Only a few traders have a high-risk appetite and spare funds that they can afford to lose. When you are involved in stock trading with huge amounts, it should be preferred to save your funds before looking for returns. It is a smart strategy to trade small and remain steady in the stock market for the long term. But when it is trading with a small account, say Rs.30,000 or less needs a different approach than a larger account, say lakhs. Profitable small accounts are possible with thoughtful and achievable processes.
Trading is a system that requires a trader to create a practical plan using logic rather than emotion. This plan is considered a trading strategy that prevents traders from making costly mistakes that usually result from gut feelings. But what about small traders without a high-risk appetite. Even if they are experienced in the market, they can not accept trading without room for errors.
As a day trader, you can look for an advanced yet user-friendly trading account that allows you to take every small opportunity in the stock market. Demat account meaning can be simply defined as the online storage and record of securities, which is an account for every stock investor. On the other hand, a trading account is a primary account of a day trader to access the market.
You can consider the following ten commandments for trading small with less risk and far less stress:
1. Let your limited funds do more for you.
You can take more risks for your small trades. When you have limited funds, each trade needs to do more for you. As a small trader, you should be comfortable taking the risk of 5-10% in each position.
2. Keep more capital at work.
When trading in a smaller account, you can deploy your 80% capital without being aggressive instead of worrying about account protection like larger accounts.
3. Swing big appropriately
You can deploy 20% of capital when it is a perfect setup, and the market is giving you an unavoidable entry price. This can be a situation when you are ready to trade aggressively to move your targets and seek a larger potential return.
4. Alternative to stop loss
Yes, stop loss is a friend of a trader, but for large accounts than small accounts. With a stop loss, people can get out of good trades. Instead, you can use option spreads with defined risk. If you simply want to trade stocks, you can set a price alert to re-evaluate the opportunity by utilizing the put options and protecting your positions.
5. Automate your profit-taking, i.e., no emotions
It is the approach applicable to every stock trader. As soon as you find your profit target, you should immediately exit without getting affected by emotions. Get more profits and be more confident about your trades.
6. Stay choosy
The stock market is full of opportunities as well as threats. You will come across hundreds of opportunities within a trading session. You already have limited funds. You can not just pick any stock as you are risking per trade. You need to keep looking for top opportunities that can justify your money at risk.
7. Go with trends; never try to challenge the market.
If you spot a top opportunity, just enter. You should not try for a better price by timing the market and wait for its direction over the next hours. You need to be penny-smart instead of acting like pound-foolish. It may result in missed opportunities and indulge in losing trades.
8. Stay disciplined and have patience.
The smaller a trade, the more each of your actions is going to matter. It may be tough to follow the plan rigorously, but it is critical. Being patient enough, you allow your trade opportunity to become profitable. Stay a level head from your emotions.
9. Overtrading may result in more losses.
Many traders try to trade more to reduce their losses in trading. But it may result in much more losses due to hassled trades. Better to avoid over-trading.
10. It's information or rumours
Trading requires reliable sources of information. You can believe the news to make a trade.
Thus, you need to focus on these thumb rules also:
- Identify the risk and reward for each and every trade to manage your money well.
- Better to pick only two or three liquid stocks based on enough analysis and following trends.
- Do not try to challenge the market.
- Keep in mind trading and investing strategies are different.
- Verify on news and rumors or any information that will impact the market.
This way, smaller accounts can be advantageous with the right approach. A disciplined approach can allow you to succeed in trading. With effective trading in a smaller account, you can be ready for trading in larger accounts.