Many new traders are hungry to grow trading accounts rapidly but usually end up taking excessive risks and overtrading and thus incur a loss that would have been avoided if they had maintained a solid risk management plan. Nowadays, with the highly volatile markets, it’s not just a matter of skill but also a proper approach for risk management that ensures long-term growth and sustainability.
One of the world’s top proprietary trading firms has been breeding winning traders since 2005 out of offices in New York City. Traders working in such an environment consistently generate returns of 80 to 100 percent a year, and some valuable lessons from their success will enable you to grow your account responsibly.
This article breaks down three vital strategies shared by a risk manager working with some of the best traders on their desk. By applying these principles, you will not only protect your green days but also bring about the consistency necessary to grow your trading account in 2024.
1. Protect Your Green Days
This is one of the most important rules for any trader: preserve the profitable, or “green,” days. That is, once you’ve made money for the day, your best interest is to preserve that. Most often, traders chase after extra profits and turn a good day into a negative one. That’s why this is because most traders don’t recognize when the market isn’t offering the same kind of opportunities, and they just end up giving back all their gains.
In an average trading day, the market often tends to move sideways and does not show trended movements that create larger profits. That is something a trader should take seriously and prepare for when such conditions occur. Probably one of the greatest lessons from the proprietary traders would be not seeking big gains every day but rather consistent, smaller ones. This way, you’ll have the chances of ending the month with steady profits instead of suffering through large drawdowns.
It is like baseball: you don’t need to hit a home run each time. Singles and doubles will add up into substantial progress. For instance, if one averages $100 per day on the trading floor over 20 trading days in a month that’s $2,000. The same logic applies when you scale your risk: once your strategies and confidence grow, that $100 can easily become $1,000 per day, translating to $20,000 per month. That is, if you protect those green days.
2. Set Per Symbol Risk Limits
Account growth involves managing risk at the level of each individual symbol. Similarly, you may have already established a daily stop-loss to prevent blowing out from huge losses; the same applies to each trade symbol—whether it is a stock, an option, or futures contract—an individual defined risk should be established. This rule helps traders avoid becoming emotionally attached to a specific trade or stock and simply over-trades.
Let’s say your total stop-loss for the day is $500. A good risk manager will tell you to put no more than 30% to 50% of that total in one stock. So, if you are trading Apple, you should not risk more than $150 to $250 on that one symbol. It prevents you from getting killed on one bad trade and pulls it back a bit before other trades really do put the account at unnecessary risk.
Why is this important? Most traders can win in a trade for some time. However, if he gets hypnotized on one stock and keeps trading it even after the conditions have changed, then he could lose all his profit in excess. Using per-symbol risk limits avoids this where no trade can eliminate your daily profit as it will protect the overall trading performance.
3. Implement a Giveback Rule
Another method for expanding your trading account is a “giveback rule.” This technique prevents blowing all your money after being ahead due to bad decisions made later in the session. The giveback rule is when you are above your average winning day by 1.5 times. You should automatically cut the amount you will now lose going forward at this point-of-no return; no more than 30% of your daily gains.
For example, suppose the average winning day brings you $500, and you are currently up $750. You’ll be governed by this giveback rule. That way, no matter what happens in the future, you won’t lose more than $225 from where you are now. There’s some room to trade some more but also walk away with a nice win at all times. It’s a rather simple form of risk management that many professional traders apply their version of it so they always stay ahead.
This is important, but when you’re in the green, trading above your average performance, it becomes even more important to protect those gains. Most traders who forget to include a giveback rule find their winning days above their average become losers, and that does a big number on their psychological mindset, leading to bad decisions. There’s so much about trading that has to do with mental discipline as it does finding the right setups, so having some play that helps you protect your profits is key.
4. Balance Work and Life
Lastly, though strategies like protecting green days, per-symbol risk limits, and rules on givebacks help grow your account, so does maintaining a work-life balance. Professional traders will often talk about the need to have many outlets outside of trading. It is going to the gym, traveling, hanging out with friends, or anything which keeps you busy from sitting in front of a screen and makes sure you are mentally sharp when it is trading time.
Trading can be quite stressful, and pressure in the head of keeping markets can burn you out. Traders who maintain hobbies and interests unrelated to trading tend to take care of emotions better and stay clear-headed while making decisions. You’ll be more likely to grow your account responsibly by fitting trading into your life rather than letting it consume your life.
Conclusion
Gaining quick and responsible growth on your trading account in 2024 requires a mix of rigorous risk management, efficient trade execution, and a balanced life. Protecting those green days and imposing individual per-symbol risk limits as well as introducing a giveback rule are the bases from where you will learn to sustain growth. Trade is a marathon, not a sprint. Focus on consistency and sound risk management, and you’ll see your account grow over time.
