I recently wrote an article stating one of the major hurdles new traders face in starting a career in e-mini trading is an undercapitalized trading account. Small e-mini trading accounts leave a novice trader with scant room for failure because a series of losing trades can deplete an account in short order. That being said, there are some tips that greatly improve your chances of success when trading an undercapitalized account.
I would characterize a small or undercapitalized e-mini trading account as one that has a balance between $2, 500 and $7, 000 dollars. I must admit that this definition is, at best, an arbitrary definition for a small trading account. In my experience, the smallest account balance most brokerages will accept is $2, 500. This definition excludes the newer micro e-mini accounts being offered, which accept initial deposits as low as $500 and trade with increments of 1 dollar/tick. As an aside, I highly recommend these small accounts for new traders as they allow the trader to trade “real” money while learning a specific e-mini trading methodology. You may want to refer to some of the past articles in my article list about the problems associated with making the jump from a simulated account to trading a live e-mini account for more insight into this issue.
If a small deposit is the best you can muster, there are several important t practices you must employ to increase your chances of success. I want to stress that a small e-mini account does not doom you to certain failure; there are scores of traders who started small and successfully traded their account to a sizable balance. In order to succeed, though, I would keep in mind the following best practices:
1. Don’t overtrade your account. You must strictly adhere to the e-mini trading style you employ and trade the very best set-ups as defined in your methodology. Don’t trade any hunches, or allow your emotions to steer you into a trade because “it feels right. ” Trade according to your plan without deviation. Be a disciplined trader when choosing you trade entries.
2. Don’t trade too many e-mini contracts. To be direct: If your account balance is small, trade 1 (yes, I said 1) contract. As a general rule of thumb, traders should never risk more than 1-3% of their account balance on any given trade. One of the common temptations for new traders trying to build their account balance is to “hit the big one. ” I admit hitting a great trade would be a wonderful boost to any account, but “big ones” are far and few between. Learn to be consistent trading one contract and you may be surprised at the steady growth of your account.
3. Trade with the trend. I know this is an over-quoted maxim, but you would be absolutely stunned by the excessive number of counter trend trades I see in my students. No matter how many times I repeat this maxim, traders are lured into counter trend trades at an alarming level of frequency. There are times when counter trend e-mini trade may look alluring, a perfect set-up, but the results speak for themselves; counter trend trades are statistically less successful than trades with the trend.