Position Sizing in a Small Account | Podcast Episode #487

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing trade in the stock market. In today’s episode, we are going to be talking about position sizing with small accounts and what that looks like for people trading with 500 or $1000 in their account and how you can position yourself for learning how to swing trade even when you’re trading with a small account.

0:21
Now, one of the things you want to remember when it comes to trading with small accounts is that you can’t have too high of expectations. And I know that the marketing out there for almost everybody that you go to when it comes to a website that is trying to sell you on a trading service is that they want you to believe that you can take a a few $100 and turn it into $1,000,000 almost overnight.

0:44
And that’s really not true when it comes to the stock market. Nobody does that. It would be like hitting the lottery and yes, can it happen? Sure. But the odds of that happening are not, it’s not like you have a 1% chance. You have like one in 100 million of a chance of that actually happening.

1:04
And if it happens to you, it’s going to be just purely on luck. In fact, I would probably say you have just as good of a chance of of winning a scratch off lottery ticket or a Powerball. So you don’t want to look at trading like you’re going to, if I’m starting off with a small account, I’m going to be able to turn that into a million or $10 million or, or, or whatever.

1:24
It just doesn’t happen that way. It’s trading is very arduous. It’s very difficult and it takes a lot of discipline and mental focus and clarity. And that’s what we’re going to talk about in this podcast episode. We’re going to talk about this question that a guy, he asks me to call him, EH, because that’s his favorite bourbon.

1:43
Good choice and he’s a long time listener of the podcast, so I’m excited about that. He’s he well, when I say long time, he found the podcast last year. So EH writes. Hi Ryan, I found your podcast last year and I’ve been going through all your episodes. I love how timeless that they are and I am able to learn lessons from past years.

2:02
A little background on myself. I have a stock trading. I have some stock trading experience but have never traded purely on technical analysis. I am currently working through some personal finance goals like paying off some debt and growing my savings. I am beyond lucky that I am beginning a new career that will pay off more which will allow me to reach my savings goals much more quickly.

2:25
I’m wanting to learn the lessons of technical trading, swing trading. My goal is to stay engaged with the markets, get as much repetition scanning charts and practicing these techniques. I have some money that I am setting aside $500 that I would like to be able to begin learning these lessons with.

2:43
Would it be better to spread the small accounts across multiple trades, say 18% of my account per trade, or just focus on one trade at a time? As I gain confidence in the techniques, I will grow the cash overtime with adding more to the account. If you have a past episode that addresses this, feel free to send my way.

3:00
Thank you again. And if you want to use a Florida redneck name, you can, but also you can use EH Taylor in honor of my favorite bourbon. This doesn’t need to be on the podcast, but I’m hoping that my experiences in military such as discipline. What I guess it’s on the podcast, but nonetheless, I think it’s actually pertinent to this.

3:17
It says I’m hoping that my experiences in the military such as discipline, emotional control, and careful planning will help me learn these lessons faster. I also think by accomplishing my personal goals it will build up the discipline required to be a successful trader. Once I hit some of my goals.

3:32
I look forward to enrolling in your class, The self-made Trader, to strengthen my skills. Right now I am just watching YouTube videos and reading books. Sincerely EH OK EH, we got some talking to do here. And yes, I hope you you’re able to join the self-made trader. It’s a great course.

3:48
I think a lot of people can learn a ton by taking that course. It’s a long course, but very, very in depth and you’re going to gain a lot of knowledge in the process. But to your questions, what are we talking about here? We have a guy who started off of $500 and he he wants to be able to use technical analysis and, and spread his risk out.

4:08
Now he’s asking should he do that or should he just go all in on one trade, trade one stock at a time? Now, when we’re talking about $500, especially in this world that has just gone crazy with inflation since 2020 or 2021, probably better put what obviously it’s not as much as it used to be.

4:28
You know it it’s more than likely it’s not going to be something that that ruins you as a person. But what I get nervous about is that somebody starting off with $500 and they go all in and let’s say they blow up their account on their first trade. Is that going to be life changing? Likely not. But it also creates some bad disciplines.

