What suggestions do you have for small capital traders?
In reality, most of the market consists of small capital traders, with retail investors being the majority. I have always advised everyone to trade with small amounts of capital first when their trading skills are not yet refined and their mindset is not stable enough, so as not to affect their daily lives.
This is because when I first started trading, I put too much money into my positions, which led to a loss of control over my mindset and resulted in huge losses. There was no way to turn back after that.
So, how should one trade with small capital? How can one gradually learn and improve their trading skills?
1. Treat even small capital with seriousness.
The trading market is a zero-sum game; some people make money because others lose money. Most of those who lose money do so because they have small capital and thus develop a "go all-in" mentality, thinking that they are just gambling, either turning a bicycle into a motorcycle or losing it all.
It is this approach of trading based on one's emotions and desires that leads to gradually losing all one's money.
Our money is hard-earned, not picked up from the ground. Regardless of the amount of capital, whether large or small, it should be treated with seriousness. One should not have an excessively high return expectation just because the capital is small.
For example, with a principal of 100,000, many people feel satisfied with making a profit of 10,000. However, with a principal of 1,000, many people are thinking of making a profit of 10,000, which is quite exaggerated.
Trading with small capital is also a series of normal trades. There should be a reasonable return expectation, and every step that should be executed must not be omitted. If one cannot even handle small capital trades well and cannot control risks, then there is even less chance of profiting after increasing the principal.
2. Avoid long-term trading with small capital.Long-term trading is typically conducted on large cycle K-lines, and the space for order stop-losses can be quite large. When operating with a small capital, a single stop-loss can result in a significant loss, which can severely damage the principal and greatly impact the trader's confidence. A single instance can lead to a substantial loss, and if followed by a series of incorrect trades, it becomes unsustainable.
Please see the image below, which illustrates the same 1-2-3 breakdown structure in different cycle performances of the gold spot market.
The image is a schematic of gold spot.
On the left is a 15-minute K-line chart with the 1-2-3 breakdown structure, and the stop-loss space is 5 USD.
On the right is a daily K-line chart with the 1-2-3 breakdown structure, and the stop-loss space is 50 USD.
The stop-loss space differs by a factor of 10. With a small capital, it is impossible to trade in the face of a 50 USD stop-loss space; if the order is stopped, it would result in a very serious loss.
Therefore, orders with too large a stop-loss are not suitable for small capital operations. If one wishes to trade in the long-term trend of large cycles, it is also advisable to enter on a smaller cycle and aim for small profits within a larger context.
3. If you feel that your capital is small, do not borrow money to trade in order to increase your principal.
I often have traders ask me if they can borrow money to trade when they do not have enough capital. I strongly advise against it because borrowing money for trading can lead to many issues.
If one has been trading with a small capital and suddenly increases their position by borrowing money, it can be very uncomfortable. Even a slight market fluctuation can result in significant gains or losses, which can greatly affect one's mindset. Once one loses control, the losses can be severe.Additionally, borrowed money and one's own capital represent two entirely different mentalities. Since the money is not one's own, there is a great deal of anxiety when making transactions. If a loss occurs, what will be used to repay the debt? This adds an extra layer of psychological pressure, making it difficult to operate with ease and composure. When the mindset is tense, it becomes easier to make mistakes and suffer losses.
Moreover, being in debt is a significant risk in life. I often encounter friends who have failed in trading and have incurred substantial debts. Sometimes, in order to repay these debts, they borrow more money to continue trading, creating a vicious cycle. Eventually, they accumulate enormous debts from which they cannot extricate themselves, leading to a complete failure in life.
Therefore, borrowing money for trading is particularly inadvisable, both in terms of mentality and for one's future life. One should avoid borrowing money for trading.
4. Small capital also varies across different markets.
For instance, the leverage in the foreign exchange market is high, and the initial trading positions are small, making it easier to operate with small capital. Forex trading allows for both long and short positions, with 5x24-hour fluctuations. Leverage is relatively high, with 100x or 200x being quite common. Moreover, forex allows for the smallest trade of 0.01 lot, which can be operated with only a $10 margin, making it more suitable for small capital trading.
In futures trading, even contracts with low values require a margin of 2000-3000 RMB per hand.
Additionally, small capital can also be operated in the stock market by purchasing some ETFs, many of which are priced below 1 yuan, making them operable with small capital.
The key to profitable trading is to control risks and maximize profits, with risk control being extremely important. Small capital allows for more controllable risks and a more relaxed mindset. Although the profit expectations may not be as high, and the trading may not be as thrilling, the money earned is what truly belongs to oneself. Otherwise, everything is meaningless.