percentage of gains vs. managing small percentages on larger accounts. Having the ability to target winning trades in seconds, minutes, or days is powerful. In this current market environment, even longer-term swing traders gravitate toward day trading as it is another tool in the trading toolbox that works during volatility.

Having success as a day trader requires carefully defining the risk-to-reward ratio with each setup. Traders need to discipline themselves to only take trades where the reward greatly outweighs the risk.

By calculating this ratio beforehand, traders know exactly how much is at risk before entering a trade.

Day trading setups allow traders to take advantage of quick, high-return moves that happen every day in the market regardless of market conditions.

How to begin trading with a small account?

There are many different online trading platforms to choose from, however traders at Simpler tend to gravitate to thinkorswim®. Other popular trading platforms are TradingView, TradeStation, and tastyworks. Ultimately this is a personal choice based on trading style (such as swing trading or day trading) and goals.

Many traders begin their trading journey by “paper trading.” If traders are not ready to trade with real capital, paper trading is a great option. This enables traders to practice with “pretend” money until they are comfortable using their own in the real stock market. Most trading platforms have a paper trading option.

Once comfortable, traders can start with a small amount of capital to grow their accounts as they practice. Some traders begin with smaller accounts ranging between $2,000 to $5,000. Some traders start with as little as $500. This is a choice based on personal risk tolerance.

The most important tenet for traders to learn is that consistency is key. Consistency has the potential to lead to profits in any market condition.

Working with the pattern day trader rule

There are many traders who enjoy the shorter time frames of day trading. One reason traders like this “in and out” strategy is because their capital is at risk only within the same day. This means they don’t have to hold on to capital risk overnight. That means less tossing and turning – less stressful.

Another reason people like to day trade is only devoting a few hours to trading each day. Focus hours are during morning market sessions and into the market close. This means day traders avoid being glued to computer screens or mobile devices all day.

Because day trading is considered risky, there are strict rules surrounding it. For most traders to be able to take advantage of day trading, they are required to have at least $25,000 in their account. This is the pattern day trader rule – or the PDT rule.

The PDT rule states that traders who have over $25,000 in an account are not limited to the number of day trades that they can execute. This is because it is assumed they have enough capital in their trading account to take on what the brokerage firms considered a riskier form of trading.

Traders with smaller trading accounts have limitations on how to day trade. The PDT rule limits traders with less than $25,000 to three day trades over a five-day rolling period. Traders who exceed these limits risk having their accounts frozen for up to 90 days

It is still possible for traders with less than $25,000 to day trade. There are solutions and strategies to avoid violating the PDT rule. This is all part of a risk management plan for day traders, which is needed to maintain discipline with this style of trading.

Traders at Simpler can follow the Profit Recycling Strategy which can allow  traders with small accounts to take advantage of the intraday moves. Allison Ostrander, Director of Risk Tolerance at Simpler Trading, used this strategy to grow a $10,000 account to more than $43,000 in about 90 days.

Profit recycling takes advantage of big moves in the market. These moves can happen quickly and open up opportunities for intraday style trades. With these setups, traders are in and covered on the trade within the same trading day, as they protect capital, lock in a profit, and take advantage of volatility.

The $500 challenge for new and experienced traders

Allison also created the “$500 Challenge” to encourage anyone who wants to start with little steps before tackling big moves. The goal is to help traders understand there can be benefits of short-term trading with less capital requirement.

Can it work when the market is down?

The market gapped down heavily today (all three major indexes dropped), and Allison bought a butterfly on SPX (S&P 500) for $1.80 ($180) in her $500 account challenge. She closed this trade for $8.07 ($807) 30 minutes later – a 348% return against risk.

Essentially, the market sold off all day and Allison took the stance that it would continue to sell off into the close and pin right around 4,130 (the S&P 500 closed down 3.63% on the day at 4,131.93).

The idea is that the risk on less capital means traders aren’t risking their house payment. These trades are designed to take advantage of discretionary funds to open a trading account. You have to be willing to lose what you trade.

Ideally, through the $500 challenge, traders will grow the small account and then be able to use any profits as they want. The plan is to see how much traders can increase the original $500 by the end of each month by using this disciplined trading strategy.

Micro E-Mini Futures for big trading potential

Volatility has prevented many traders from taking advantage of the potential that stock index futures offer. The increased volatility causes the leverage in full futures contracts to keep traders with small accounts on the sidelines – the margin for risk is too large.

Micro E-Mini Futures offer the opportunity for traders to get in the game and identify lower-risk trades. Traders who follow micro-futures learn how to spot “outliers” and exploit “dumb money” in the market.

Simpler trader Jack Roberts, Director of Options Strategies and Micro-Futures at Simpler Trading, says his favorite way to grow small accounts is using the micro-futures formula. Jack shows traders how to trade micros no matter their account size. This strategy is designed to grow accounts while managing risk.

Jack teaches the formula that allowed him to grow an account 500% in just a few months. With Jack’s micro-futures formula, it’s possible to generate returns with fewer risks.

Scalping adds up to small-account dynamic trading

No trader wants to watch their money disappear in choppy market conditions as they are sidelined from losing trades. The markets can be brutal and unforgiving. This is when traders can benefit from using tested trading techniques such as scalping.

Scalping allows traders to maintain account growth and catch explosive trades even in the choppiest conditions. Scalping trades can range from a matter of seconds to minutes. Scalping can be a high-potential approach once traders learn this strategy. 

Scalping allows for a lower capital requirement, but with scalable gains.

This system is designed to help traders with any account size make potentially low-risk/high-reward trades in a short period of time (less than an hour a day).

Chandler Horton, Director of Day Trading Strategies at Simpler Trading, uses scalping to take advantage of market volatility as well as the strong pops and drops in price that suddenly appear. Once Chandler has set up his trade, he moves out of the way.

Scalping is arguably one of the most inexpensive ways to trade. Chandler is passionate about helping other traders discover his “Options Scalping Secrets” that he applies any way the market turns. 

As Chandler says, scalpers don’t chase trades – they take advantage of what is in front of them.

Learn more about trading with less money

Whichever path traders choose, the ability to start small while using tried and tested trading strategies can result in growth for a small trading account.

Having limited trading funds doesn’t have to be a “deal killer” for a trader beginning the trading journey.

Simpler’s traders are always aware the trades that will never be winners are the trades they don’t take.