How to Make $ with 25K

[hunterann13 2]

Hello,

 

I am starting out as a day trader with 25k in my account. I have been practicing in a simulator but only make a couple dollars (in paper money) a day.

 

I am trading mid-float stocks with the price around $15-25. I don't understand how I can make money if I cannot spend more than 2% per trade ($500) because this would mean I can only buy 20-30 shares at one time which would only result in $20-30 IF the stock makes a $1 move.

 

Should I just focus on making this small amount multiple times a day and grow my account from there? I know focusing on my P&L is not the answer and I have been focusing on strategies. Maybe I am thinking about this the wrong way.

 

Can someone please give me insight into how to go about this?

 

Thank you!

[VladMD 21]

Hi there,

 

As far as I understand from your post, you may have misunderstood some things about risk management. And that's totally fine, considering that when you start doing this there's a thousand new bits of information coming at you every day. 

 

Long story short, the theory is not that you shouldn't SPEND more than 2% per trade, but rather that you shouldn't RISK more than 2% per trade. Let's take an actual example: You have 25K so 2% of that is $500 risk. Say you want to long a stock at a price of $10 and you put your stop loss at 9.50$. This means that you risk $0.50 per share, and given that your max loss per trade is $500 (2% of your account), then the calculation you have to make to decide how many shares you can buy is 500/0.50=1000 shares. 

 

Now, one thing I'd add is that, in my humble opinion, risking 2% of your account per trade is way too much, particularly when you're just starting out. Think about it, merely 10 losing trades and your account is already 20% down. I would consider the option of only risking a fraction of 1% because risking too much per trade can throw your psychology off balance in the middle of a trade and make you focus more on potential losses that you aren't comfortable with rather than the proper trade management that you need to produce consistent results.

 

Hope this helps 🙂

Vlad

[hunterann13 2]

Vlad thank you so much! This really helps. Thank you for going into depth and explaining this with an example. I definitely understand now!

[Brad 18]

That's good advice from Vlad above.

Also, I don't know if you will be affected by the PDT rule, but the PDT threshold is $25K, so you would need to be somewhere north of $27K to have some money to risk and still stay over PDT. But actually, in the very beginning your risk should probably be a dollar amount that is far less than 0.5% of your account and just a meaningful amount to lose for you that will not be damaging to your confidence and your overall trading plan. That might be something like $20 or even less. You want to zone in on that amount because if it is too big of course that can throw you off, and if it is too small it might make you push too hard to milk as much as you can out of each trade. When you have an amount chosen, you calculate how many shares you can take depending on the width of your stop for a given setup on a given stock at a particular entry. BBT has a downloadable chart for this to help you. You need to prove to yourself that you have an edge and that you can replicate it and govern your behaviour and emotions in such a way that it works over a sustained period of time. So even though you have $25K in your account, you can trade it like a a 2K or 5K account until you gain confidence and show yourself proof that your methods are working for you. There's no sense taking big losses if you haven't gotten good at taking (and keeping to a minimum) the smaller losses.

[hunterann13 2]

Brad,

 

Thank you very much for your insight. This is great to keep in mind and makes total sense. Even though I have 25k doesn't mean I should always be risking 0.5% or larger amounts like this. Is this the table you are referring to below to calculate my share size dependent on my stop loss and amount I am willing to risk? 

[Brad 18]

Yes, that's it. If you size your positions fairly precisely, it will be a lot easier to control the losses and risk in general.

[Adam Lewis 64]

Fixed risk hot keys FTW! Does everything you need, sets a stop, manages risk.