Watch this video on YouTube

Thanks everybody for coming to the live stream last week. There’s a recording of it at the YouTube channel. I wanted to talk about my style of trading back in those days because it can help you learn how to grow a very, very small account, which is what I had when I started. It’s called a concept of progressive exposure. And in the video that you can see, I discussed how I started with a very, very small piece of risk with one contract in the account and kind of grew it from there. Now, I didn’t just wait for the contract if I was long to appreciate and price, I knew that I had to do something that’s kind of a baseball expression. I had to try to steal second base without really taking my foot off first. What does that mean? Well, I didn’t have the money to lose. You Trade $5k and trade one corn contract.
If you had, in those circumstances, you have 5,000 bushels, $5,000. So it just coincidentally worked out that every one penny move in corn, for example, was a 1% move in my account. Now, corn was a sleepy little contract. I think it was trading at like a $1.80 at the time in terms of the bushels, but there were the seasonality to commodities that you can figure out. It’s not like it’s private information. So my goal was to say if I put on one contract to get started, I would risk as much as 3 cents. Whoa, imagine that. 3 cents, but that’s $150. And as a percentage of my overall account, that was 3%. So I had to work on the math. You’ll see in the replay if you watch the live stream, how I did the math and how I progressively built into the position. So I don’t need to repeat it all here.
But the benefit of doing that was that effectively I put myself in a spot where I had a free call option, meaning I would add and adjust my protective stop so that if it turned around and went against me, I wouldn’t still get hit for more than that 3 cents. So I was never really risking more than $150 all the way up. And I would add 3, 4, 5 times. You can go see the math. I did the math on a calculator and show you in the video. At any rate, what that eventually did was across all the instruments, commodity futures and stocks that I was trading, is that it led me to have these situations where if I just sat on my hands and let my winners grow, you could find yourself in having 5 to 10R style wins because you’re letting the market do the work.
Now, that model would give you maybe some level of frustration in that you could get knocked out because you’re trading with tight stops. But I think what ends up happening is because people have small accounts, you’re so afraid to lose money. The counter emotional trade is that you take your winners too soon because you’re so afraid that they’re go away. And I wasn’t afraid of losing money. I was afraid of taking a destabilizing loss financially, emotionally, it never bothered me because I had already been in business. I had built a company and sold it. By the time I got to Wall Street, I had people skip out on me, people not pay me. I had gone through almost everything that you could possibly go through emotionally. So that was how I grew my small account was progressive exposure. It does mean you’re going to have to take trades home overnight and over the weekend to let those gains grow.
Now, it is true if you’re a scalper and you’ve had training as a scalper that you can have risk 20 cents to make a dollar, right? So that’s your five to one. But for me, with $5,000, you can’t really do that. You don’t qualify for day trading buying power in stock. So you’re really looking at mini and micro contracts or penny stocks, and that was never my style. I didn’t have time to do that because those contracts didn’t exist. And two, my firm wouldn’t even let us put penny stock trades on, not for clients and not for ourselves. And that was actually a good thing. So we couldn’t even go there. Two, the commissions were too expensive. So I really needed to find something that was a little bit longer term, 5 to 20 day holds that kind of a deal where the moves were pronounced and I could hold onto my winners, let my winners grow my account, because then if it moved 10 cents and I had four or five contracts on, that could really move the needle of my account, say by 20%.
If I could make $500 to a $1,000 on average of trade and risk $150, though it’s a great risk reward. My sense of timing was very strong. But this is a way that you can grow your account as opposed to what I think most of you are doing, which I’m not going to say that it’s wrong, but if you cauterize your wins too soon, you bite your nose to spite your face, and it makes it much harder and much longer for you to grow your account. And again, I explained that all in the live stream, like why did I do it the way I did? It was about, I think it’s an 1 hour and 20 minutes long. I wanted to keep it to an hour, but I also wanted to address some of the questions that came up in the livestream chat. But check that out, because progressive exposure is a great way to kind of build positions that are working for you and let the winners run and then make a lot of money at the same time, risking a very small bit of capital. Now, it’s important to know that this is not pyramiding pyramiding and adding to winners are not necessarily the same. They can be the same in that you’re buying more of something that’s working. But in pyramiding, in the traditional sense, you’re using the excess equity that you’re creating from the winning position to actually acquire more contracts. I had enough cash. The margin was only, say, $200, two $300 a contract that I could buy 4 or 5 contracts that say $200 each and still have your margin to equity ratio would be higher. But that’s not a risk management tool. It’s just kind of a for instance of where you need to be in the event that you get a maintenance margin call.

The post How to grow your account with progressive exposure first appeared on MartinKronicle.

The post How to grow your account with progressive exposure appeared first on MartinKronicle.