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Defining What Scalability Means

Why Trading Rules Don’t Change 

It would nearly defy logic to say that a trader with a $10,000 account can trade the same as the trader with a $100,000.00 account. It’s a question I get asked almost daily, “What size account do I need to have to use your strategies?” 

My reply is always the same…

“Any size account because we scale in and out of our trades.” 

This notion that trading a small account versus a large account is different is very misleading. Sure, there are some stocks and futures that are too expensive for a smaller account, but that’s a conversation about affordability — we’ll talk about that another time.     

Let me show you an example of what I mean… 

Following is the XLF – Financials Exchange Traded fund (ETF). 

Remember, the strategy of “scalability” applies to futures, options, and stocks on any time frame. 

In this trade, we bought options for $255 per contract. Certainly, that’s an affordable symbol for many account sizes. However, how does “scalability” work for account sizes that have such a disparity?

Our trading rules remain the same. 

For starters, we generally don’t want to risk more than 5% of our account. In this example, if you have a $10,000 account and you don’t want to risk more than 5% of your account you could have bought two contracts — risking $510. 

If you have a $100,000 account and, again, you don’t want to risk more than 5% of your account, you could have bought 20 contracts — risking $5,100.

We ultimately closed out at $860 per option. 

So let’s do the math: 

  • The $10,000 account bought two contracts… potential earnings are 2 x $860 = $1,720.
  • The $100,000 account bought 20 contracts… potential earnings are 20 x $860 = $17,200.

This is what I mean when I say we follow a “scalable” approach. Our analysis and trading rules are always the same.

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