Imagine you’ve just learned to swing a golf club…
You can strike the ball pretty good. 7 times out of 10 it even flies in the approximate direction you wanted.
‘Great stuff,’ you tell yourself, ‘Time to pack my bags and join the professionals on the PGA tour’.
But hold on…
Because once you move into a competitive arena something unexpected happens…
You come under an immense pressure to perform.
It’s usually pressure you put upon yourself and it can cause even hardened players to crumple.
And it’s also why I’m surprised traders are so keen to go straight from ‘virtual’ profits on a demo account to trading their full-size real money account (especially when it’s a BIG trading bank they’ve got ).
Their path looks like this…
Learn some basics > Demo trading > ‘Virtual’ Profits > Fund FULL SIZE real money account > FEEL HUGE PRESSURE TO PERFORM
It’s a recipe for disaster.
But there’s a way that’ll get you there almost as quickly. And it’ll keep all that pressure away too.
Just keep track of these 5 things at regular intervals along the way and you’ll always know exactly when it’s time to increase (or decrease) your trading account.
Time to scale-up your trading size? First ask yourself:
1) Am I sticking to my strategy rules without fail?
Be honest – if you’re flying by the seat of your pants, trading without a clear plan, sod’s law says the markets will bite at the worst possible moment, right when you’ve risked more money than usual. But it’s easily remedied; just make sure you have a clear strategy in place.
You need to know exactly what to do next at all times and a good strategy plan falls under these 5 main headings: i) what to trade, ii) how much to buy/sell, iii) when to enter a trade, iv) when to exit a losing trade, v)when to exit a winning trade.
Make sure you’ve got all those points covered before taking on more risk.
2) Is my strategy delivering consistent profits?If your strategy is unproven, or is going through a prolonged period of drawdown, throwing more money at it is not the answer. Backtest, tweak, go back to demo trading until you get it delivering consistent profits, and keep your powder dry until that time.
3) Am in control of my emotions when trading at my current size?
Any feelings of panic, extreme fear, aggression, loss of temper etc… will be amplified massively when more money is dropped into the mix. Instead of increasing your trading size you should first work on desensitizing yourself to trading results at your current level.
4) Are trading results affecting my life outside the markets?
Are you taking your trades away from the screen with you? Is it affecting your mood, your relationships, your sleep patterns? If so, go smaller instead of larger. Scale your trading size down a level, until it doesn’t affect you, and then work on sizing up again from there.
5) Am I totally confident in my broker, the trading software I use, and any other tools of the trade?
Make sure you’ve got all other bases covered before risking more money and that there are no other distractions playing on your mind. Ensure you can completely trust your broker and you’re happy with the charting software and trading software you currently use. Do a little audit of the tools at your disposal and make sure there’s nothing that needs replacing or improving before injecting more cash into your trading campaigns.
And once you’ve worked your way through that little checklist congratulations are in order. You’re treating your trading like a business and respecting your trading funds appropriately.
You DESERVE to be trading at larger size!
The next step is to increase your size incrementally – don’t go too mad – and then run through the checklist again.
Keep doing that and you’ll soon be humming along at full capacity without crumpling under pressure, and without overexposing yourself to risk while you grow through your different stages.
Trade safely and I’ll catch up with you again next week.