Monday, March 15, 2010

Of trading with small accounts, commissions, a lot of mistakes and a few lessons....Part 2

The Part 1 of this series was started as a post on the effect of commissions on small trading accounts, but due to my fondness/weakness for reminiscing, quickly turned into a post on the mistakes committed in my early trading days. I promise to do a better job of sticking to the topic at hand this time but now that I think of it, I believe Part 1 was necessary to get a grasp of where I was coming from and I would highly recommend all those readers who haven't read it, to take out a moment and have a look at that first. Also, I am sure that to many of you readers, my humble beginnings might have reminded you of your own. I feel this sense of relating to others' experiences and the feeling of not being alone is important in an endeavor as challenging and solitary as short term trading, and even more important to all the newer traders who are facing the same problems and striving for the same improvements in their own trading.

So, last time I left you readers at the beginning of 2009 (I like how that sounds like a time-travel experience!). It suffices to say that I slowly but constantly learned from the mistakes I had made and kept on making along the way. The mistakes I made and the changes resulting from them would be left for another day as I have promised you readers to stick to the subject at hand in this post. In short, 2009 was a success. How much of a success? Let's see.

If you have read Part 1, you not only know that I had started short term trading with a very small account but also know the reason for it. Well, here are some numbers that I had a strong inkling of, but came to know definitely only while preparing my Schedule D this weekend. 

Last year, i.e. 2009, my account up 175.2% for the year, after commissions. I would like to thank the Stock Market Gods for bestowing me with these generous gains! And no, in case you readers are wondering, there were no penny stocks involved. It was done trading the same type of stocks I do now. I am under no illusions of repeating these kind of gains again :).

All sounds wonderful, right? That's an amazing number. But here is what I didn't know exactly and only found out this weekend. Without accounting for commissions, these gains would have been 229.9%!!

There you have it dear readers. That's what trading with a small account can do to your profits. Just compare the numbers - 230% to 175%!! To all you readers out there, keep this effect of commissions in your account in mind but at the same time, I would like to say its very much possible to achieve success with a small trading account, just a tad harder.

Do I have any regrets on the lost profits? Hell, no!! I am still pretty glad and feel fortunate with how the past year went. But it does make me think about the present year. My account now stands up 200% up from what I started last year, after commissions. A sizable change, but still a small account. I can't help but think whether I should slowly step it up? I am pleased with how I have performed this year so far and managed to control risk (you can check all my trades under the "weekly review" label). But stepping it up also means, accepting larger absolute losses for the same percentage loss. That's a mental change I would have to adapt to. Would right now be a good time to do it with markets overextended? 

Well, as you can see dear readers, a lot of questions and very few answers. Sometime in the near future, I will make a decision. I don't know what I will decide and what changes I will make to my trading strategy to adapt to the new variables, but rest assured, you readers will be informed about my decision and the thinking behind it. Meanwhile, I welcome any suggestions from any of you readers out there who have gone through the process of trading bigger positions themselves and also if there is something you would just like to say.

Take care and Good Luck!

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