In this episode of Truth About FX, Walter shows some tricks on how you can start building your trading account from scratch. You can also do this even if you’re still working. Walter also advises not to quit your job first and you will know the reason why here.
If you’re interested to figure out a way to trade but doesn’t have the leverage to compound your account yet, then tune in to this episode and you might get some answers.
Download (Duration: 05:33 / 12.7 MB)
In This Episode:
00:43 – hidden question
01:40 – screw-you-money
03:17 – super aggressive
04:27 – set aside money
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. Somebody writes in and asks, “How do I build my trading account if I’m constantly taking money out to live on?”
Walter: Probably the best solution here is to not put too much money in your trading account. What you need to do is really set it. If you want to compound it which sounds like that’s the hidden question here. It’s, “I want to compound my account but I keep pulling it out, pulling money out”.
What you really want to do here is just decide: how much can I actually part with and not have to depend on that? That’s going to be a small amount obviously because you keep pulling out expenses.
Now, here’s one thing that will really take the pressure off. If you’re looking to leave your job, ideally, what you want to do is live like a monk before you quit your job. Get rid of that second car payment. Sell a bunch of stuff on eBay or whatever. Get rid of a lot of crap and try to minimize your life.
What you’ll do is you could save money so that you’ll get to the point where “You know what? I cannot take a trade for 12 months and I can still live the way that I did before when I have my job.” That way, you don’t have pressure to take a trade. That’s another thing.
You want to kind of have that screw-you-money in the bank where you can say, “Screw you. I don’t have to go get a job.” I know that sounds crazy. “Ohh, that’s so much. I’ve got to save up for so long.” Not really. Not if you’ll cut a lot of expenses.
It’s amazing how much those $6 lattes add to the expenses every month. Do you know what I mean? If you have all these crazy things, you know how it works. You don’t necessarily need to buy those new shoes or those peppermint lattes at Starbucks or whatever they’re selling this month. I think that is one way to do it.
You want to pull up that nest eggs so that you’re like, “I don’t have to take a trade.” That’s big because if you have a pressure to take trades when there are no trades, that’s going to really mess you up. And then, you’ll get into a drawdown because you’re not following your system and you feel like, “Ahh!” and start catastrophizing. It’s not very fun.
What I would do is one, decide how much can I set aside and not touch it. Two is set a goal to build enough money to at least — I mean, 9 months would be the bare minimum but I would try and shoot — for 12 so that you really can focus on your trading.
Now, when you go live, you’re not actually working anymore. What you want to do is try and build that account as quickly as possible. Obviously, there are many different ways to do this but one way is when you have your trading account and you’re trading it while you’re at your job.
Let’s say that you have $5,000 trading account and you build up $2,000 in profits. You could take that $2,000 in profits and put that into another trading account and get super aggressive with that using Kelly Criterion, Optimal F, or Safe F, or something that’s quite aggressive or even Ryan Jones Fixed Ratio methods. Those sorts of things to build up that $2,000 account.
That way, you still have the trading account that you’re trading normally but you can shoot for the stars and see if you can build that sucker up. If you could do that again, you can break off that small amount then take the lion’s share – the profits that you’ve made from that little tiny account – put it back into your main account. That’s a really good way to allow yourself the flexibility to get aggressive with your risk management and feel like you’re actually getting somewhere.
The downside, of course, is that you could blow up that $2,000. That’s definitely the case especially if you’re doing something super, hyper-aggressive. But then you have to say, “Look, this was the chance I took. I had this $2,000 profit. I didn’t really lose my trading account. My nuts are still there. I just lost the profit from that”. That’s one way to do it.
The key here is to have that money set aside so when you do start trading and only trade for income. You do not feel the pressure. Then the other side of that is to look into really aggressive risk management strategies not because you’re going to use that on the entire account but because you might break up a small piece and do it, the little chunk of profits and get aggressive with that.
That way, you’re feeling like you’re getting somewhere because I know what it feels like when you’re using fixed fractional position sizing with a small account.
It feels like you’re really not getting anywhere. It takes so long and the answer to that is, either save a pool of money and use fixed fractional or use some sort of different risk management strategy so that you can build that up quicker. That’s what I would say.
Hugh: Awesome. Thanks, Walter.
Walter: Thank you.