Here is how to grow rich with only a couple hundred dollars

Okay, so the title is a bit click-baity, but here is the thing: I see a lot of questions, comments about how much money is needed for you to trade for a living. Most people say you need tens of thousands of dollars, or even more as your equity, otherwise you won't succeed, because you can't sustain such high percentage returns.

That is true, because the problem is with the "high risk per trade" approach, that you will run into such losing streaks sooner or later, that wipe out a substantial part of your equity, and you won't be able to make it back. For example if you lose 50% of your equity, you have to make 100% on the remaining part, to return to the original amount.

The good news is that you can grow a small account to great proportions, while you don't overtrade and risk only a small percentage of your money at the start. The bad news is that you have to know how to control risk properly and your strategy have to be quite steady, which doesn't run into great drawdowns. Notice I didn't mention the returns you have to achieve, or how much time do you have to achieve a certain goal.

If you focus on how much % do you have to make, you are asking the wrong question. The good question to ask related to your strategy is, how can I minimise my drawdown? TRADING IS ABOUT CONTROLLING, REDUCING AND ELIMINATING RISK AS MUCH AS POSSIBLE!

Now this thread is not about specific strategies, so I won't go deep in that matter, but you should develop your trading so, that you don't run into great depths of drawdown (so more, than a couple percents of your total equity). If you manage to do that, you can survive the bad periods easier, make back the drawdown, and continue growing your equity.

Let's say you find, learn, or develop a strategy, which only has a couple percent drawdown. In that case here is how you grow your small account, risking only a small portion of it per trade.

Let's say you open an account with a proper broker with 500$. There are good brokers allowing even smaller account, but let's stay at 500$. You risk 1% maximum per trade, so 5$, BUT DURING TRADING YOU AIM TO REDUCE AND ELIMINATE THIS EVEN MORE, AS YOU MOVE INTO PROFIT! YOU NEVER INCREASE IT BY MOVING YOUR STOP FURTHER!

Okay, from here on, you can change the rules if you want, I'm telling my version, but it is flexible, just understand the logic behind it.

You have 500$ and you risk 1% (5$) per trade. You aim to make 10% (50$) in profits on it, so trading it up 550$. DON'T WORRY ABOUT MAKING A LIVING AT THIS STAGE, just trade it up to 550$. Notice I didn't mention the time, if it is 1 week, 1 month, 1 year, doesn't matter. Just grind you edge and reduce your risk, so you don't run into great drawdowns (so couple percents, I have around 2-5R drawdown at bad periods at max.)

When you reach 550$, so 10% profits on your account, you double the size you trade, so you risk 10$ per trade. You aim to make 10R again, and you rotate back that 50$ you made on the previous level. If you get a full loss 5 times in a row now and you are at 500 again, you go back a level, and trade it up to 550 again with 5$ risk. But it is unlikely if you know how to trade and you keep reducing your risk.

Let's say you succeed, and you make 100$ at the second level, your account is at 650$, the time period doesn't matter again. You double the size and you risk 20$ per trade and use the 100$ as covering the trades on this level. If you hit a very bad period, and go down to 550$, step back a level, and trade it up to 650$ again.

Probably you start to see now how this works. After a time, you can start withdrawing money from your account, because you only need money for the margin of about 10 trades or so. If you don't have large drawdowns, as I mentioned. The levelling up goes on as this:

650$ account, risk 20$, profit target is 200$, account at the end is 850$. Lotsize doubles, risk is 40$, target is 400$ account at the end is 1250$. Size doubles, risk is 80$ target is 800$, account becomes 2050$. Lets say you withdraw 1050$ from here, but since you only need the margins, things follow as this:

Account 1000$, risk 160$, target is 1600$, account is 2600$. Lotsize doubles, risk is 320$, target is 3200$, account is 5800$.

Now you might think, "yeah but how do I withdraw proper money and make a living, if I have to cover my margins with the majority of my account?" Good question.

The answer is, that you keep doing this until you achieve a desired level you wanted, then you stop increasing the lotsize, but you keep trading. At that time you might have a 100000$ account, risking 15000$ per trade, and even if you make a net 1 winner per month, you are +15000$. You also might want to increase your risk per trade, but at a smaller pace, so you can take out more money at every level.

See the point I wanted to make, that the main thing in trading is RISK ELIMINATION, which no-one cares about, and not profit maximalization, which everybody focuses on. The other point is, that this is how you grow a small account, without stressing on how much % do you need monthly, weekly, or whatever, to make a living. Time is not a factor, because for some this process might take months, for others years, and for others it is decades.

It depends not only on your strategy's ability to keep risk to a minimum, but also on how consistent you are, how patient you are, and how much do you love trading, so you can keep at this logic to grow your account.

With all due respect, what you are doing isn't reducing the risk ... Doubling the lot size each time the account grows by 10% is increasing risk ... at least to me.

I may have misunderstood your explanation though ...

By reducing the risk I mean, that when you enter a trade, you move your stop in your favor if the market allows it, then move to BE if possible, or even lock in profits if possible.

Don't focus on the percents at the later stages (neither the % of account per trade, and the % of return under a specific time), it is only important at the beginning. The whole process is about rotating back your profits, possibly everything.

