SCOTT WELSH TRADING BLOG

What Grows An Account the Fastest?

What Grows An Account the Fastest?

Oct. 2, 2019

Some traders have a long-term horizon.

They have a big account, and they just want their money to grow a bit over time.

We’re not talking to those traders this week.

This week we’re interested in taking a little bit of money and expanding it as fast as possible.

The question is: Do we need a good system or do we need a good instrument?

Let’s use a tennis analogy. Everyone loves tennis analogies.

Let’s say a young, skilled tennis player wants to get to the pro tour as fast as possible.

Is it the coach’s supreme methods that will get her there or is it the environment surrounding the player?

Coaching is absolutely important. Bad coaching won’t get someone to the tour.

But the environment might matter even more.

For example, what if the player doesn’t have any money? If that’s the case, then great coaching probably won’t make any difference.

Even if the player is tour-quality, she won’t make it. Why? Because she won’t be able to afford all the necessary travel and tournaments.

If the player can’t afford playing 20 tournaments a year all over the world, even great skill and great coaching won’t get her to the finish line.

It’s the same for trading.

If we have a great system but trade it on something that doesn’t move, we won’t make big gains. Along those lines, if we’re trading something that doesn’t have enough leverage, then we can’t bet high enough to make a difference.

For example, trading a phenomenal system on Pfizer (PFE) with no margin won’t get us anywhere.

We need a system, yes. But we also need something that moves and pays us when it does move.

What should we choose?

The easy way is to pick an instrument with leverage.

If a small move makes us a big amount of money, we can grow something small into something much larger.

What instruments have leverage?

First, options have a ton of leverage. If we had a small amount of money, we can buy a call on something and cap our losses at a reasonable level. And, theoretically, if we’re buying a call, our gains could be infinite. Well, not infinite, but they could be massive. If we bought a call on a stock that shot to the moon in a month, a $200 investment could bring in an exponential gain. If we caught it right and bet it all, we could double, triple, or quadruple our investment very quickly.

The problem is that we can’t put a robot on options. I could regale you with tales of successful options trades, but I can’t give out typical backtesting results. So, for now, we’ll leave options out of the discussion. For now.

Another possible instrument would be stocks, of course. There is some leverage available on stocks. But it’s tricky with stocks. Buying and holding Apple or Google would be amazing. Putting a trading system on those stocks now would probably beat the market, but it wouldn’t be life-changing. We’ll get more into that in our next email.

Our other accessible options are Futures and Forex.

Many fortunes have been made in the Futures market. We can find many examples of that. There is leverage and movement in Futures, the two things we need. The downside is that trading a full contract forces us to have a pretty big account to start. And that might be a problem.

Last, we have Forex. Forex allows us to trade small account and it does have decent leverage. Outside of the U.S., Forex has amazing leverage. But in the U.S., mind-numbing regulation has made it a bit tougher.

If we’re talking about using a system (not discretion), and we want to get the most out of our trading system, those are our available possibilities. We need a system, but need a good instrument too.

In our next email, we’ll look at the two of the options. We’ll put a system on some examples and see what brings in the most money. By the end of the week, we hope to have an idea on which instrument we could pick to grow an account.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

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.