I have a question, but here is the background. I have a VERY small trading account as a trader for a Prop firm. It is an account with $16,000 in buying power and a 40-share max with a $25 loss limit (I’m in my firm’s 18 month trading program and started with a $2,000 account and account grows as your skills improve).

I tend to like trading High beta stocks with huge ranges, spreads. Stocks like AAPL, AMZN, GOOG, NFLX, etc. My default tier size is five shares. I tend to go into a trade with somewhere between 5 and 10 shares to open my position. If I apply good risk management, I stop out of positions between $.30 and $1.00 per share out of the money, depending on the stock being traded. As I’m pretty sure you’re aware, these stocks can go a dollar against your position in a matter of minutes, seconds even. With an account this small and stocks this volatile, I can hit my loss limit for the day in a matter of five trades that are wrong. If I’m not stopped for the day, I find myself trying to hail mary winning trades, hurting my P&L even further.

My question is this: Should I lower my tier size, and add to it ONLY when it is right, even though the gains will be smaller? Or should I keep the same tier size, and keep the stop tighter and trade less. With these stocks a 50 cent stop will stop you out of more good trades than keep you in good trades, as I’m sure you’re aware. If I got smaller, I could withstand more losing trades until I get better at reading the tape. As you can see, from what I mentioned in the first paragraph, my risk tolerance is extremely low given the parameters I have and I stop out of trades before the moves happen. Any response to this question would be greatly appreciated.

@mikebellafiore

I love how you have identified stocks that you enjoy trading: high-beta stocks. This is excellent.

With our training at SMBU we ask our traders to develop their PlayBook. How to do this and why is the topic of my next book, conveniently titled The PlayBook. You have identified your solution in your e-mail. You are spot on with how you should move forward.

Trade less. Well, trade less is quite not right. Within your high-beta setups develop a PlayBook of trades that make the most sense to you. My sense is you are making many outside of a PlayBook you would develop for your high beta plays.  Sit down and develop the variables of the high beta trades that you like the most. And stick with these setups. Give these setups names. In great detail identify the variables for the trade. At the end of each trading session, archive a setup in your PlayBook that made the most sense to you so you internalize these trades.

Build from your strengths. First you have to sit down and outline what your strengths are, or what your best setups are.   And get rid of all the rest. A strong trading methodology will allow you to find out how good you can be.

I hope that helps.

You can be better tomorrow than you are today!