How to Day Trade With a Small Account- Whiteboard Wednesday

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In our article and video on how much money you need to start day trading, we discussed the various funding options you have and what is the ideal amount you need to begin day trading. For example, we thought $30,000 would be a good amount as it gets you above the dreadful PDT rule, and it gives you enough cushion to learn how to trade. But we know not everyone is fortunate enough to start out with that amount.

We know that a good percentage of peeps that join our trading room will come in underfunded and will give this business a try with a small account. How much? Who knows but if we had to guess, $2,000, $,5000, or maybe even $10,000. The problem with them is not the size of their account but their goals and position size when they start day trading.

How to Day Trade with a Small Account

We repeat the following advice to all new members, even struggling traders, in our trade room all the time. We even touched up on this in this past week’s Happy Hour (begin at minute 9 if whiskey is not your thing) that trading takes time and do do it right and do it right for a long time you will have start out trading small.

The reality is that day trading is far from everything you see on TV commercials and today’s social media. Orange Lamborghini’s, fast action, 100 trades in one hour, etc. Many people are led to believe that if they come into this business, they will have all that in a couple of months. Unfortunately, it doesn’t work that way. Trading is no different than any other business. The majority of new business are not immediately profitable. Some businesses take years before they ever turn a profit. And if you are someone who had a career and tried to start a business, you know that there is going to be a learning curve.Sometimes that learning curve might take someone 3 months, 6 months, or years.

When you are starting out, and you are trading with a small account, your goal shouldn’t be about making money. Your goal should be about learning how to trade and surviving that learning curve. You don’t want to learn how to trade after you have ran out of money (sarcasm). So how do you survive this learning curve? By minimizing your position sizes as low as possible. When a new member recently asked me for help in the room the first thing I told him was to lower his position size to 10 shares. Yes, 10 shares!!! Remember, the goal isn’t to make money, the goal is to learn how to trade and survive the learning curve.

Also, we don’t recommend stock simulators. Stock simulators are nice to learn a trading platform, but in terms of learning how to trade, we find them pretty useless. Why? There is no emotion involved. We see it all the time. Someone makes $1 million make believe dollars on a simulator only to lose on every trade once they go live. So trade with real money if you have to, even if it is only 5 shares.

Growing a Small Day Trade Account

So how do you actually grow the account? You can’t be losing forever. Trade 1 or 2 set-ups or strategies that are successful 60-70% of the time and limit your risk. We trade high RSI stocks (see: RSI as an Overbought Oversold Indicator) and that’s been our bread and butter for some time, but we also trade more common set-ups like flags and breakdowns.