TOP CONTRIBUTORS HOW TO TRADE A SMALL ACCOUNT

How to Trade a Small Account

By Larry Gaines - Power Cycle Trading

Introduction

My trading career started in 1980 in Houston, Texas as foreign crude oil cargo trader. In 1990
I became the Executive Vice President for one of the largest oil trading companies in the
world and ran their international trading desk for over 10 years. Today I run my own
company, Powercycletrading.com, where I offer comprehensive trading courses, coaching
and trading services.

My friends at TradingPub asked me to give a presentation on “How to Trade a Small Account”

and this is such an important topic to me. I started out my trading career trading big
accounts, of other people’s money (OPM), but when I went out on my own and started
trading for myself and it was my own money the whole game really changed.

Now trading for yourself can be one of the most rewarding jobs on the planet, if you are
educated about what you are trading and if you stay focused on managing your trading risk.

I tell my clients and members “there’s no perfect trader…there’s no perfect system… it’s a
journey of learning and I am on that journey, too…constantly learning each and every day…”

In my opinion the most important lesson in trading is that you should not be just focused on
making money but should really be focused on managing your trading attitude and risk and
then the profits will come…

My real “Aha” trading moment came when I reset my trading mindset and started to
I. Actions & Attitudes
TOP of Successful Traders:
CONTRIBUTORS HOW TO TRADE A SMALL ACCOUNT

Mistakes sabotage every area of our lives, and trading is no exception. The good news is that
we learn from our mistakes. In fact, seeing mistakes as learning opportunities is the popular
approach to viewing human error; and with good reason, since they provide learning lessons
aplenty, albeit often excruciatingly painful ones both in the psyche and the bank account. In
over 3 decades of trading, I have probably seen every trading mistake possible, and I’ve even
made most of them.

As in life, mistakes seem to recur until we own and modify them, at which time we overcome
that particular error and move on to the next. The good news is that you can learn by
observing and studying the behaviors and habits of successful traders who have already
been in the trenches and learned from their mistakes. This practice can shave years off of a
trader’s learning curve. It’s all about adopting the powerful actions and attitudes of
successful traders.

There is no perfect trader or perfect system; but in order to become a consistently good
trader you must constantly be observing not only the markets, but also other experienced
traders to gain knowledge and wisdom. It’s a never ending journey, like most valuable
pursuits, but it can be an extremely rewarding one, both personally and financially.

When you model top traders’ actions, you make more money. It’s that simple. They’ve
figured it out from years of experience, and you learn from them how to make more money
in much less time.

1. Consistently getting in or out of trades too soon…or too late

The culprit behind this common error is trading from fear or greed instead of following a
chosen strategy. In trading it’s not always about trading the right option, the best model, or
the perfect entry; it’s way bigger than that. If your attitude is not right, and your trading
related actions aren't right, then even the best technicals can't help generate profitable
trading results for the big or small trader; it’s all the same.

Studies show that 60% to 80% of trading success comes from a trader’s mental and
emotional state. Great traders are always working to keep their emotions out of their
trading. By developing a state of detachment when trading, you can neutralize those
emotions that can otherwise control your trading actions.

2. Being a lone ranger

Everyone knows that the nature of trading is to go it alone. Trading attracts the introverted
analytical thinker who generally thrives on hours of uninterrupted time to completely focus
on the next great trade or indicator. The focus time can be beneficial, but the lack of
accountability and team camaraderie is not. Being someone who has spent decades in the
enthusiasm of a live trading room, complete with both shared cursing and celebrations, I can
say that camaraderieTOP is real, and it’s an asset.HOW
CONTRIBUTORS The TO
value of camaraderie
TRADE explains the
A SMALL ACCOUNT
proliferation of virtual trading rooms over the past few years, and my drive to have created
one of the first.

3. No plan for success or goals

Have you ever noticed how easy it is to jump into a trade that is outside of your trading plan?
A plan encourages self-discipline and accountability. A good plan includes the following
features:

● Capital allocated to trading

● Defined risk reward

● Time frame for holding trades

● Working hours

● Parameters around paper vs. real trading

● Structured time for accounting and review

● Tested model or system

Start with a plan and stick to it. Review it often and adapt it as you learn and improve.

4. Trading a model that doesn't work

Time and expense are usually the perpetrators with this costly saboteur. The perfect analogy
is buying something that doesn’t work when you’ve gone shopping just so you haven’t
wasted your time. The trader thinks about how long it took to learn the system, or the
investment often in the thousands, that was made to purchase the model. The solution is to
buy a proven system from a demonstrated expert, and get the support to correctly learn and
implement the model swiftly.

5. Not thoroughly reviewing trades and accompanying charts

Let’s face it, it’s much more enticing to trade than to review trades; but the reality is that
successful trading comes from reviewing what you did that worked, and doing more of it. It’s
that simple. Without consistent time dedicated for review, this can’t be done.

Take time to review each trade; this is your money, and your business. Write the answers to
the following questions in a log:

What worked?

What didn’t work?

What were the indicators doing?
TOP CONTRIBUTORS HOW TO TRADE A SMALL ACCOUNT
What time of day was the trade made?

Why was the trade placed?

Why was the trade exited?

Could a slight tweak have made the trade more profitable?

