What’s up trader’s, Ross Cameron here! I recently faced one of every day trader’s worst fears: blowing up a small trading account. It wasn’t my finest moment by any means, and although the account size was relatively small compared to my main account, I was certainly not happy about losing money. However, each setback in trading—just like in life—can provide valuable lessons and, surprisingly, new opportunities. Let’s dive in and talk about what I learned from blowing up an account, and how I set myself up for recovery!
The Bright Side of Blowing Up an Account
Despite the initial disappointment, the loss of my account has given me a unique chance to demonstrate an essential skill every trader should have: the ability to bounce back. Whether you’re trading forex, cryptocurrencies, futures, or stocks, the principles of recovery are universally applicable and critical to long-term success.
The first challenge after taking a hit in day trading—or any form of investment—is managing your emotions. Losing money isn’t just a financial setback; it hits hard emotionally and can shake even the most seasoned trader’s confidence. One strategy I’ve found incredibly helpful in regaining my composure is guided meditation. Meditation helps in reconnecting with discipline and controlling impulsive trading decisions that can lead to further losses.
The second significant challenge is strategizing how to rebuild with considerably reduced capital. This means adjusting your trading strategies to work with less leverage and aiming for smaller, more consistent gains rather than home runs. It’s about making the best out of the resources you still have available.
How It All Went Down
As you might know, this isn’t my first small account challenge. Previously, I turned less than $600 into over $10 million in verified trading profits over my career, so I decided to challenge myself with another small account to keep things interesting. However, not all challenges end in triumph. This time, a technical mishap led to a disastrous trade that wiped out the account.
During a routine adjustment to my trading setup, I failed to ensure that my hotkeys—the keyboard shortcuts that I use for quick trading—were set correctly on a new trading platform. This oversight resulted in a significant unintended position that went south fast. Before I could correct the mistake, my account was devastated.
The Strategy to Rebuild
The process of rebuilding starts with accepting the situation and planning strategically with a focus on risk management. Here’s how I approached it:
- Finding the Right Stocks: I focused my attention on stocks driven by news events, exhibiting high relative volume, and showing significant percentage gains.
- Importance of Entry and Exit Points: I revised my approach to ensure my entry and exit points would allow a favorable risk-to-reward ratio. Ideally, I aim for a 2:1 ratio, where the potential profit is double the risk.
- Restricting Trade Size: Initially, I limited the size of my trades to reduce risk. As my confidence and account balance slowly started to rebuild, I gradually increased my position sizes.
- Using Scalable Strategies: I implemented strategies that could be scaled up as the account size grew, allowing for larger positions without proportionally increased risk.
Bouncing Back With a Bang
I jumped back into the fray with a stock ticker, TGL, which showed promise due to a favorable news event and high trading volume. By focusing on a small entry and quick exit, I locked in a modest profit, a crucial first step in the right direction.
The next day, I traded APR, which offered a perfect example of a micro pullback—a quick dip in price that provides a buying opportunity before the stock resumes its upward trend. This strategy netted a solid profit, doubling my account from the previous day’s close.
As the days progressed, I continued to apply these refined strategies, each day gaining more from the lessons of the previous day’s trading. By day six, I had significantly recovered from my initial loss, putting me back on the path to growth and mentally preparing me for more advanced trades.
Final Thoughts
Blowing up a trading account isn’t the end of the world, though it might feel like it at the moment. With the right mindset, strategies, and a bit of patience, it’s possible to turn even the direst situations into opportunities for growth and learning. I continue to share these experiences and strategies to help fellow traders avoid similar pitfalls and find their path to day trading success. For those interested in a deeper dive into my trading strategies and real-time insights, you can get started here. Whether you are starting from scratch or looking to improve your trading approach, the right resources and a supportive community can be game-changers in your trading journey. I hope you enjoyed this blog, and happy trading!
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Warrior Trading was founded by Ross Cameron in 2012, and is now a thriving community of thousands of traders. You can learn more about joining the Warrior Trading community here.
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Disclaimer: The results shared are based on my personal trading experiences and are not typical. Trading involves significant risk, and past performance is not indicative of future results. Always practice in a simulator before trading with real money.