Tips for Trading a $1,000 Account // Growing small account strategies -- with David Moadel
welcome to looking at the markets with David Modell I found a really great I
think video on YouTube by Kyle Stephens so I want to give him credit in his
video inspired me to make this one and he made an Excel spreadsheet and I just
pretty much blew that up and put it up here and I recommend that you check out
his video so I put a link to Kyle Stevens video in the description of this
video that you're watching right now so you can click on that and also put a
link to his YouTube channel so I recommend you check that out but the way
I'm going to teach it is that it's not only about kryptos this can also be
applied to stocks options commodities Forex whatever it is that you trade ok
so can you start out trading with $1000 yes you can but my first tip to you is
to be aware of the rules okay especially in the United States if you
have a trading account with less than $25,000 then if you place four or more
day trades you know round trip trades within the same day trading day within a
five consecutive trading day period then you could be labeled by the Securities
and Exchange Commission as a pattern day trader and they can impose certain
restrictions on your ability to trade now this is only for margin accounts
this notice that this does not apply to cash accounts if you want to learn more
about the pattern day trader rule and ways to possibly get around it through
certain modifications I have a video on that and I'll put a link to that video
in the description of this video you want to check that out for sure you want
to learn about the pattern day trader rule in the United States so that's the
first tip is learn about that rule and the restrictions that can be imposed
alright so another tip just to get us started if you have a small account with
$1,000 is that you might want to consider you don't have to do that it's
up to you what you want to do you make your own decisions but you might want to
consider having a system where you cut your winners short and let I'm sorry I
said it wrong you cut your losers short cut your losers short and let your
winners run okay so for example let's say you have a
or maybe you have a 1% stop-loss okay the most you can lose is 1% on any trade
and then your your take profit is maybe a 3% above where you bought it or 2% you
know or whatever it is all right and so the amount that your max gain is greater
than your max loss okay that way even if you're only right half the time and
wrong half the time you can still come out ahead over time possibly okay and so
that's what this system is all about all right so let's say now Kyle Stephens he
introduced three possible scenarios these are not the only possibilities for
you okay it's just we're just keeping it simple with three possibilities if you
have a thousand dollar trading account so one possibility is with every trade
let's say if you invested a hundred percent of your account all thousand
dollars okay with every trade and that sounds crazy normally you wouldn't
invest a hundred percent of your trading account in one trade right but if you
have a really tight stop loss of 1 percent then it's not as risky is it
it's not so risky after all okay yes you're throwing 100 percent of your
investing account into into a single trade but you've got a tight stop loss
of 1 percent now stop losses are not perfect there are gap downs okay and so
you can lose more than 1 percent there is slippage alright there are gap downs
that can be pretty vicious especially if there's an earnings report or bad news
comes up in the middle of the day or if you hold overnight you know the stock or
whatever it is can gap down more than 1% that's for sure so don't count on this
being a perfect you know system don't count on stop losses being perfect like
they are in these examples but we're going to pretend they're perfect for the
safety sake of example even if that's not true in real life all right so let's
say you set your stop loss so your max loss can only be one percent on every
trade so then putting a hundred percent of your capital into each trade may not
be so crazy after all may not be so risky and also if you have a take profit
where you let your winners run up to you know two three four or five percent per
trade maybe it's not so crazy after all okay again you have to make the decision
of what gonna do all right so let's say you
start with $1,000 and you've met you invest 100% of it all thousand in with a
1% stop-loss and you know so here are some trades and let's say I'm trade
number one you get lucky yeah it's just a really good trade and you take profits
after you get a 5% gain right so now your thousand dollars it's now a
thousand fifty in your trading account but then the next trade you don't do so
well you're unlucky or whatever okay and you lose one percent it's not so bad
because you're letting your winners run cutting your losers short fine and guess
what after two trades a winner and a loser you're still ahead aren't you
because you let your winners run and you cut your losers short and so you're
still you're still up altogether you have 1,000 $39.50 that's higher than
what you started with and the next trade you do well you gain 4% so now you're up
to 1080 $1.08 so on and so forth and let's say you have a 60% win rate 60%
okay you lose 40% of the time you win 60% of the time with this system because
remember you have a tight stop loss so you're gonna lose a lot of the time you
might expect to lose 40% of the time okay so it's not a great 60 percent is
not a great winning ratio but with such a such a tight stop-loss that's likely
to happen all right because the price doesn't have to go down very far for you
to lose the trade and get stopped out all right
but still with a good trading system using whatever it is you know moving
average cross overs or you know MACD or stochastics and I have videos on all
those by the way you can check through my past videos if you want to if you
have a pretty good trading system then you should be able to get even with the
type stuff tight stop-loss you should be able to get 60% game that's pretty
reasonable or a 60 percent win rate I should say so you could possibly after
10 trades with a good system turn a thousand dollars into twelve hundred
dollars 20 percent gain in ten trades not too bad at all actually all right so
that's scenario number one scenario number two is investing only half you
know 50% of your trading account so like five hundred dollars out of your
thousand investing 50% of your account with
betrayed okay so now you can put your stop-loss lower all right you can put
your stop-loss instead of 1% below where you bought it you can make it 2% below
where you bought it because you're only investing half as much of your money
right and what's good about this system is that first of all you can put your
stop-loss lower and so your win rate is probably going to be higher if you look
through these notice that yeah the win rate here in this scenario is 70%
whereas the win rate with a tighter stop-loss is only 60% all right so you
