A Small Trading Account
I am constantly asked about why I wire out my account every month. My first response is always, I’m not comfortable with my money being off shore, but the reality is Suretrader has a bank here in the US that they service their US clients with, so that reason is a little weak. (To read more of my thoughts on Suretrader, where you can trade with $500 min, read my blog post here) My fear of not having enough money to pay my taxes is another reason but if I lose it all, I wouldn’t have to pay taxes on it anyway so that argument is also weak. I also say that I want to protect my gains, which is true. I like the feeling of having my gains safe from the chance of me giving it back. Am I a coward? Do I not have the true mindset of a day trader? These are the questions that I get asked, and I also ask myself at times. The truth is, for some reason I didn’t realize until this weekend, I am more comfortable and successful trading with a small trading account. My trading strategy was and is based around growing a small trading account. What is it about trading with that mindset that makes me comfortable and more focused everyday in the market? I never really had an answer until now. One book I read over this weekend unlocked the mystery of why my strategy works.
The Large Trading Account Experiment
You see for a few weeks I tried trading with a larger account well over the $25k PDT rule. I felt this was my time to take off and not look back. It was an epic failure. I only lost about $1500 over a period of 6 weeks because I did have my risk management strategies in tact. It was like I forgot who I was overnight. I couldn’t see my setups like I used to. I found myself trying to follow larger traders. I felt I had to trade like them since I was where they were. My whole mindset toward trading was different. I spent too many days watching the market in a daze, not knowing what to do. I was completely lost, just like I was when I first started trading. Toward the end of this trial I began getting some professional help from a retired hedge fund manager. I felt that I needed to get some guidance from someone who was used to trading with larger sums of money. I got good advice, but that wasn’t my problem. I had lost my identity as a trader.
After this experience ended, I refunded my Suretrader trading account and almost immediately regained my identity. I felt that maybe this was as far as I would be able to go. I mean I almost made 100k for the year trading with my smaller account. I truly believe I would have hit my goal if I had not tried to trade larger. But at this point I had accepted the fact that I did not have what it took to trade larger, or that I just wasn’t ready yet. I decided to increase my base account size I started every month off with from 5k to 7.5k at the beginning of 2016 to see how I did with it. It has worked out great. At the beginning of the month my share sizes are smaller and I gradually build up my size as the month progresses, providing I am making a profit and my buying power is increasing. Why does this work so well with me? I mean for this month of February, I started with 8k and I am up 13,688.89 for the month. Just by employing the same strategies and increasing position sizing as my buying power grows. I just couldn’t understand why I can do it with Suretrader, but when I made the switch I folded up like an envelope.
The Power of Broke
I mentioned earlier that I read a book over the weekend that unlocked everything for me about how I am able to trade better with a small account versus a larger account. The book is titled, “The Power of Broke”, by Daymond John, the creator of the clothing brand FUBU, and more famously known as one of the sharks from the hit TV show “Shark Tank”. It talks about when you are broke, how having not a whole lot to lose and everything to gain drives you to dig deeper and work harder to get it. That “sometimes having your back against the wall, leveraging your last dollar, and having no place to go but up; because if you have to succeed to survive, you will.”
This is exactly the mentality that had driven me for the past 2 years. I never knew it had a name. It is what kept me up until 2 am studying charts of my trades, other traders trades and trying to identify setups. It is what woke me up at 6 am every morning to get ready for the market before I had to go to work. It is the Power of Broke that still drives me everyday to work harder and smarter than the next guy. That 90% failure rate of new traders may just be a little low. It may be a little higher. I can tell you about 2 traders, one being myself, out of 25 who started this journey into trading together, that are still in the game. We worked harder and longer than everyone else. We were driven to succeed. You see we were older, had small kids, wanted to spend more time with our families, wanted make sure we could provide the educational opportunities our children would need to make it in this world, and were essentially broke. We had tried for years to make it the traditional way. Working a 9 to 5, trying to save $ and provide a comfortable life for our families. To put it simply, we had our backs against the wall. We had no other option other than to do what it took to succeed. This was the mindset that we have. The Power of Broke.
I know everyone has seen the “Rocky” movies but I want to specifically refer to “Rocky 3”. When Rocky got his block knocked off by Klubber Lang at the beginning of the movie, he had lost something. The money and fame caused him to lose his hunger. His will and desire to win at all costs. You see, he wasn’t broke any more. He wasn’t hungry. He wasn’t hurting for anything. He didn’t have that fire deep down inside that burned because he had to win to survive. All of it was gone the minute he experienced the success of being a champion. Apollo Creed described it best. “You lost your edge…… You didn’t look hungry. No, when we fought, you had the eye of the tiger man. The edge. And now you got to get it back. And the way to get it back is to go back to the beginning”. He had to find that hunger again to get that edge back.
That is exactly what happened to my mind when I switched to a larger account. When I looked at over 200k buying power after being used to looking at 30k to 60k, I felt I had made it. I felt like I didn’t need to be who I was, that I could be that guy that I always saw as a successful trader. Suddenly I didn’t feel like my back was against the wall. I’m here to tell you it makes a difference. I needed that hunger to drive me. I needed that hunger to keep me moving forward. That’s why the minute I switched back and I was back to square one, where I started, everything fell back in to place. I needed that lesson. I needed to understand how I worked and what I needed to be aware of as I progressed in this industry. I am very thankful that I had this lesson when I did. Now, when the opportunity presents itself again, I will be ready.
Unlocking the Secrets of Trading Success
I feel that I have finally unlocked the secret of my success as a trader. The Power of Broke only works for you if you tap into it and put it to work. You don’t have to be broke financially to use this power. The Power of Broke is a mindset. There is tremendous power in it. The more you need to succeed, the more likely it is that you will succeed. The more you’ve invested, not a financial investment but an emotional and personal investment, the more you will get back in return. This is the fuel that will power your passion. The fuel that keeps you driving forward when everything around you says quit. Tap into it. It is there for anyone that wants it.
So what have I learned. I need to keep the Power of Broke mindset throughout my career. It is what drives me. It is what drives my trading strategy. It doesn’t matter how much I make or how much I keep in my trading account, I will always keep that hunger, that desire to grow, that desire to get better. I will have a goal every day. I will do my homework every day. I will bring my passion to the market every day. I will remember I am “The Average Joe Trader”. And I will always remember the ways of the shark. Even when a shark is sleeping, he is still swimming, still moving forward, still ready to attack when an opportunity presents itself. You see if a shark stops swimming, he will die. In order to succeed in this industry, you have to live the ways of the shark. You can find out more about the SHARK mindset here: “The Power of Broke”, by Daymond John and download the shark points. I know this book is written more for entrepreneurs looking to start a business but if you think about it, as traders that’s exactly what we are trying to do.
This article was written by Ed.