On Friday I had a conversation with one of my subscribers and it brought to light again the struggle that small lot traders face on a daily basis.
I thought it would be a good idea to write a blog post with the hopes that in the comments section those of you who trade small lots could "compare notes" and discuss what works best for you in terms of managing your trades.
A while back I did a survey and one of the questions I asked was how many contracts do you trade? The reason I put 1,2,3,4 or more than 4 is because once you are able to scale in 1/4's or 1/8ths it makes managing the trade that much easier and size, as far as scaling goes, becomes irrelevant. It doesn't matter if you are trading 4 contracts or 48 contracts your exit strategy can be the same.
For each trade that I put on in the Intraday Alerts you can count on having 4 good spots to scale out. Sometimes I will scale in 1/8ths but really that just gives added flexibility. The goal of every new trader should be to build up their contract size to be able to scale in 1/4's as quickly as possible.
I have often said that you don't increase your earnings in trading by trading more or booking more points - you increase your earnings by hiring more employees (adding more contracts). Once you are consistently profitable with a 4 lot then it is easy to increase size and be profitable with an 8 lot, or a 24 lot, etc.
But this blog post is for those who trade 1 - 2 lots. Even the difference between trading 2 lots vs 1 is paramount. With one lot you are all in or all out. Period. With 2 at least you can book something and still leave on 1 contract for a potential runner. If you are trading 1 lot, and profitable, I would encourage you to up your contract size to 2 immediately.
A typical scenario is a trader with a small account and only trading 2 contracts. Considering I give 4 good places to scale with each entry in the Intraday Alerts how do you manage that if you are only trading a 2 lot?
You have a few options:
A) You can scale 1 C at 1st scale target and then immediately move trade to + 1 and then trail the 2nd contract with the objective of trying to get a runner.
B) Scale 1 C at first target and move stop on 2nd C to make trade a scratch if hits. So if first target is + 13 ticks then you move stop on 2nd C to - 12 ticks, etc. Then when second target hits you move stop to + 1, etc.
C) Don't take scale target 1 but instead scale 1 C at 2nd target and then move stop to + 1 and trail last C for a potential runner.
D) Scale 1C at target 1 and 1C at target 2 and be done.
E) Play hit and run and scale both C's at target 1.
F) I am sure there are many more - post your small lot strategy in the commments!
There are a lot of options but frankly I don't know what works best because I am not in that situation. And obviously results are going to vary over time. That is the point of this blog post to get you guys talking about what DOES work best. So in the comments feel free to post your small lot strategy, or the struggles you face trading small lots, and hopefully we can get a good conversation going with expertise from those in the know - the small lot traders!
I know that I have some subscribers who have had considerable success trading small lots and I am hoping that they will offer their advice and expertise in the comments as well. Thanks all!