could possibly or probably I should say when a greater number of times now on
the other hand well put it this way if you only invest 50 percent your account
there's another advantage which is that now all of your money is not tied up
with with this first scenario when you invest a hundred percent of your account
into one trade and you see other trades you'd like to take well too bad so sad
your entire trading account is tied up in this one trade whereas if you only
invest 50 percent of your capital in any trade and then you see another trade you
want to take you can take it if you didn't use up that other if you if you
know the other 50 percent of your capital is just cash just sitting there
all right and again you can have a higher winning rate because your
stop-loss is lower so this seems preferable to this this seems like a
better idea because of those two big advantages all right so yeah every time
you you lose you lose 2% set a 1% but it's only 50% of your account so it kind
of ends up the same doesn't it really in a way ok so let's say you start out with
you know you you you trade a 50 percent which is 500 dollars of your thousand ok
and let's say you do pretty well that first trade you you know take profits at
3% ok so now you've got five hundred fifteen dollars great the next trade you
don't do so well you guys did you get stopped out with a 2% you know 2% below
where you bought it but you're still ahead because you're letting your
winners run cutting your losers short ok you've got a favorable risk to reward
ratio going on every single time so you're still you're still up
504 and seven cents from the 500 you were
placing into the trade originally and you go through it let's say you win
seven out of ten times because you have a good system using you know the moving
average cross overs or whatever and you come out ahead you can possibly turn
five hundred dollars into five hundred and eighty four dollars let's say that's
pretty good right here's another possibility investing only 25% of your
thousand dollars of your investable capital in your trading account with
each trade and so now you can place your stop-loss even lower you can make it
four percent below where you bought it and it's about the same risk as these
other two scenarios right so you're going to win and even a greater prop
let's say 80% of your trades because your stop-loss is nice and low so now
even if you buy the stock or whatever it is and it goes down one to three percent
but then a lot of times you get head fakes in the markets you know that
you'll buy a stock and it swings low and but then it comes right back up that was
a head fake right happens all the time and so you don't get stopped out so much
because you've got a lower stop-loss alright and yeah so you have a higher
win rate and you're only tying up 25% of your capital and so if you see maybe
three other trades you want to take you can if the rest is sitting in cash all
right how would that work out well let's say you win your first trade and you
know three percent profit you win the next one you do really well but then
yeah okay you take a four percent loss you know on the next one okay but you're
still ahead aren't you all right and then you go through it if you have a
good system and a nice low stop-loss and but you're only investing 25% of your
account you come out ahead you could possibly turn let's say in this scenario
200 turn 250 dollars into two hundred ninety-one bucks hey not too bad right
that's quite respectable after only ten Trey it's not bad at all if you're a day
trader those 10 trades might happen in one day
all right now you got to be aware of commissions if you're day trading like
this and you're using small amounts of capital if you're only investing $250
per tray you know I don't want to say only I mean
that's a lot of money to a lot of people but then you probably want to have a
low-cost broker for sure because you know you don't want to have to eat up
ten dollars per trade every single time with with one of the more expensive
brokers if you're only putting $250 in the trade all right you don't want a
large percentage of your of your profits speeding up bye-bye high commission
costs so find yourself a low-cost broker for sure or even a free broker all right
so what do I recommend out of these three scenarios which are not the only
possibilities at all you have to decide what you're going to do make your own
decisions I kind of like this one the best because I don't like tying up a lot
of my capital all right I wouldn't want to tie up the entire thousand dollars
because as soon as you see one opportunity another one tends to come
along doesn't it okay and there's there are a few things more frustrating and
trading than having a lot of all of your capital tied up and you see a really
great opportunity and you can't take it I also like this win rate okay I like
the 70% win rate even though mathematically kinda ends up the same
really but it's just psychologically winning seven out of ten times feels
better and it's more motivating than winning only six out of you know or
winning I'm sorry eight out of ten times it's
psychologically more comforting and more encouraging and more motivating than
only winning six out of ten times let's say all right just it just makes the job
of trading you know or the business of trading and I hope you're treating it
like a business you should be if you're not it just makes it more enjoyable and
you just feel better about your trading okay you you're less scared when you're
trading when you can be confident that you're gonna win more and it keeps you
in the trade longer you're not getting stopped out so much because you have a
lower stop-loss there so I like this one the best for me okay so consider maybe
this type of method you don't have to use these numbers and it's not always
going to work out like this all right you're gonna have bad days you're gonna
you might have days when you lose 100% of the time
it's gonna happen so be ready for that so thanks again at Kyle Stevens I
appreciate it please check out his you know channel and his videos and put
links in the description and of this video and I do coach people so if you
like some coaching you can email me at David Modell at gmail.com and if you
like this video and if you like the fact that I'm going out and hunting down cool
ideas and cool strategies that I can share with you then please give this
video a thumbs up on YouTube and subscribe to my channel if you haven't
done it already and hit that notification bell and leave a comment
what do you think of this which of these would you probably do would you just go
for it and put in all all thousand dollars with every trade but you know
keep that tight stop-loss that's a possibility too alright or would you
would you do the one that I would probably lean toward which is a putting
less capital and per trade leaving the rest in cash for other opportunities
leaving that dry powder as they say and then having a lower lowered stop-loss
yeah just let me know what you think alright thanks a lot I appreciate it
I'll talk to you guys again soon