4:45
So one of the things that I would do going into the trade is or before you start trading is determined, OK, I’m looking to add to my account over the years. So whether it’s by adding or whether it’s by growing, I’m starting off a $500 in my account. Maybe I divide it up between two trades.

5:02
So you know, $250 allocated to 1 trade, $250 allocated to another. And then if I grow the account to 1000 or I add another $500 to the account, either way it’s at $1000. I’ll still keep about the position size the same because I’m still alerting and I will, you know, be able to trade with four positions.

5:19
At that point it gets to 1500. Maybe I increase it a little bit and, and go to 300 / 5 different positions And then, you know, 3000 over then, you know, spread it between 6 trades at 500 a pop. So you get what I’m saying. Have a road map.

5:35
You know what, what do I want to look at my position sizes to look somewhat like it? It it’s certainly subject to change because you may find that your tolerance for, for risk needs to be a little bit less or that you’re getting too stressed or, or that you, you don’t really have an interest in, in those trades enough for it to warrant your attention.

5:53
So maybe you do need to increase the position size because your focus just isn’t there. Either way, you need to have that plan. What I would avoid doing is just making it all in or all out because yes, it’s it’s not a ton of money, but that one trade with the entire account kind of puts everything on the line every single trade.

6:14
And I really am not a huge fan of that. Now, if if you wanted to do something like closer to 18% per trade, let’s just say for the sake of a $500 account, right, instead of saying 18, let’s just say like 20%, then you’re looking at $100 per trade across 5 positions.

6:34
Now, if you’re looking to take partial profits, and I like to do that, it’s probably going to be a little bit more difficult. If you’re looking to take 1/3 and 1/3 and 1/3 or 1/4, you know, you know, four times it’s probably makes more sense to do halves on your partial profit. So you know, you get a, a good profit under, you know, in your account, take half off the table, let the other half right, as long as it can.

6:57
And doing that, they set you up to really be able to buy a stock that’s no more than, you know, $50 a share. You know, because you know, if you buy 2 shares, then you, you know, and you’re looking to, you know, sell half and half. You really can’t go more than $50 a share on if you’re looking to put 20% on each trade within a $500 account.

7:18
So on the S&P 500, there’s about 87 stocks that you could choose from there. And if you’re looking at it from the NASDAQ 100, there’s only 12 stocks out of the 100 that you could trade. So, and some of those are overlapping, you know, between the NASDAQ and the S&P, but maybe you go a little bit more aggressive and you say, OK, with the $500 account, I’m going to go with four positions at $125 each.

7:42
That’s like 62 1/2, $62.50 per share that you can trade a Max of it because if we’re again, we’re looking at taking partial profits along the way, which means half and half. That means at that point you’ve only increased the number of stocks on the queues that you can trade by the by by two.

8:03
So it’s like 14 out of 100 stocks that on the NASDAQ 100 that would qualify 113 instead of 87 on the S&P 500. But where you may be able to find some opportunities is on IWM. So on IWM, you would have roughly about 808 hundred stocks that you would be able to trade from.

8:22
And so that gives you a little bit more opportunity. It’s, there’s actually more than that. But what you want to avoid is starting to get into stocks that might be trading at, you know, a couple bucks or, or $0.10 or whatever. You don’t want to be trading those kinds of stocks at all that you’re starting to get into the penny stock world. And I, I strongly oppose jumping into that world because that’s a great way to get just destroyed in the stock market because there’s so much scam, there’s so much pump and dumps, you don’t want anything to do with it.

8:47
So still, what I would do is focus on stocks trading over $10 a share and, and then depending on your position size, know how many shares you can trade by taking still like partial profits, whether that’s a third or whether that’s a half. To me, it would make more sense to do a half, but every person’s different paying off the debt.

