Last week we discussed my thoughts on trading a small account with one contract.
See here if you missed the article – http://yourtradingcoach.com/trading-business/trading-a-small-account-with-one-contract-part-one/
We finished up by stating the following:
- It doesn’t matter which management style you choose; a higher probability smaller win target (like my “part one”) or a lower probability larger win target (like my “part two”).
- Both management styles will incur psychological challenges during periods of underperformance.
- Both have the same goal – building your account to the point where it allows multiple contracts.
- Both will achieve the goal if your edge is real.
- Both will fail if your edge is not real.
However, having said all that, there are other options.
1. Your chosen trade management style does not need to be a “one or the other” decision.
You don’t need to choose just the close target or the further target and stick with that forever. You may decide to use both at varying times.
You might decide to target the first potential opposing orderflow (the closer target) as the default option, switching to the further target whenever the market context suggests the potential for runner.
When does market action suggest a potential runner? Your market structure journal will help you find these situations. But for starters let’s consider the following:
- Volatility contraction leads to volatility expansion – as a period of contraction tightens into the apex you might consider holding any entry gained within that contraction for the multiple-R wider target, should the contraction break into expansion. And of course the same applies to any pullback which retests the point of expansion.
- Compression of price against an area of S/R can lead to multiple-R expansion. This will often display as a form of volatility contraction, but that’s not always the case. A short-term ledge pushing against resistance can offer great opportunity, either with a pre-break entry or again the first pullback after confirmed break.
Let’s “borrow” some YTC Facebook posts showing examples where a wider target may be the wiser option. (The text on the images will not relate to the issue of trading a small account with one contract; look to the price action and market structure to identify the multiple-R potential. And if you don’t follow YTC Facebook, consider liking the page if you want to get new images like this every couple of days!)
In this first example we see a long-term volatility contraction. As price approaches the apex, any trade opportunity within the contraction could be held for it’s potential to break the structure and provide a larger directional expansion. If missed though, further opportunity is available on the first pullback after the break of the structure (at point C).