Key Factors to Understand for Growing Your Trading Account Fast
In the last blog post we talked about how its possible to take a very small trading account and rapidly grow it to 6 figures and more swing trading. This can actually be accomplished within a short time-frame if you become a great short-term swing trader.
In this blog post we will discuss some of the essentials to rapid small account growth through swing trading. Things you need to understand before attempting to turn a small account into a fortune swing trading.
5% per Trade is Great. But Not if it Takes 6 Months
One of the keys to rapid account growth is how quickly a stock moves. A 5% per trade average is great if your average time in a trade is several weeks or less on average.
If it takes 6 months on average for a trade to complete to average 5%, why bother with trading?
The whole point with technical swing trading is to optimize returns per week or per month while managing risk tightly. Getting more aggressive when things are working and trading less with small positions when they are not.
So, the first key is to look for strategies and trading patterns that play out quickly.
A bullish divergence in a large bottoming pattern could easily take months or more to play out. Why be in a trade that takes so long that may end up hitting your stop months later? This is generally not conducive to very rapid account growth swing trading. Stocks with overhead resistance tend to take longer to move higher.
A better trade is a high tight flag breakout into new highs – or at least 52-week highs with a big, fresh catalyst. Our back-testing and own experience trading shows that these trades can often lead to a big profit within just a few days.
The first back-test of our optimized high tight flag strategy showed an average time in trade of about 3 days with an average profit of about 8% (averaging wins and losses using a tight stop). The back-test in 2023 showed an average time in trade of less than 3 days when just going for the first target coming out of a bear market.
Most high tight flag breakouts did not even come close to this average profit but the ones that satisfied the rules in our strategy the morning before the stock reached the entry point (about 25% of them), did average about 8% in the first back-test.
The high tight flag breakout is just one top momentum trading pattern that does not come up every day. However, ideal high tight flag breakouts do come up about 4 times or so per month on average. More during earnings season and far fewer outside earnings season which just started.
Its All About Earnings, Sales, Margins and Growth
What really sends stocks higher over time is growth. Growth in earnings, sales, cash flow or a combination of those factors.
In fact, investors and traders are so interested in these measures that they flock to the market around my favorite time of the year – earnings season. Earnings season is like Christmas or other holidays – except it happens multiple times during a year.
Earnings season is pretty awesome really. And it comes around 4 times a year!
Investors and traders discover the truth about earnings, sales, cash flow and growth when companies report these measures in their quarterly earnings report. If the earnings, sales, margins and/or outlook are much better than expected, the stock can often make a big move higher.
But the earnings catalyst is what makes stocks move because the results are so important to investors. If the news is tremendous, the stock could move out of bullish technical patterns weeks later as well.
What is important to understand is that the big, rapid moves in a stock generally occur right after an earnings release and huge upside surprise. If you buy the stock ahead of the report, and they say something investors do not want to hear (like NFLX last week), the stock could fall a lot the next day.
The Biggest Trades of Your Life
The biggest and fastest moves generally occur right after a big earnings surprise. So when a company beats consensus earnings estimates or misses earnings estimates and adjusts their future guidance by a large amount.
A big positive surprise is generally what we look for along with a guidance raise from management. Then we need price direction confirmation the next morning. This is key and why we avoided NFLX last week.
When SMCI pre-announced a huge upside surprise in sales last quarter, the stock exploded out of an ascending base pattern and moved 40% higher from the entry point (which was reached after the release) within a couple days. Again, this huge move could be more easily predicted because it occurred after the first trade the trading session after the earnings release. You do not have to guess on guidance and other information in the earnings release and take a huge loss with a big gap lower the next day.
When POWL doubled their earnings expectations last quarter, the stock doubled within a few weeks after reaching our entry trigger the next trading day which again occurred after the earnings release. But, again, we generally are looking for about 5% to 15% within 3 days from a good technical entry point with most stocks.
The point of this article is to make you realize that very rapid account growth is possible with rapid price movements of stocks. These rapid movements generally occur right after a big upside or negative earnings report relative to expectations. Only a tiny fraction of stocks will have a big upside surprise with a big guidance raise each quarter.
