How to Grow a Small Trading Account Quickly in 2024
As promised at the end of the last blog post, we will be discussing how 5% per trade can beat a 500% return on a single stock during a year. Today we will be discussing how to grow a small trading account quickly in 2024 and beyond.
Its pretty rare for a stock to move 500% higher in a year. There is a very low chance of this happening, in fact. However, averaging just 5% per trade can actually generate this kind of return much more quickly.
Read on to learn why the hard work of becoming a great swing trader is really worth it.
The Science Behind How to Grow a Small Account Quickly Through Short-term Swing Trading
When people think of compound interest, they generally only think about compounding returns per year.
However, if you are going for 10% returns, is it possible to get those returns more quickly and turn a small account into a fortune during a bull market?
Yes it is. Its not easy, but its certainly possible and has happened for some. Here is the basic math behind rapid account growth.
Lets take an example. Lets say instead of 10% per year in the overall market, you were able to average 5% per trade (averaging winners and losers) during a bull market.
Now lets say you are trading with a big catalyst always, and the price hits your profit target target or tight stop within 3 days in most cases. You are able to average about 2 trades per week over the 52 weeks in a year.
So you have 100 trades per year with an average of 5% per trade. Mostly during earnings season where you can often get in and out with a 5% to 10% profit within 2 days. In fact, you can sometimes do multiple trades in a day with so many high tight flag breakouts, consolidation breakouts on a weekly chart, and late morning dip buys with an afternoon rally on top growth stocks after a big catalyst.
Now here is the eye opening math of a 5% per trade average with compounding during a bull market.
Just like most small investors would put their profits on one investment sale into their next stock investment, lets say we put our profits into the next trade during a bull market to accelerate account growth.
Turn $10,000 into a Million? Really?
So what do you think would happen if you took $10,000, made 100 trades over a year, averaged around 5% per trade (averaging winners and losers using a tight stop-loss), and continued to put the profits into the next trade during a bull market.
Most people would guess you would turn it into $50,000 or $60,000 or maybe a bit more.
The real answer? With compounding, the actual ending account value would be over $1 million. $1,000 would turn into over $100,000.
Here is the proof:
We can see the account doubles in value in about 14 trades with compounding if we make 5% per trade while using a tight stop-loss. In reality, maybe you can pull off an average 9% profit on 2 trades and a 3% loss on the other trade to average 5% per trade. Something like that with periods of more winners and other periods with fewer winners during a bull market.
Occasionally, you should get a huge winner like POWL or SMCI that really increases your average.
So the account about doubles if we average about 5% per trade while using a tight stop-loss over 14 trades.
So what happens after 100 trades? Well, if the account doubles every 14 trades, 100 trades would mean doubling your account 7 times total (100/14 = just over 7 doubles). So we would double the account 6 more times if we continue to average 5% per trade with a tight stop-loss over 100 trades.
So 20k would turn into 40k after another 14 trades, then 80k after another 14, then 160k, then 320k, then 640k, and then to over 1.2 million with compounding after 99 trades. Here is the full spreadsheet breakdown with the starting amount before the next trade and then 5% growth after the trade.
So there you have it. The math behind why someone would want to become a great short-term swing trader and average 5% per trade over 100 trades during a bull market!
How Not to Grow a Small Account Quickly
I once watched a video of someone going over how to grow a small account quickly. They mentioned that some brokers will give you 5 to 1 margin or more and you can use this to accelerate your account growth.
The problem comes in with the type of stocks that were being traded. A lot of them were pump and dumps under $20, and worse yet, under $10 in a lot of cases.
In the examples they gave you can see how one of the stocks fell over 15% in literally seconds after a breakout pattern they suggested trading. This kind of drop is common with stocks under $20 that are being pumped to higher levels. Low float wonders in a multi-year downtrend that are suddenly being set in motion.
With 6 to 1 margin, your account would be wiped out if the stock fell 20%.
