Account Size

[voko119 0]

I have 2 questions:

 

 

 

1. If I have an account size of 5k and I open with Suretrader I’ll get 6x or 30,000.  According to Andrew, I can risk 2% of the 30,000 or 600.00 per trade correct?

 

2. If I buy a 25.00 stock I’d be able to buy 24 shares.  If it increases .50 in a trade, I’d make 12.00 before commissions.  How does Andrew recommend making money with a small account?  Is it not possible?  Do I need more money?  what account size do most people in the room work with?

[Robert H 455]

1. Andrew has since lowered the recommended max risk per trade to 1%. This is calculated against your capital (equity), not your buying power (leveraged). So for $5k account, that is $50 risk per trade. Please see this related post.

 

Risk means how much you're allowed to lose based on the stop, not how much buying power to use. For example, if your stop is at a technical level 0.25 away, that means you can take 200 shares ($50/0.25 = 200). If the stock is $25, you will end up using $5000 of your buying power. Please see the end of class 4 for the formula.

 

2. If you take 200 shares in the trade above, that would mean a profit of $100 before commissions. That is a sizable gain for the account size. You need to think in terms of percent return, not dollar value. 0.5% to 2% of account is a reasonable daily goal.

 

People in the room have varying account sizes ranging from a couple thousand to six figures. It really doesn't matter what other traders are making. Just follow the risk management rules and set realistic expectations. You can't expect to make $1k a day with $5k account size. Doing so would require breaking the above rules.