How To Claim Victory When Trading With A Small Account
It’s a statement that once you’ve heard it, you’ll never forget.
For those who have never experienced battle conditions, it crystallizes what it must take to survive war. It came during Band of Brothers, when Captain Speirs confronts a Private about hiding in a ditch and avoiding combat.
‘You hid in that ditch because you think there’s hope. The only hope you have to accept is the fact that you’re already dead. The sooner you accept that, the sooner you’ll be able to function as a soldier.’
For those trading white-knuckled and wide-eyed with a small account – scared to death that a loss will wipe you out – that quote is for you. Scared capital is the absolute worst capital you can trade with. Fortunately, you can grow your small account into something heroic – as long as you have the right mentality.
Why most small accounts get slaughtered
Over 425,000 Allied and German troops were killed, wounded or went missing during the Battle of Normandy. When the landing was complete, Captain Speirs was still standing and would eventually be absorbed into the famed Easy Company. His toughest moments during the war were still ahead of him.
For many retail traders trying to trade a small account – that is anything under $10,000 or even $5,000 – odds of survival are low. In fact they’re the trading equivalent of heading for Omaha beach on that fateful day – by yourself, with only a mouse and keyboard to protect yourself.
This is because the fear of being wiped out leads to inconsistent trading behavior that creates more risk. One loss quickly leads to two and before you know it, you’re done – or sweeping your account to save what you have left.
True, you’re close to the edge, but many traders compound this risk by overreacting, overtrading and ultimately losing. The answer doesn’t lie with adding more capital – it starts with your mental approach.
A mentality that keeps you from running scared
From the moment Speirs parachuted into Normandy on D-Day, he was met with challenges from the enemy and even a drunk commander. The aforementioned commander actually leveled his rifle at Speirs when he confronted him about ignoring an order to hold a position. Yet, he survived.
If his quote is any indication, Speirs was able to control fear and deal with the deathly drama of war by being at peace with his natural fate. It’s this very perspective that small account traders (all traders really) need to adopt when working with their limited capital.
Instead of trading with scared capital – you need to accept the fact it could be gone. And that the odds of survival lay squarely in how clinical your decisions are and how selective your trades are. More specifically, this should cause you to become more patient – letting the market develop to meet your setup requirements.
Accepting this fact will mean that you trade less and take the time to get your account to where it needs to be. It also means that you will cut early when a trade isn’t going your way.
The process, planning and patience you need to survive
It wasn’t Normandy that nearly got Speirs – although that had to have been a nightmare. It was the Battle of the Bulge in Bastogne – one of the coldest, most deadly nights of the war for easy company. Even watching reenactments on television will make you thankful you weren’t there.
This was the moment that Speirs delivered his famous quote to Lieutenant Blythe. You can take a step in setting aside fear by having a business plan. Establish the loss threshold you can withstand with any given trade and the minimum amount of time you expect your capital base to last.
Narrow your focus to only the setups and instruments that meet your strategies’ criteria – throw everything else out. Create a process for screening these trades and clearly define what you believe your advantage will be. Then wait. Wait with the patience of a sniper. When you take your shot, let it go and detach yourself from the results.
Make the few bullets you have count
Speirs went into battle with an M1 Garand, the standard rifle for US soldiers in World War II. It was semi-automatic and held 8 rounds before it had to be reloaded. Not much if you were dealing with an MP-40, the Axis submachine gun that many of their officers carried.
If your account only has eight rounds in it, or less – make your shots count. Start by trading without fear and removing the fear from your account. Remember that scared capital is essentially dead capital. Detach yourself and become clinical and ruthless.
Move only with the trades that make the cut – not those that almost make the cut. Don’t dwell on the setbacks, and charge forward – as you take your account to new heights victoriously.