Most people start learning to trade with a small trading account. The idea is then to grow that account into something that will allow them to withdraw regular profits.
There are two ways that people go about trying to achieve that, one of which involves high risk and a determination to do it quickly. the other approaches the market with caution and understands it is a long-term process which approach do you think ends up as a statistic in the 80% of retail traders who fail to ever achieve consistency.
so let's run through the process of growing a small trading account the first point is to accept that you have a small trading account that may sound obvious but so many people ignore that key point completely you must accept that you are not going to be making any sort of income you can hope to live off of for years and usually at this point the majority of people think this guy doesn't know what he's talking about I'll do it fast as you start to learn to trade you must be willing to take the correct approach from the start one approach is short-term thinking They want to be traders now with minimal efforts.
They see other people making large amounts of money and don't appreciate that it took those people years to master their craft. They believe they can grow their account fast, take huge risks, and then trade properly later. At the end of a couple of years, there will be two outcomes. the high risk approach will be no further forward they will have blown multiple accounts it will have cost them a considerable amount of money and they will still be convinced they can do it fast and be overnight millionaires the sensible approach will grow their account slowly they have a much better chance of achieving their goals at the end of the couple of years.
when you go live a huge component of trading successfully is learning to manage your emotional response to uncertainty if you do not know how to trade your plan properly and are suddenly dealing with the stress of a live account you are setting yourself up for failure when you are a beginner with a small account it is always best to learn safe The likely outcome of jumping straight to a live account is losing your account and having to start again, which will require refunding the accounts.
The third point to help you grow a small trading account is to risk small. Again, this is contradictory to the risk big to make big attitude, and there is a reason professional traders follow the small risk approach instead of thinking that if you risk 10%, 15%, or 20% of your account on any trade, you'll double your account quickly.
The risk is small and builds slowly. Allow yourself room for mistakes and runs of losing trades. If you risk 10% of your account per trade, your account is gone after a run of 10 losses, but worse than that, it encourages emotional trading. Losing 10% of your account at a time is tough to take; it can cause further mistakes, which is what then usually leads to the 10 losses and wiping out your account completely.
Risk small amounts, ideally no more than 1% to 2% of your total account parrot rate. That can be difficult with a small account as your broker will have minimum trade sizes, so risk as close to 1% or 2% as possible until your account reaches an adequate size. how to work out 1% or 2% of account size multiply your account size by 0.01 for 1% or 0.02 for 2% so 5,000 pound account times zero point zero two gives us a 100 pound.
which would be a 2% risk on the 5,000 pound account 3000 pound account times 0.01 equals 30 pound which is 1% of the 3,000 pound account no four number for the true secret of trading and that is compounding and we will look at a way to speed up the process compounding occurs as a trading account steadily grows let's say we look for 4 percent growth per month and we reinvest all of our earnings back into our trading accounts each month you look for a further four percent growth and each month your starting capital is more than the previous month so the growth in monetary terms is larger think of a snowball rolling down a hill as the snowball increases in size it gathers more snow on each rotation and seems to grow faster so if you start with say 5,000 pound after the first month of 4% growth you have 5,200 you then start with 5,200 in month 2 and again look for 4% growth at the end of that month you have five thousand four hundred and eight.
which is a two hundred and eight pound growth rather than the 200 pound from the month before because of compounding at the end of 12 months you would have eight thousand and 73 pounds within five years you would have fifty-four thousand eight hundred and six pounds within ten years you would have over 600,000 pounds starting with just a 5,000 pound account you can see compounding seeming to make a bigger impact as you go along the power of compounding grows as your account does it is important to note that your risk per trade of 1% or 2% never changes you still trade safely but each month your account has grown so the 1% or 2% risk is also larger in terms of the money per trade do it the way that works the way the professionals do it let compounding do the work and you can also give it a helping hand You can boost your account each month with a small deposit. Small deposits make a huge difference.
only deposit when you have good trading months where you have traded well and followed your plan if that does not happen do not deposit because likely you will just continue to lose money build your account don't throw it away like 80% of tail traders do prove to yourself you can do it before you add any money to your account reward good trading not bad trading each time you do your compounding will have a bigger impact think of packing snow onto the snowball even as it rolls down the hill and collects snore itself so except that you have a small trading account learn the basics and prove consistency safely risk small and let compounding build your account rather than by taking huge risks.