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.