Happy Friday, Evolvers!
Today, we’ll discuss how to build a small account and go over a few of my favorite setups for next week.
But first, let’s talk about some of this week’s most important moves in the overall market…
The regional banking crisis continues to pressure the financial sector as there’s been no meaningful bounce in the banks yet.
First Republic Bank (NYSE: FRC) has faced the brunt of the recent bearishness … the stock is down 90%+ in the past two weeks.
A reversal in the banks could lead to some promising call-buying setups in the future, but it’s too early to try to catch the falling knife.
The second half of this week was dominated by the Fed’s FOMC meeting, where Chairman Jerome Powell announced another 25 basis point interest rate hike, as expected.
The market is still digesting the news, but the initial reaction was negative. The Dow Jones Industrial Average (DJIA) dropped 500+ points on Wednesday as Powell implied rate cuts won’t happen at all this year.
Thursday morning, all dips were being bought until the mid-afternoon, when the market gave back most of its gains.
Additionally, crypto has been surging following the Fed meeting. The ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) is up nearly 15% in two weeks. I won’t chase at these levels.
But it’s Friday, so that means it’s time for our Q&A! Keep reading and I’ll answer your questions…
“I can’t get my small account above its initial starting value. Whenever I book a win, I take a step backward with a loss. How do you grow your small account challenges so consistently?”
I think growing a small account primarily boils down to two skills: timing and discipline.
But specifically, there are three steps I try to take when trading a small account…
Step 1: Cut losses (and book profits) quickly!
You’ve heard me repeat Tim Sykes’ #1 rule many times before … always cut losses quickly!
This remains as true as ever, but remember that the same goes for booking profits quickly…
When you’re trading a small account, you must take your hard-earned gains before they disappear.
Whatever you do … don’t get greedy and hold out for big wins! Hit singles.
This applies even more when you’re trading options. A solid win can deteriorate into a stinging loss in the blink of an eye.
Trade accordingly. Lock your wins up while you still have the chance.
Step #2: Only trade ideal setups
If I had to choose one key to small account trading, it would be narrowing down your setups.
Do this and you’ll already be ahead of the small account curve.
Remember the 3-item Checklist I learned from my buddy Tim Bohen? Ideal setups should contain the following:
- Above-average volume
- Exaggerated price action
- A major news catalyst
Bottom line: Be disciplined when waiting for the perfect patterns.
It’s difficult to discern great trades from good ones, but that’s what separates market masters from struggling newbies.
Step #3: Be aggressive when trading perfect patterns
If the pattern’s perfect — it’s time to be aggressive. This is especially important if you’re trading a small account.
Last year, I grew a small account from $10,000 to $130,000+ in a little over a month. (Click the link to see my individual trades.)
The only way I was able to do this was by waiting for perfect setups, then risking 50%+ of my account on my first few trades.
This takes an incredible amount of risk tolerance and patience. But it’s the only way to exponentially grow a small account the way I did.
Bottom line: Five-star setups don’t come along every day. You’ve gotta take advantage of golden opportunities when they come to you.
“What setups are you watching for next week?”
Aside from the FOMC meeting this week, the market has been mainly focused on the regional banking crisis.
I’m similarly focused on the financial sector right now. To me, the big question is this…
Is the bank contagion over? Or will it continue and spill into other areas of the market?
I’ll be watching FRC and the SPDR S&P Regional Banking ETF (NYSEARCA: KRE) for indicators as to where the banking sector — and, in turn, the overall market — is headed.
Additionally, I’m watching two alternate gauges for overall market sentiment…
I’m using the ProShares Ultra VIX Short-Term Futures ETF (BATS: UVXY) to track volatility as this chart can be a powerful leading indicator for the direction of the stock market.
And I’m still finding clues within the charts for the Invesco DB U.S. Dollar Index Bullish Fund (NYSEARCA: UUP) and the SPDR Gold Trust (NYSEARCA: GLD).
The U.S. dollar and gold trade inversely, but both can have a huge effect on how the S&P 500 ETF Trust (NYSEARCA: SPY) will perform in the near term.
Final Thoughts
Have a great weekend, Evolvers!
Spend this weekend studying hard and developing a game plan for every possible scenario.
I want you to be prepared for anything that may happen next week!
