Act Like You Are Trading Large Trading Positions

Posted in: Trading Article

The goal in trading is to compound your trading account allowing you to scale up your trading business.

As your account size increases, so does your ability to trade larger position sizes which, in a perfect world, becomes wash, rinse, and repeat.

In order to do this correctly, you must trade like you are trading large size now.

The trouble is, most traders who trade single or a handful of contracts, trade like they’re 1-lot traders.

 

Trade As If You Are Trading Size

You want to make a lot of money trading in the future?

The route 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 2 points per day on the ES trading a 1-lot is not going to become rich or even be able to trade for a living.

But increase their position 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 positions.

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.

 

Small Position Trading?  There Is A Cost

Take the example of the ES –  your average trader might look at trading a 1 or 2 contract position.

This is a sensible approach 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 trade 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.

 

All Trades Are Important

You might be thinking that it’s not a problem thinking like a 1-lot trader if that’s what you are – but  it is.

If you can’t approach the market with the same degree of importance when trading a 1-lot vs. 100-lot positions, 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.

trading larger position 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 foundation of your trading.

If you don’t treat your trading as seriously as you should, then you are likely to be forming bad habits such as not abiding by your stop loss locations or trading impulsively.

Perhaps even more important , is the fact that the longer you take to begin to trade as you would if you were trading a much larger 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.

 

How To Get On The Path To Larger Size?

So how do traders who have earned the right to trade larger size act differently?

There are a variety of aspects to that question, but in terms of trading effectively enough to warrant a large position size, 3 points are obvious:

  1. They act decisively when the time is right and make sure that they do not miss their setups.
  2. They do not take rash or impulsive trades, because it always matters when a lot of money is on the line.
  3. 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.

trading success formula

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.

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 trading performance regardless 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 “AS IF” You Have Size Now

If you think big and trade like you have size now:

  • You make sure you take your trades when they present themselves
  • You never trade impulsively
  • You always respect your pre-planned risk limits

you’ll have every chance of using position size to leverage your profits as shown in this image.

Trade like you have size now - margin_incremented_clip_size

Changing the way you measure performance to tally the number of prices you make or lose irrespective of the size you are trading now, can help you to start to treat your trading with the respect that trading large size demands.

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