🚀 Scaling a trading account

Starting trading can be overwhelming.

There's a lot of noise out there and false information.

Especially when it comes to starting and scaling a trading account.

Now, is this an easy process? No.

If it was - everyone would be doing it.

Everyone was happy to have a go in 2020/2021 'stonks' were all the rage.

But fast forward a few years and Furlough Freddy and Fiona have all gone quiet.

It's part of the inevitable boom and bust cycle.

That said, those with good risk management are always around to take advantage of the next bull run.

Here’s how to start and scale a trading account…

1. Find a repeatable edge

If you don't have an edge then your lunch will be taken by those who do.

Every profitable trading system needs a well-defined edge that allows you to profit over the long run.

Now, how do you find an edge?

There's a wealth of free information (for example, the 100+ articles on my website or my free books) to use when searching for an edge.

You can:

• Read about successful traders

• Backtest historical price information

• Test ideas in a demo account and log the results

Don't start trading until you're sure you have an edge.

Why? You'll blow your account otherwise.

To give you an example of my edge…

My edge is swing trading UK stocks with market caps below £250 million where the stock is starting an uptrend, potentially with an earnings upgrade cycle. I find these by doing the work filtering for stocks within 10% of their 52-week highs, reading the RNS everyday, and keeping myself up to date with UK small caps.

2. Define how you enter

The edge is the strategy.

The entry is the tactics.

Every edge should have a repeatable entry in order to get you into a trade.

It's no secret I love trading breakouts.

Having consistent entry methods means you have a plan to trade the market.

You should:

• Know what you want to see

• Know why you want to see it

• Know where you want to see it

For example, I like to see cup and handles.

Cup and handles are high probability breakout pattern entries and I like buying at the point of least resistance.

Where do I want to see these? In a stock that has traded sideways for an extended period of time and is above the 200 EMA.

Your strategy may be different to mine. But you should have your own answer to those three statements.

Here's a textbook cup and handle breakout that saw me capture a +300% move.

Examples of entry tactics include:

• Buying when the ask goes through the breakout

• Buying when the stock gaps up on good news

• Buying when the stock goes through specific EMAs

My example:

I want to buy stocks in the auction that have surprise good news where the price hasn’t rallied strongly into the update. I will know it is surprise good news because it will the first or second in the earnings upgrade cycle.

Once you have an edge and entry definition, we now move onto position sizing.

3. Position sizing for risk

New traders will often use the same position size on every position.

This doesn't work because:

• stocks vary in volatility

• you'll want to adjust your stops

Having a 20% stop loss on every trade won't work.

Here's how you can progress.

Let's say you want to buy a stock at 80p and you see support at 65p.

You don't want to put your stop in the stop loss liquidity because that's for amateurs.

So you put your stop at 59p.

Now, to calculate your position size you need this equation.

Monetary risk / risk per share

Risk per share = entry minus exit

Here's an example.

Let's sat you want to risk £1,000 on the trade.

Risk per share is 80p - 59p = 21p.

Now we plug the numbers in.

1000 / 0.21 = 4,761 shares (rounded down).

This gives you a total exposure of £3,809.

Use this equation or use my free position size calculator to keep your risk constant by varying your size depending on your intended exit.

4. Risk management

Trading is a risk management business.

Your job is to look for everything that can screw you.

You can start by avoiding the big errors.