9:08
Huge move there. And the reason why I say that, you know, a lot of people right now, they there, there’s, there’s higher delinquency rates with credit cards than ever before. If you’re in the camp where you know, you’re delinquent on your credit card, there’s really no business trying to trade stocks. I mean, you got to, you got to fix that out. You got to, you know, take care of the home front before you’re trying to swing trade, because when you do that, you’re introducing a lot of emotions into the stock market.

9:29
That’s dangerous. And and it’s not something that you want to subject yourself to. You’re trading out a need, not from a technical or a technician’s standpoint. That gets very dangerous. And then when things don’t go right, you start losing money that you can’t afford to lose.

9:48
What do you start to do? Well, I’m not selling because I can’t afford to sell. I’m doubling down, then I’m tripling down. Then I’m taking maybe even some, some cash offers on your credit card and you’re putting that in there or, or money that you had set aside for something else. And it becomes an addiction. It becomes a gambling habit. It’s like you’re on DraftKings and you’re just, you know, throwing money away or going to Las Vegas and and betting, betting everything, you know, all the chips in the middle.

10:12
You’ve got to avoid that mindset. It’s very dangerous to go down that path and you want no part of it. So if you have large amounts of debt, credit card debt, stay away from the stock market. It doesn’t make any sense. Another one too that you want to really be careful of because a lot of people are getting reintroduced to this right now because for like, I think what last three or four years we haven’t had to pay off anything and that’s student loan debt.

10:34
So if you have student loan debt, you know, I think some of the people I talked to, I think some of the rates on it’s like 8-9 percent, maybe it’s even higher. I don’t, I’m not really an expert on student loans. I don’t really get into them. I don’t have any, thank the Lord. But if you do, you really need to, you know, figure out, OK, what is how does trading impact that, you know, $500?

10:57
Is that something that’s going to impact it? I mean, can you even afford to pay off your student loans if that’s the case? I mean, you definitely don’t have any business trading, but, you know, can you afford the $500 on the side, you know, while still paying it off to me? I certainly wouldn’t try to increase the account size until I paid off that student debt because that student debt, that’s a lot of interest.

11:15
The reason why I differentiate between like student loan debt and per SE like credit card debt. Credit cards like 23 to 25%. Yeah. I I mean, you’re, you’re talking about trying to make, you know, a, a really good sizable return just just to not make it more advantageous to be paying off your credit card.

11:35
So you don’t, you don’t want to put yourself in that situation. So I really like what EH is doing trying to pay off the credit card debt. Getting dry mouth here. So I got to drink something here. It’s it’s sweet tea. It’s not bourbon. But yeah.

11:53
So we talked about the debt, we talked about the position sizes, talk about having a plan for how to increase your portfolio over time and what that what that looks like. Because we don’t want to be just doing all in on our trades just because it’s only $500.00.

12:10
So what we’re trying to do is we’re trying to build discipline over time. And one of the things that you want to remember, and he talks about being in the, in the, in the military and the disciplines that he learned from that. One of the things that we don’t want to do is just say, OK, I have two positions that I can, I can carry at any one time with $500.

12:29
You don’t have to be in the market all the time though, just with that two positions. I know that because when I started off, every time I had new money, I had to invest it right away. And I would usually end up losing a good chunk of that because I thought I needed to be in the stock market with that money because it, it didn’t really feel like I was making much money trading that.

12:48
And that’s the other thing too, You have to temper your expectations like what we talked about in the beginning, where you’re not going to be a a millionaire overnight or, you know, make just tons of money or become a ready to quit your nine to five job. What? But even more so you got to temper your expectations.

13:04
Look, I’m trading with $500. I need to keep in mind that what I’m trying to do here is learn how to trade. And I’m learning at a place in time where I’m I’m trading with a live money, which is much better than trading with paper money. Paper money doesn’t introduce emotions. You’ll still get emotions with a small dollar amount, much more so than if you’re trading with paper money.

13:22
Not a huge fun of fan of paper money outside of just learning the mechanics of trading. But if you have $500 in your account, I wouldn’t even try to set set a goal up for trying to double that before the end of the year. Is it possible? Yeah, it’s definitely possible.

