Monthly Archives: July 2014

Trading a Small Account with One Contract (Part One)

 

When I receive two questions on the same topic within one week, I know that there is a topic I’ve neglected to discuss in sufficient detail (or at all). So it’s time to address the issue of trading a small account with one contract.

Question from NJ:

  • Quick question: Can you touch upon the pros and cons and Trade Management and Emotional Challenges when trading only 1 contract vs. multiple contracts? Thank you, NJ

Question from AB:

  • I like your 2 part trade management ideas but they won’t work for me. My account is small and I can only trade one contract positions. How should I manage my trades? How should I choose a target?

I like to trade a multiple part position because it’s a good fit for my personality and mindset.

Entry is usually All-In. Exit is usually scaled out in two parts. “Part One” trade management targeting some quick profits (ideally 1-2R), providing a free trade for “Part Two” which targets a bigger win.

Part one – higher probability with a smaller size win.

Part two – lower probability with a larger win.

It’s certainly not the only way though. There are traders who operate with an All-In/All-Out trade management approach, which is essentially what you’re forced to do if you trade with only one contract.

Given that you said you like my two part approach though, my primary suggestion would be to either:

  1. Remain trading in a sim or demo environment while working to increase your account size to the point that it allows you to scale out a two part position;
  2. Consider whether reducing timeframe is an option, so that individual position risk is smaller and it will allow a two part position (assuming that your problem is not simply a margin issue); or
  3. Consider changing markets to one that allows smaller account sizes (forex for example offers micro-lots which allow for incredibly small accounts).

But let’s assume that these obvious solutions are not an option for you, for some reason, and you do wish to remain trading in your current market with your current account size with only one single contract (or mini-lot).

And let’s answer the questions, “how should I manage my trades?” and “how should I choose a target?”

We’ll start by looking at a recent sequence of price action.

 

Trading a small account with one contract - let's examine a recent session

 

This was traded with two part positions (that’s how I like to trade).

But for the purposes of this article I want to break each into their component parts, as if part one and part two were separate positions with different management styles.

The chart below examines our part one trades.

 

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One Trade Can Make a Session

 

Not every session trades as you wish it would have traded.

Not every opportunity will be caught.

Not every trade will work.

But remain patient.

Sometimes all it takes is one trade to make a session.

Let's look at one session that with hindsight MASSIVELY underperforms what was available; but still provided a positive result when I finally caught one decent trade.

And that's ok.

That's trading.

You can't catch every move.

Review all sessions to see how you could have traded them better. Learn from the experience. And move on to the next session.

One trade can make a session

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