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A Playbook for Smaller Accounts



Good Kids Trading (GKT) believes in building trade plans that consider math as well as the charts. We look for trades that have a high probability of hitting our profit target which in turn increases our win rate. We also believe in diversification which helps mitigate risk. I realize everyone doesn’t have a large account so let’s build a GKT Playbook for a Smaller Accounts.


Accounts under $25,000 are harder to trade. You are subject to the Pattern Day Trading (PDT) rule which only allow you to make three-day trades in a rolling 5 day period, as long as your account is under $25,000. The rule really sucks, and diversifying your account seems difficult as many stocks are expensive. We need to be careful when our trades hits the profit target same day, and we need to find stocks with a lower share price. It’s not impossible to trade accounts under $25,000, we just need to take these into consideration.

 

Diversification using ETFs:


Many trading groups won’t admit it, but when you have a small account putting your capital in an ETF that tracks the S&P 500 provides easy diversification. There's nothing wrong with investing your account in VOO (Vanguard's ETF that tracks the S&P500) while you continue to save and add contributions to continue building your portfolio's capital.


Although VOO does not have options there are some advantages over SPY.  VOO automatically reinvests your dividends. VOO has slightly outperformed SPY the last couple of years.


As you invest your real money in VOO, you can learn to trade using a ‘paper account’ building your confidence in the strategies I’m discussing below without the risk of losing real money. Your capital is diversified in the top 500 companies in the United States!


Diversification in trading:



When your account's buying power can afford 100 shares of at least 3 companies you can start more actively trading while being diversified. Your plan should be simple:


  1. Choose stocks with a share price under $100

  2. Pick stocks from multiple sectors.

  3. Choose best of breed, purchasing the stock that you believe are undervalued. I realize ‘best of breed’ and ‘undervalued’ are subjective terms.

  4. Use stock screeners such as finviz, and look at holdings from the sector spider ETFs (checkout this blog on SPDRs)

  5. Have weekly support and resistance lines on all of your charts. Remember we buy at support and we sell at a resistance.

  6. If a stock breaks support you need a stop loss: we're not trying to be Superman and show people our holding strength.

  7. You are going to be wrong on some of your trades, that’s fine. But, get out and find another trade. Don’t stay wrong!


Strategies for you trading:


A couple simple strategies to consider are wheels and pyramids. I wrote detailed blogs on both of these strategies.





I know these strategies may seem boring, and honestly you can choose from endless strategies. The reason I focus on wheels and pyramids starting out is because they both use shares as well as options. Remember shares never expire, where as options do. By choosing higher probability trades this increases our win rate and gives us longest time frame to be right. If we are wrong, we still have shares!


Of course you can do swing trades, you can sell futures premium, or even consider buying options. But these strategies are not my first choice for trading in smaller accounts.


Growing your account and scaling:


Growing a small account is best done with capital injections from saving money. I know you don’t want to hear this, but deep down you know it’s true. Start putting regular cash deposits into your trading account and build up your balance!


The strategies I discussed above scales regardless of the capital in your account I would prefer your account be more than 25k to avoid the PDT rules, however you can definitely start with less just make sure you do not violate the PDT rule because trading becomes nearly impossible once your broker is required to lock your account.


Summary:


Trading with a smaller account has a couple extra challenges, the strategies that I've described will probably not triple your account in a year. But these strategies will help you become a more passive profitable trader. As you save more capital start adding more underlying to your portfolio your 3 stocks become 4, 6, 10, 12, etc.


As your portfolio's account size grows your confidence also grows. The compounding effect of simple strategies is powerful for your mindset and your account balance. You can start adding more strategies once you have more capital and you have the experience to execute the simple strategies above. Then you start to take more speculative trades along with the simple strategies I mentioned above. The losses from speculation trades hurt less when you have consistent strategies with higher win rates.

 

That’s my playbook for small accounts. It’s what I’m doing in the “modest money maverick” channel of our discord. It’s what I did starting out as well!


Subscribe to the GKT Weekly Newsletter, or if you are really serious I'll see you in discord much sooner!


Happy Trading Good Kids!



I understand the stock market can feel intimidating and complicated, if you want some extra support, I help people skip levels, schedule a free discovery call with me. Lets talk stocks and see if I can help you! Click on the image below and setup a time that works for you!




This is not trading advice, it's for your education. I'm a dude on the internet who’s been trading for 2 decades, and I use the stock market as my primary source of income. None of this is financial advice. Any trades or decisions you choose to make are at your own risk, this is purely educational!




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