The goal for any trader is to scale up their business, but to do this you must trade like you have size now.
The trouble is, most traders who trade single or a handful of contracts, trade like they’re 1-lot traders.
Trade in 100’s of lots
The route to making a lot of money for any trader is to perform on small size and then scale up the number of contracts in order to multiply future earnings. A trader who can average a modest 2 points per day on the ES trading a 1-lot is not going to become rich.
But increase their lot size by a factor of 10 or 100 and the number of ticks they can theoretically pull from the market is going to increase dramatically. 2 points on a 1-lot changes to 200 points trading 100-lot clips.
However, the trouble is that a trader needs to change their mindset before they start increasing their lot size and this can be an issue if you’re not careful.
The reality for small traders
Take the example of the ES –
your average newbie trader might look at trading a 1 or 2 lot clip size at best. This is a pretty sensible tactic for the reason that even if you have a large account to begin with, your chances of making money consistently straight away are pretty slim. So the aim of the game is to keep the cost of learning to a minimum.
The trouble is that in terms of money, the swings are going to be relatively small and this can lead to the issue of not placing enough importance on a trade of small size.
Importance of all trades
You might be thinking that it’s not a problem thinking like a 1-lot trader if that’s what you are – but I can assure you it is. If you can’t approach the market with the same degree of importance when trading a 1-lot vs. 100-lot clips, then you’re probably not following your plan properly – and not following your plan is likely to mean not making money consistently which in turn means not trading bigger size.
As you’re developing as a trader on small size, you’re learning all the time and it’s how you react to situations that will start to create strong habits that will act as the bedrock of your trading. If you don’t treat your trading as seriously as you should, then you are likely to be forming extremely bad habits such as not taking stops or trading impulsively.
Perhaps even more important however, is the fact that the longer you take to begin to trade as you would if you were trading a much larger clip size, the more of your time you will have lost. This may seem like a trivial point but when you consider that the process of learning how to trade happens over the course of many sessions, it’s no surprise to see that there are traders who take years to begin to get a hold of consistency.
Your time is precious and you will never get back what has already passed.
What to do differently
So how do traders who have earned the right to trade larger size act differently? There are clearly a variety of aspects to that question, but in terms of trading effectively enough to warrant a large clip size, 3 points stand out for me: –
- They act decisively when the time is right and make sure that they do not miss their setups.
- They do not take rash or impulsive trades, because it always matters when a lot of money is on the line.
- They accept the risk of trading means that they will have bad trades, days or even weeks – so they stick to their stops and daily loss limits no matter what.
But to bring these ideas to life and have them really mean something, there’s one change that you should make today: –
Change the way you think in terms P/L from $ or ticks to ticks/lot for each trade. So this means that if you make 3 points in the ES trading a 1-lot, you’ve performed better than if you make 100 points trading 100-lots – so in the first case you made 3 points per lot or contract and in the second case you made 1 point/lot.
Normalizing p/l for size in this way allows you to appropriately gauge day-to-day performance irrespective of actual $ gain or loss.
Assess performance by looking only at $ gain/loss could artificially boost confidence when taking very few prices on larger size than normal and also inhibit a trader’s desire to press forward in good trading conditions as the money made can seem like a decent amount.
Of course, watching $ P/L can also evoke strong the strong emotions of fear and greed too.
Trade like you have size now
If you think big and trade like you have size now – i.e. you make sure you take your trades when they present themselves, you never trade impulsively and you always respect your pre-planned risk limits – you’ll have every chance of using clip size to leverage your profits as shown in the image above and in this YouTube video.
Changing the way you measure performance to tally the number of prices you make or lose irrespective of clip size, can help you to start to treat your trading with the respect that trading large size demands.
For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.