13:39
But try to just focus on making good trades that takes you to, you know, $1000 in your account by the end of the year. That’s great. But if you’re seeing like swings where your account size is going from like 500 down to 300 and up to 800 and back down to 400 and up to 1000, yes, at the end you might be at $1000 at the end of the year, but look at the path to it.

14:00
And the reason why that’s important is that if you’re seeing like 2030% swings in your market on a regular basis, you’re trading way too volatile. You’re not managing the risk very well at all. Don’t look at it from a dollar standpoint. Look at it from a percentage standpoint. It’s like, OK, if I’m seeing daily swings of 1015%, something might be wrong there.

14:17
And so this is the time to figure that out. You don’t want to be figuring that out when the dollars actually mean something. You don’t want to be trying to figure that out when all of a sudden you’re, you’re going to be panic trading at and, and selling at the worst possible time, because that’s what happens when you trade with larger dollar amounts.

14:34
You’re going to panic because you didn’t iron out these issues early on your trading when you’re trading with a smaller amount. You know, for me, you know, if, if I’m seeing, you know, you know, 2 to 3% swings in My Portfolio on a daily basis, that’s probably telling me that I’m, I’m, I’m swinging with a little bit too much volatility.

14:53
You know, I’m talking about the entire portfolio, not just like one particular stock. You can have big swings in individual stocks, but you want to make sure that you’re focused on all these aspects as if that $500 that you were trading was 500 million. You want to make sure that you’re managing the risk and that you’re watching what kind of swings am I getting in my market?

15:13
Because you’re trying to learn these lessons now so that you don’t have these lessons now that are much more costly down the road. Now before I close it up, I want to talk to you about the military aspect of his trading. And I do think that that’s great. First of all, thank you for serving.

15:30
I love the fact that, you know, I have have people that have served this country right in the show. I’m, I’m eternally grateful to, to what you guys have done to, to help serve and protect us. That means the world to me and to my family as well. So thank you for that, the emotional control that that you probably have learned in the military and, and that that does carry over in trading.

15:52
Absolutely. I think the routines will absolutely carry over to train because there is a, a daily routine that you go through in your trading. You know, from the moment I’m work, I wake up, I’m doing things on a routine from, you know, how I make my coffee, when I make my coffee to when I start skinning for stocks, when I’m writing up my, my trading plan for the day.

16:13
All of that stuff is routine driven. And so being able to carry over what you learned in the military is absolutely critical. And I think that some of the, like the technical skills that you learned in the military and, and all of the different tactics will certainly help you with training.

16:31
It’ll also help you with risk management. So I’m glad that you were able to bring that up. And, and I do think it’ll help you learn a lot of the lessons faster. I think you’ll take it more serious. I think you’ll be more successful as a result. If you enjoyed this podcast, and I hope you did, make sure to leave me a five star review on whatever platform you’re listening to me on.

16:49
Those go a long ways to helping me continue to build the reach of this podcast. That means the world to me. I’d like to hear back from you guys and see what you guys are thinking. And now you can leave comments on Spotify and we can interact there as well. Plus, make sure to keep sending me your questions ryan@shareplanner.com.

17:04
I do read them all, just like I read EHS here and we made a podcast episode out of it. I wanna hear your problems. Get as detailed as you need to get, man. Lay it all out there. It doesn’t need to just be a paragraph. You make it a page if you want to. I’ll read the whole thing. People like listening to your problems because it’s probably gonna help them solve theirs.

17:20
So make sure to keep writing the show and check out shareplanner.com. Or you can go to swingtradingthestockmarket.com and it’ll take you right to my SharePlanner website and show you all the different offerings there that you can check out, including the self-made trader. Again, if you have any questions, shoot them my way ryan@shareplanner.com.

17:38
Thank you and God bless. Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world. With your membership, you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp.

17:58
So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block follow me on SharePlanner’s, Twitter, Instagram and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

18:19
All the best to you and I look forward to trading with you soon.