The challenges facing traders Part 2…

When transitioning from a small account to a larger one, invariably position size has to be increased and herein lies a potential stumbling block.

Much like reaching a given account balance level like I mentioned last week, increasing position size can act as a psychological barrier too. Traders increase position size for two main reasons; one is they have grown their account to a level which dictates an increase; or two, they have proven to be successful with a certain amount of capital so decided to add more funds to their account.

Of the above two scenarios, I suspect the first is the easiest to deal with from an emotional perspective because you are growing your account to such an extent that you have to increase the size of your trades. When I did my $10k to $100k challenge, I tended to increase position size every 6 to 12 months but the main thing was it was not by a huge amount. Always increase in small increments rather than in one big hit.

Traders that add funds to an account are more likely to struggle if they increase the position size by too much. Take for example a trader that has been happily trading with £5k in their account trading with £1 and £2 stakes. They are happy with their progress and so decide to put the rest of the funds they had available for trading in which is an additional £45k (this is not uncommon).

If, based on the new amount of capital, they decided to increase their positions by tenfold, most would struggle to adapt in the short term. The reason being that although their risk per trade relative to size of account hasn’t changed, the new position size would simply be too big a jump for their emotions to handle when seeing the size of the wins and losses.

What then happens is the trader starts placing stops just a little bit too tight and thus sees more stop outs than they used to or they start banking profits too early simply to bag those gains when they are on the table.

When trading on a fund once, I saw a trader doing just these things. He hadn’t mentally prepared himself for trading fund money and started having more small losses but the winners weren’t making up for them as he banked them too early.

As you can see, this problem can impact on traders at all levels but the best advice I can give is only increase in small steps (there’s plenty of time) and try not to look at the money!

Moving over to the markets, the USDJPY had a nice breakout last week as I discussed. It hit the 100dma in the 104 area and on the back on a slightly underperforming Non Farm Payrolls on Friday, it backed off. However, the fundamentals are in place for more dollar appreciation against the yen to come so I will be looking for short term weakness on the pair to be getting long USD.


Charlie Burton


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