This big move higher or lower is NOT just the gap. A large gap is often just the start of a larger move higher or lower. Trying to guess that NFLX is about to change what measures they give investors starting in 2025 is a fools errand. We wait until after the report and price direction confirmation.
Stocks With Continuous Buying Demand
Another key to rapid account growth swing trading is to avoid stocks where the buying demand significantly drops while in the trade to cause the stock to drop a lot suddenly.
Every back-test we have done on our favorite strategies shows a significantly lower win rate on stocks under $20 and especially stocks under $10. This was also true during periods where small caps were in a bull market.
Stocks below $10 are generally not bought by the biggest buyers which are institutions such as mutual funds, pension funds, hedge funds and other large funds. By large funds we mean a large pool of money that is given to a fund manager. This large pool of money is normally made of the savings of 10s of thousands of smaller investors in their IRAs or pension for instance.
These large institutions buy over time and plan to hold the stock for many years or even decades. Their buying power is so immense that they buy over time following a game changing earnings report to avoid affecting the price too much.
These institutions normally do not buy lower priced stocks. Especially, if the stock does not have a lot of volume. In fact, fund rules often prevent them from buying low priced stocks.
Without this institutional support, lower priced stocks tend to drop a lot suddenly after moving higher after earnings. The move lower can be sudden and its difficult to predict when it will occur.
One quick way to determine if your stock has a good chance of holding higher levels is to look at a multi-year chart. If a 5 or 10 year chart shows lower highs and lower lows or a flat trend with occasional temporary spikes, its going to have a lower win rate and a lot more risk.
Most lower priced stocks have this kind of chart with not many real investors to support the stock. Its just a pump and dump and you could be the bag holder. Trade these often and your trading account will likely be going in the wrong direction.
Stocks under $20 are like cup cakes and cookies. Occasionally, a really great one is fine but eat them all the time and your account will eventually get sick and unhealthy. An example of a really good cupcake is a low priced stock in at least a 6 month uptrend with a Zacks rank of 1 with good growth that has been trading for at least 3 years.
Tight Stops and Avoiding Big Drops
Another key to rapid account growth is using a tight stop. So we want a big, fresh catalyst (usually earnings) so the stock has a great chance to move significantly higher quickly but we want to use a tight stop-loss so the trade makes mathematical sense given there will be both wins and losses. You want to get a feel for how stocks move out of your trading pattern of choice by starting on a simulator.
As we have said over and over through the years on the site, the biggest winners tend to hold a very tight stop-loss below a good technical entry point right after a big catalyst. NVDA, SMCI, POWL, and AVAV were all recent post earnings trades featured in the service that held a tight stop below the technical entry point while making a 15% to 300% move higher.
So there is nothing wrong with using a 2.5% to 4% stop right after a big catalyst when you get in at a good technical entry point. Our earnings gap strategy and high tight flag strategy use a 2.5% to 4% stop.
In fact, using a tight stop is often required with short-term swing trading because we generally go for 5% to 15% within a few days.
If we let our losses run, one bad trade can take away several good trades and really set you back in your progress. The catalyst can trigger both a strong trend higher or lower.
Growth is King
One thing we have noticed over the years is that the biggest earnings gap trades, high tight flag breakouts, and other very bullish trading patterns tend to work best when you either have a serious undervaluation or very strong growth in sales and/or earnings.
Discounted cash flow calculations, forward price to sales and other growth stock valuations get a bit fuzzy when you have strong and then accelerating growth after a big beat and raise quarter. This can get some investors to become pretty optimistic about some growth assumptions and a sense that “well, it will grow into that valuation anyways over time given how well its going”. Its easier to justify FOMO (fear of missing out).
So the distribution of possible outcomes really widens and you can justify some very lofty price levels for the stock. As traders, we want to live in that space right after a big beat and raise quarter on a growth stock with seemingly endless possibilities and excitement at the time.
Great quarters with accelerating growth tend to indicate a big improvement in business trends also. Not just the price trend of the stock. These trends in accelerating adoption in a new product or service, for instance, tend to play out over many quarters on great stocks in long-term uptrends. The best ones tend to be within 30% of the all-time highs.
Stocks well below the highs tend to face more overhead resistance and often have a more choppy, longer road ahead. Again, we are looking for stocks that can move a long way more quickly when focusing on rapid account growth.
