The Importance of Rules While Growing a Small Account

2020-09-22 | Jack Roberts

Since July 7th, I have grown an $8K account into roughly $60K. One of my favorite things to do is compliment my options trading with profits from trading Micro E-mini’s. It’s nice to have consistent wins that, overall, have obvious net positive influence on your P/L by the end of the week. Truthfully, it’s been like this every week, until this week of course. This week was probably the most stressful week I have had since the beginning of the year for a number of reasons. I want to dive into these, but let us not lose sight of forward-looking goals to get this account to $100K by the end of the year. Let me recount the past two months in efforts to shed light on what is possible versus what is realistic in the current market environment.

Yesterday was September 17th and the elephant in the room is the rotation out of tech and the Nasdaq puking us into Triple-Witch Expiry. Now everyone shouts “yay” sarcastically, and let’s admit it – that’s the vibe. But even though I had a relatively successful week, I endured losses that reminded me of the old days. It was a little bit of crossing the fingers and hoping that due to the volatility, maybe AMZN would trek back up and my butterfly I put on Monday would not be so worthless today. Well, that didn’t quite work and I had to stomach the full loss. The humorous side of this is everyone seems to be collectively thinking “let’s see what happens on Monday”. And of course, that is clearly -or should clearly- be the plan.

In light of the volatility, the giant swings in the Nasdaq, the dollar “trying” to break out, the market internals being sloppy half the time, and just having to generally manage small losing positions for the second half of the week: I am worn out. But let’s take the turn out of negative-world and turn it into a positive. My small account is up in a major way and I intend to grow this like I said to $100K by the end of the year, but also I want this to be my first 7-figure account by 2025. I consider this realistic for how I trade, and frankly the better I trade, the higher the P/L. It’s a common mode that I enter once I start trading a 6-figure account that I naturally become more careful and actually tend to focus more and really shine. That being said, I know a bunch of successful traders that are quite the opposite and tend to struggle as accounts grow larger and I like to think I’ve had my teeth kicked in one too many times in my 20’s to start allowing bad habits to creep in again.

Here are the lessons I learned.

Trading Lesson #1: Trading is a journey to the inner-self. Every successful trader knows this to be true, and if you haven’t dealt with emotional trauma or you’ve neglected the “inner-work,” well then you can think you have all the edge in the world but human behavior is such that unrealistic goals mixed with no discipline is quite common and, like I said, a recipe for disaster. But Ye, behold! This is not the case right now for me! Every trader has to realize that it’s your job to manage losers and that just because the beginning of the week starts off solid as can be, the market is still there trying to rip it from you once you start slipping on your “morals”, or in this case – not trading your plan.

My beginning trades really helped me out as they were Butterflies on NFLX and of course scalping micro-futures was, and has been, a successful venture. I then continued momentum plays buying delta 70 calls on high volume options on high beta stocks. I mainly stuck with ZM, TSLA, NVDA, DKNG, FSLY, WKHS, and the list goes on. By August, the account was up to $30K and I was focused and still relaxed. I continued to carry on and just managed small losers and took profits early on some really nice bullish trades on the names above.

Trading Lesson #2: Euphoria takes you from reality if you let it. One of the main reasons why I like growing small accounts is because it essentially is like taking your discipline muscle to the gym, a reminder of strict discipline needed to trade successfully. There are a lot of external factors when growing a small account, things like the day-trading pattern rule and lower buying power. Things like this always tend to be pet peeves, but if you can get past it then all the better. I realized every time I grow a small account, that position size and admitting loss are still the most important things to consider, you can call it magic, it’s not – It’s the keystone and foundation of my trading. So, as I continue to grow the account I change nothing. Am I a little salty about taking some Thursday/Friday losing trades? Duh, naturally I always am. But I force myself to detach emotionally, I breathe.

The question is, what exactly is working. And I’ll tell you. I have three key setups. Buying delta 70 calls in lower time-frame bullish squeezes (ranging from a 15 min to an hourly) for an intraday momentum play. This usually takes place the day of or second day after the 8 SMA crosses through the 21 SMA and even better if we open up with above average volume exactly like how I played MCD on Wed. for some nice and quick $2k gains. Same thing with WKHS, and hopefully I get the opportunity to apply the same setup next week. The next is bullish put credit spreads mixed with calls in TSLA to catch short covering rallies, this can be a swing trade or an intraday momentum play, you might know this guy named John Carter that might be familiar with this. Last, but certainly not least, the morning, evening and -yes- overnight micro-futures trades that I discussed earlier… trading Micro E-mini’s helps me:

1. Pay for small losses
2. Compliment gains
3. To have more exposure in a volatile market and allows me to take a lot of smaller profits and to my surprise sometimes large ones, even on only 2 or 3 /MNQ contracts.

This is definitely a market where sometimes “things are not as they seem’. Just watch your position size and just know that while it’s fantastic to have quick gains, just know that by sticking to the appropriate position size and not chasing (meaning only trading your setups) -you, too, can trade successfully just like me. No doubt these are trying times but just know that volatility is a great thing as an Options trader and that there is constant opportunity.. I always say, be grateful for what the market gives you and move on. I’ll end with this: one of my favorite things that John Carter has taught me over the years has been if it’s not going your way, “trim it off, you’re probably wrong” and “your job as a trader is actually to be a professional loser.” This is paramount to mitigating risk and it’s definitely a hard one to swallow if you are new or even just still struggling. So I say, a small loser is still a winning trade.The more you experience this, the more you grow to understand that the market is filled with paradox, irrationality, and your ego will prompt you to react in negative circumstances because it’s survival, and then usually a life-lesson from the trading world presents itself to add salt to the wound. Just think, if you have discipline and setups that you stick to, trading can actually be super fun and easy – and it should be this way. The takeaway from all this? Again, like John Carter says, “making money in the markets is easy, holding onto it is the difficult part.” We’ll see you in the next update, happy trading.