6. Not accounting for trades

Have you ever known a trader who likes to do accounting? Traders love the excitement of
the trade, but hate the boredom of all the surrounding responsibilities, such as accounting,
taxation and documentation. Boredom, avoidance of responsibility and denial are the
backing behind this common slip-up. It’s a lot easier to think about that great winning trade
you made than to look at hard after commission numbers. Numbers don’t lie, but they are a
strong teacher for how to improve results because they allow you to see what’s working and
do more of it.

The solution is to schedule time for accounting. It’s so easy now with downloads from most
brokers. With zero costs, you’ll then have the numbers to reveal the most potent answers
you can get to improve your trading results.

7. Lack of goal setting

As Peter Drucker said “What gets measured gets done.” This paradigm is a step above
accounting and review. Goal setting is about taking the big picture view of your overall life
and money. Take this a step further and think about what your life will be like upon achieving
those results.

Define what you want to make from your trading business. Review it often. As Drucker said,
measure your results, and then compare them to your goals. This motivating habit drives
you to do the mundane, like to accounting. It drives you to show up to trade when you want
to play golf instead on that perfectly beautiful day.

8. Trading with the emotions of fear and greed

Trading emotions could be an entire book, and it often is; your beliefs about money go all
the way back to your childhood. What was happening in your childhood home around
money? Was there never enough? Were you taught to manage money? Was there
predominantly fear or greed? As woo woo as this sounds, taking a few minutes to think
about this unseen force can quickly and easily help you spot those same patterns in your
trading.
The way successful traders overcome this powerful saboteur is by trading from a plan, which
allows complete detachment. A simple exercise HOW
TOP CONTRIBUTORS to discern whether
TO TRADE emotions
A SMALL ACCOUNTaffect your
trading is to paper trade for a few days. Notice if the results are different from real trading.
Of course, live trading can provide slightly different results due to the actual fill; take this into
consideration, account for it and try to see how differently your trading results are when real
money is not changing hands vs. when it is. This easy little application can reveal powerful
insights about how your emotions may be hurting your profits.

Another clue is to notice how you feel when you trade. Does your heart race when you place
a trade? Are you unable to leave your charts beyond the time designated in your trading
plan? These are signs of emotional trading. Some of the best traders in my virtual trading
room have consistently exited the room promptly at 9:30 daily. They are done, based on
their trading plan. It’s unemotional and detached.

Fear causes traders to miss out on winning trades, or close trades before the optimum exit.
Greed causes traders to stay in trades beyond their planned exit, or to take trades outside of
their plan. Emotions exhaust traders.

First, recognize your money patterns and own them. Choose to not allow someone else’s
past issues affect your trading results. Again, the crucial key is to detach emotionally from
your trading. The best way to detach is to trade from a well thought out plan.

As you read this article, which points made you squirm the most? The most uncomfortable
points will be the first area to focus on to improve your trading results. Discomfort signals
denial or expansion. The great thing is that most of the points above are absolutely free.
That’s a risk reward you don’t see often in the trading world. I’ll take it.

II. An Option strategy guide to get you started:

General Option Guidelines:

✓ When Implied Volatility is high it is better to sell options (Credit Spreads, Iron
Condors)

✓ When Implied Volatility is low it’s better to buy options (Delta 50 to 70) &
Vertical Option Debit Spreads

✓ When a market is in a consolidation phase or a volatility compression

squeeze, look at this as a sign that a low volatility environment is about to change
into a high volatility environment.

✓ And change your trading style accordingly.

Go-to-Option Strategies ~ for defined, low risk trading:

 ✓ Long Calls or Puts ~ can be used for all day trading, swing trade set-ups and
long term TOP
trendCONTRIBUTORS HOWvolatility
trades. Best when implied TO TRADE A SMALL
is low, ACCOUNT
generally use a 60-70
Delta for strike. A defined risk with unlimited profit upside

✓ Vertical Debit Spreads ~ can be used for all Swing Trade Set-ups & long term
trend trades. Best when implied volatility is low. Defined risk, low capital cost, low
time decay but profit upside is capped

✓ Long Butterfly ~ this spread is a neutral strategy that is a combination of a

bull call debit spread and a bear call credit spread. It is a limited profit, limited
risk options strategy. There are 3 striking prices involved in a butterfly spread and
it can be constructed using calls or puts. Used when you think the underlying
stock will not rise or fall much by expiration. Trade results in a net debit. Short
volatility & price pinning strategy.

✓ Credit Spreads ~ can be used for day trades, swing trade set-ups & long term
trades. Best used when implied volatility is high. A defined risk, takes advantage
of time decay & a sideways price action but profit upside is capped. Three
variations: OTM (negative risk ratio), ATM (neutral risk ratio) & ITM (positive risk
ratio). Short volatility & time decay strategy.

CONCLUSION

Trading a small account offers the single trader a big advantage, stealth. The single trader
can easily execute trades that the big hedge funds and institutional traders just can’t without
muddying the waters. This becomes a great trading advantage and an opportunity that can
turn that small trading account into a large trading account. Once you have the right trading
mindset and learn to use some well-defined, low risk Option Strategies, your journey to
successful trading will become a short one and well worth the time and effort you put in.

THE MOVIE

Watch the Video – Larry Gaines covers how to sell options using defined, low risk option
spreads to generate a consistent monthly income stream.

www.TradingPub.com/htsa1

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