It Comes and Goes in Waves
When trying to grow an account rapidly, the equity curve will of course have larger drawdowns with times of very strong account growth and other times with flat growth or drawdowns.
Here is a new strategy we have been studying for going long during bear markets. This is the equity curve during the 2022 bear market.
Notice you have periods where the account gradually draws down followed by rapid escalation in the equity curve – even a quadruple within a couple months. The average hold time was just 1 day. This strategy is yet to be proven on a live account so take it with a grain of salt but this is typical of great swing trading in how the account grows over time if it goes well. Great swing trading results in the sense that you have periods of stagnation and small drawdowns followed by rapid increases.
In fact, we see only very modest percent increases during the worst phase of the bear market for 6 months before it took off. Again, all of these trades occurred right after a big catalyst. Not before or well after a catalyst.
Again, the big catalyst is a key for rapid account growth swing trading along with very large position sizes and a tight stop-loss.
But for weeks or months there will be little progress or drawdown and then all of a sudden the results will skyrocket. With multiple strategies it should be better during a bull market, but we expect strong progress only in fits and starts.
So success with aggressive swing trading is typically not a continuous march higher even if things go well overall. You can be very successful even though there is little progress for many weeks.
The Best Strategies to Use for Rapid Account Growth
As outlined above, we want a big earnings surprise catalyst, a strong breakout with little overhead resistance for a stock that has traded for over 3 years, with enough liquidity, and a technical post earnings trade that normally plays out within a few days with some huge winners mixed in over time that we can let run. Normally those are the ones with a severe undervaluation such as UAL last week or high double digit to triple growth in sales and earnings like SMCI and NVDA.
This points to the best high tight flag breakouts, earnings eruption patterns, big channeling stock entries with a catalyst and another more common trade that comes up that is often featured in the daily alert service.
The daily alert service will soon offer a whole course on rapid small account growth and cover the most common setup that comes up a lot more. This course on rapid account growth is being developed for those with a $1,000 account or a much larger trading account. Soon it will be offered to existing subscribers.
It also scales well throughout the years so you do not have to unlearn bad habits developed from trading lower quality stocks.
The Most Important Point
To master rapid account growth, you are going to have to do a lot of research to even come up with a strategy that could potentially give you a great average per trade. Or, learn an already proven strategy from a successful trader. A strategy you should back-test thoroughly yourself.
If developing your own strategy, you will need to do research to determine which market conditions are just too poor to justify using the strategy. So the current overall market trend and levels of volatility may come into play. Although they do not matter that much normally right after a big earnings event for the stock you are trading with a large gap higher.
Then you have to review your trades periodically to clean up mistakes and keeping a journal can be priceless with an eye towards discovering new tendencies in the market, certain stocks and your own tendencies that are holding you back while keeping the overall market and industry price trend changes in mind.
You also have to have a lot of discipline and be prepared each day. A service like ours can help, but not if you cannot find the time to “be there” when the best opportunities come up that fit the strategy rules.
Not having the discipline to stop out when you need to (which is a tighter stop than perhaps you are used to) dictates always using a well designed hard stop-loss that is optimal based on your research. This works when trading right after a catalyst but not as much when entering a trade well after a fresh catalyst.
But letting your losses run is not going to work out well with aggressive short-term swing trading especially as you are only generally going for 5% to 15% profits in most cases.
And, as always, consistency is a big key in all the processes outlined above. And if you want rapid account growth, its obviously going to take time and effort to get your averages up to see great results over the long-term.
The best traders, like any endeavor, are the ones who study more, are most resilient, learn more and are more consistent over time in finding great opportunities and executing the strategy very well.
The first rule of risk management and the first step in learning a great strategy is to begin on a free simulator. One of the best inventions in trading over the past couple decades along with no commission trading.
Start on a simulator, and you can clean up mistakes that all traders make to some extent when they first start trading a new strategy. Again, this is not an easy task to grow a small account quickly, but these strategies in a bull market will give you a shot.
How to Grow a Small Account Quickly Part 1
Top Performing Swing Trading Strategies after Thousands of Live Trades
Our Top 2 Swing Trading Opportunities for the Weeks Ahead