One more thing: Your account size is totally irrelevant. Just have enough money on it to cover your margins for a couple trades, 10 or so.

The important factor is your equity. Keep holding onto it at the beginning, then as you keep trading up the levels, you only use your profits from the prvious winners.

Don't keep all your money in the account. If you have 10 000$ overall for trading, and you want to risk 1% (100$), it is plain retarded to send it all to the broker, so the math comes together. A black swan comes, and you'll lose everything. Put in couple hundreds, or maybe a thousand and that's it. You can still trade 1% of your total equity.

Got it!

I think this whole post can be summarized in - if you use proper money management you can be rich.

The reason we say you need a minimum of 30, but more like 70 is that you need to live on this money. Even if you double your money with 30k, probably you need to use most of that, if not all to live on. So you need a years profit, and enough equity so that you can make a years profit in less than a year.

Is it quite possible to become rich from 500 dollars, in my experience, no it isn't.

If anyone wants something they can take from this, the idea that you should spend at least as much time figuring out your exit and your risk per trade as you do everything else put together is vital for successful trading

I haven't read the entire post to understand your system but I'd say if you have a pretty good high return system, running it on a $200 account and compounding like a madman is not a bad idea. Consider the $200 a stop loss. That's a much smaller SL than most use and, you have the potential of high returns with compounding. It takes a good system though...

What if you have exceptional money management skills, but you don't have an edge? You won't make money, no matter how good you are in everything else, psychology, money management, fundamental and techical knowledge about the market, etc. MM in itself is not enough. Without an edge it only makes you lose money slower.

Yes. That's why I wrote several times that don't worry about making a living at the early stages. The post is about what logic to use to trade up your 500$ account by both using some kind of balance and some quickness to a level, when you can make a living out of this, which can be at 30K or 70K, whatever.

Yes, because if the average retail trader makes 100$ on his 500$ account, he takes it out, then thinks "I'll never be rich like this", so he starts overtrading, and blows up the account. Instead he should use that 100$, rotate it back, and trade it up.

Yeah but I don't think it is a good idea, when you start out to go all in at the very start. You might get 3 losses in a row first, then you are down 600$ already. Trade the 200 up to 240 for example, then use the 40 as your starting credit to trade up from.

{quote} Yes, because if the average retail trader makes 100$ on his 500$ account, he takes it out, then thinks "I'll never be rich like this", so he starts overtrading, and blows up the account. Instead he should use that 100$, rotate it back, and trade it up. {quote}

Nah, 90% never even get any money out. They blow out their account right away, pretty much independent of how big it is.

With good money management you have a long time to learn on the job.

What do you guys define as rich?

Just use Kelly instead. What you are proposing will not grow equity unless the edge is variable (which is highly unlikely to be the case). Use Kelly for optimal size instead, it will ensure steady and slow growth of equity regardless of drawdowns.

This doesn't really solve the puzzle even, you still need to have an edge, if you have one (Even a small one), using Kelly will ensure that you take advantage of that edge to the max and grow your equity substantially over time.

The missing pieces are still: 1) Finding an edge 2) Ensuring that this edge is robust and will stay working for a considerable amount of time while you are building your equity (And this is one of the largest problems)

Finding an edge might seem to be the easy part, knowing that the edge is still working or not is very difficult to assess & know. This is exactly why a lot of Quants fail (Think LTCM)

This is a scaling plan, I don't think I invented anything new here. But I didn't see anybody talking about growing an account this systematically. Like if you use 1% of your account every trade (as a lot of people say), you'll grow your account really really slowly.

Still you can't just go in like "okay I trade one fifth of my starting account then in every trade", because if you start with 3 losses, at a 500$ account you are down to 200$. Yeah you could open with 3 winners as well, and be up at 800$ right away, but if you have an edge, the money will come either way.

The real question is, can you put your ego and your need to earn money away a little, be patient, and use some safety and logic to trade up your account, or just decide on the spot about how big lots you will trade? You can find out your own scaling plan, doesn't matter, this is just a benchmark to work off of. Personally, I didn't know this,when I started out, because I was taught, if you have 500$ you risk 1% (5$), then at 505, you risk 5.05$ and so on.

Of course you need an edge. But in my opinion a lot of people has an edge, but blow up the account, because they don't follow any scaling, or they focus on the profit maximalization, instead of risk elimination. If you can reduce your risk, and have an edge, after a time you'll make money faster than you think. But if you have an edge, and overtrade, because you are impatient, because you don't know how to trade up your 500$, you'll likely struggle, or even lose despite your edge.

If you can't risk then you can't gain.
I don't understand what is the point of this topic. Risk more when we have increased our profit so we cannot lose our initial deposit ?
Also you are telling 500$ can go down to 200$ with 3 losses ? Really ? Nice risk per trade that would be, trading requires common sense.

My risk reward on 2% is anything from x1 to x5 so far. Again, it's all money management.

The reason people who trade systems get such different results, is that you need a lot of knowledge to have the edge...of when to get in, when to get out, and such.

Hi Darastonius

Absolutely right!
Risk control, discipline and consistency are the key requirements. And a method with an edge, of course....
I think you need a reasonable capital base to trade from if you seriously want to make a living from trading, though.

good thoughts Darastonius

thanks for sharing