In fact, if you enjoy blinking once in a while to maintain eye health, you may not be able to trade pump and dumps under $20. Because you would be wiped out completely if you took a 20% loss with 6 to 1 margin.
The stocks that we trade rarely fall more than a few percent within minutes. This is rare and generally only occurs right after earnings in the first few minutes of the market day. After 10s of thousands of trades, 20% drops in seconds just does not happen in higher quality growth and value stocks in multi-year uptrends unless you hold through earnings and the stock gaps a lot lower the next day. This is why we sell before earnings and take a lot of great trades right after earnings such as SMCI last quarter.
However, big sudden drops happen all the time in lower quality stocks with a low float and higher volume. In fact, these lower quality stocks are much more susceptible to steep 20% drops (or more) like this. If you are just seconds late stopping out, you lose your account and could owe your broker money.
These stocks are often halted too. In fact, we just witnessed one being promoted by a seemingly reputable social media personality that was halted and then re-opened days later 90% lower. So penny stocks and most stocks under $20 are a very risky way of growing an account quickly.
A lot of traders end up losing their account or owing their broker money when they try these strategies on lower quality stocks like this. Margin just gets you there faster. Other low quality stock traders will talk about how they blew up prior accounts as if it were a badge of honor.
Fortunately, there is a better way in my opinion. Especially if you value sleeping well at night.
A Better Approach
Now lets say you did just 3 times margin instead of 5 to average 14% per trade on higher quality growth and value stocks over 100 trades in a year – magnifying that 5% per trade. Again, using a tight 2.5% to 4% stop-loss with a big catalyst.
This would turn $10,000 into a million in just 36 trades with compounding! $1,000 would turn into $1 million in 53 trades. You can pull up a compound interest calculator online to see how an account goes from $1,000 to a million in 53 trades if you average 14% per trade.
And you have very little risk of the stock being halted, very low risk of after hours capital raise crushing your stock, and without the other high risks of lower priced stocks being pumped and dumped.
Now we would never use this kind of margin and suggest not using it. But if you want to take big margin risk, trading low quality stocks is almost a sure way of losing your account at some point. Shorting them is better but the rare short squeeze after a strong run in a low quality pump and dump will eventually wipe you out as well with large position sizes.
So if you have to seriously cut your position size, why bother with low quality low priced stocks at all?
The Key to Building a Small Account Quickly
The key to building a small account quickly is becoming a good short-term swing trader. So, no, you do not have to create a huge following online and then pump and dump penny or low quality low float stocks to do well trading.
In fact, you can swing trade with a full time job. Day trading penny stocks or low quality stocks with a full time job is very difficult to do for obvious reasons. So why cut off an extra income stream?
You will not catch all of the better quality opportunities. Just 50 to 100 ideal trades could do your trading account wonders as outlined above with a great plan and disciplined execution swing trading higher quality small cap, mid cap and even large cap growth stocks.
The key is to increase your average profit per trade by learning great strategies on higher quality growth stocks and great value stocks out of great technical patterns with a big catalyst. By trading the best opportunities in other words with lower risk during a bull market. Then you need to review your trades and clean up your mistakes and find ways to improve.
Over the past few months we have featured solid swing trading opportunities on the blog. Nearly all of them made a big move while holding a tight stop-loss. The kind of performance possible during a bull market.
Those using our service were able to get in at a better price since we have to serve them first. Of the ones you read about on the blog over the past few months, most held a 2% stop below the technical entry point we gave customers. We featured the swing trading opportunity with the entry trigger well before the stock reached the entry trigger.
In the next blog post we will go over the best trading setups we would look for if we started over with just a few thousand dollars or less and wanted to grow that account very quickly and accept larger drawdowns.
After more than 15 years of trading, this will be very valuable for those trying to build a small account quickly in 2024 and beyond and save you a lot of big losses in lower quality stocks and other pump and dump programs promoted online.
Soon we will be offering a complete video course on how to grow a small account very quickly for those using the daily alert service on higher quality growth stocks.
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