28 May Turning Small Accounts Into Big Ones
Turning Small Accounts Into Big Ones
May 28, 2014
I don’t know how these people find me.
No matter how many times I unsubscribe, I still get emails from trader/educators all the time. I got the most devilish one over the weekend, the one whose siren song is irresistible no matter how many times you’ve heard it: How To Turn Small Accounts Into Big Ones.
I think this is the most exciting topic in the world, and I’ve already talked about it a little in a previous post, but I can never talk about it enough. In fact, I get a “How To Grow Small Accounts” email every several weeks or so, and it never fails to rope me in.
It never gets old.
Think about it, what’s the one thing everyone wants to do? Answer: make a small amount of money turn into a large amount. Isn’t that why we play the lottery, trying to turn $5 into $50 million? Isn’t that why we invest in car washes or Subway franchises? Isn’t that why penny stock volumes has been rising lately? And isn’t that why Warren Buffett is so amazing? He turned a small sum into billions, and it’s intoxicating.
In the promo video from my trader/educator email buddy, the guy talked about his goal of taking a $5,000 account into a $70,000 account in twelve months. That in itself is exciting, but the way he matter-of-factly stated his goal was even more intriguing. Doing that once is incredible. Doing it as a boring inevitability is borderline insane. Isn’t it?
As I’ve talked about previously, I believe more and more every day that winning percentage is the key to everything. I am wondering if trading is even possible without winning early and often. That being the case, I have been working feverishly on building new Robots that win often. Seventy-five percent is my new cutoff point, and I’m really trying to get the winning percentage in the high 80’s or 90’s. If you’re going to make it in trading, you need to see your trades win.
Not only that, winning makes compounding much more effective. The more you win, the faster you compound. The faster you compound, the faster you become rich. And fast compounding is the secret to making small accounts grow into big ones.
Motivated by my trader/educator’s pitch, I wanted to see what my new high percentage Robots could do. How much of a pipe dream is it anyway?
I’m not sure how a superstar would do it, but I would prefer to grow my account without losing my entire account. The trader/educator showed a few trades that would double a $5K account, and that’s awesome. But I don’t know how much he was betting and his System wasn’t disclosed (his courses usually cost between $500-$1500, but I’m not sure how much this particular System webinar would cost). He might have been willing to bet it all on the first couple of trades. I am not willing to do that.
So, I moved up the betting on my high percentage GBPUSD Robot, but no so much as to margin call my $5,000 account. I decided to compound at the end of every week, when applicable (meaning: when I gained more than 10%). And I started with the most current weekly results and went backward in time. Here’s what happened:
Starting amount: $5,000
Maximum drawdown: -$3,142
Winning Percentage: 86.4%
Balance At End Of 12 Months: $9,237 (84% gain)
Balance At End Of 24 Months: $9,722 (94% gain)
Balance At End Of 36 Months: $14,627 (192% gain)
Balance At End Of 48 Months: $37,830 (656% gain)
Balance At End Of 60 Months: $65,606 (1,212% gain)
Overall, it took much longer for me to get to $70,000 (it went over $70K two weeks later) than it did for the trader/educator. But that’s only one currency at a time and that’s betting at a level where the loss of the entire account never came into play. You could bet bigger and you could add more currencies. This is just a basic investigation into what’s possible, and I think the results look pretty good.
As I’ve mentioned, I am currently attempting to do this in my live accounts. I’ve opened one small account with one currency and am betting aggressively (like above). I’ve also opened another medium account that trades four Robots. I’m slightly up in the small account and down a little in the bigger account, but it’s only been about a month.
It’s the most exciting topic in trading and I’m going to see if it can be done with my own money. I’ll be updating my results in future posts.
We shall see.
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HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.