The Truth About Trading in a Small Account & The Truth About credit spreads
Hey Traders! I actually just stopped writing another article because this more important topic came up. I'll be quick about it. This is a very real, visceral conversation. A real life viewpoint at a traders feelings, thoughts, struggles and emotions. I will not use this persons name or picture. But it was posted in a public group on Facebook. I commend this person. I really do. It's rare to see someone with such conviction and vulnerability. That, is a crucial aspect of trading and really life.
The important take away, this person is likely YOU. This person is what the vast majority of beginning traders go through. Many quit years before coming to the realization that success is so close. Honestly, this story is very close to my own. That's why I felt compelled to reply. Here's the full, unedited post and conversation.
If this is you, if this strikes a cord, let me know how I can help. I've been where you are and through guidance and coaching, we can break through that barrier!
I will post the images and then the text of the conversation (in case you can't see it. The formatting gets kind of weird, depending on what you view this article on.s)
*The text of the conversation (just incase it's hard to read). I did not check for grammar or spelling. Uploaded as is*
"Many people in this group have been supportive and I feel I can share what's been happening with my trading. I had 4 contracts on NDX 4450/4445 Put spread (total of $2,030 with commissions) that I had rolled from Jan to Feb but could not roll any further. I also had a 1 contract RUT spread that I could not roll ($509 with commissions). That's over $2,500 loss this week. I was able to roll an NDX trade with 2 contracts to March 16 but the 2165/2165 BPS is ITM. At least I have time on this one.
When I started learning Option trading in 2013, I thought this would be my way to earn enough passive income to leave my job because I hear of other people being successful. I have found success in my knowledge base from when I first started but have not found financial success yet. I have lost money every year since I learned and started trading Options in 2013. I have added funds to my Options account twice last year.
Maybe it's a psychological, self sabotaging thing in my subconscious and I am actively working on my inner/spiritual self and rooting out self limiting beliefs. I have also accepted responsibility for my losses and have forgiven myself for them.
From being on different Option Webinars, I realize that with a small account of 5-10K it takes time to grow it and is not enough money to replace working income without violating prudent money management rules and taking on too much risk. Small accounts do grow but more slowly then larger accounts because of only being able to do 1 or 2 contracts depending the the size of the account and the risk being taken.
Kevin posted the 5 steps to becoming a professional trader. I am in step 3 right now. I have some course videos to watch and will do new stuff in my paper trading account.
I have a monthly subscription to Trading Wins with Vince Vora. He has a live Q&A on Monday nights and Thursday mornings. He also has nightly market review videos. From now on I will follow his rules for money management. I did a screen shot of his Money Management rules and Golden rules. Today I asked Vince Vora what his favourite strategy is and he said he likes to buy stocks and then buy a put with it and he realizes not everyone has the capital to buy stocks. He also said that he has a 50% stop loss rule for Options to minimize losses.
I know this is long winded and I am ending up on good news. 1. Awhile ago Eric mentioned he bought USO stock at $8.00/share. I bought 500 shares at the same price in my RRSP account and it closed at $8.66 today. I put in a stop loss order for $8.55 and that way I will have profits locked in if it goes down. 2. I'm still in the trading game and still have enough in my account to trade. 3. I'm grateful for paper trading accounts to practice trades 4. I'm grateful to this group for excellent suggestions and input. 5. I'm grateful I have my job to pay my living expenses and debt (even though I don't like it) 5. I intend to be in the 5% group according to the 5 steps of a professional trader and am working on being at step 5. I STILL HAVE DETERMINATION AND WILL NOT QUIT!"
"A very powerful post and message. I am 100% confident in knowing others are in your exact shoes.
I too, was one of them. Here's the two cornerstones you mentioned. "From now on I will follow his rules for money management" and "I realize that with a small account, it takes time to grow"
Most traders "know" it takes time but aren't willing to wait.
Here's my thoughts and how I did what you are working beautifully towards. With a 5k account I would make $200-$300 a month on spreads. 2-3 months in a row. Then, I took the profits out and put them towards my debt.
Then, numerically and statistically I would have a spread go against me: usually taking the account down from 5k to 4K [but as you mentioned I would lose appropriate size and losses for spreads.] Then, 8 or 9 winning spreads later, I'm back to $5,400. I take out that $400. I pay it towards debt. Back at 5k. Lose on a spread. Back down to 4. Repeat the process for 2 years. Eventually, I have the same 5k, but 0 credit card Debt. And then, magic and compounding interest begins to work. But only when you reward yourself for following your plan, inflict pain when you Don't follow your plan, lose small and be patient. :)"
Traders, companies fail to mention or bring this very real struggle to light? Why? Because you won't buy their product if you knew how much work successful trading is going to be. You better believe, anything you do in life, that will free you from your current financial shackles is going to take YEARS. Nothing is easy. Nothing is quick. DO NOT GIVE UP. If it's truly what you want, attack it, daily and always seek help. Always strive to measure and improve. And of course, life live, love life and trade!
Until we meet again.
C.E.O Jerremy Alexander Newsome