Could This Mistake Be Wiping Out Your Gains?

Confidence in trading is developed when you learn more and lose less.

However, the next stage in the journey is potentially the most dangerous.

You see, many newbie traders will start believing they’ve got things figured out after stringing together a few good days or weeks.

They feel they’ve gotten over the hardest part of trading, and now it’s time to ramp things up.

But with new levels comes new devils.

In fact, scaling up too soon when you’re not ready can wipe out weeks or even months of gains significantly faster than it took you to get them.

Not only will your gains disappear. But your confidence will shatter, putting you in an even worst spot than before.

That’s why I want to talk to you about correctly sizing up.

Getting this right can propel your trading to the next level…

But if you mess it up and you’ll be finished.

Here are five ways you know when it’s time to scale up and start trading bigger.

#1 Build Consistency First

By the time I was a senior in college, I was a self-made millionaire trader. While I don’t think I’m exceptionally smart or have special skills, I know my results are unusual.

However, I do believe if you commit yourself to learn the principles I teach, your chances of success are far greater than the 90% of traders who fail.

I’ve proven that time and time again, mentoring 32 of my students into millionaires.

But that’s a gift and a curse. Of course, it validates me. On the other hand, it makes newbie traders think that the road to success is easy. I’ll tell you right now, my most successful students studied their butts off. Despite having me as their mentor, nothing was guaranteed.

One thing you’ve got to understand is growth in trading isn’t gradual. In the beginning, you will likely suck…then suck a little less… and reach a point where you’re not losing or making silly mistakes…

But it’s not until you become consistently profitable should you consider sizing up your trades.

Now, that doesn’t mean a few good days, weeks, or months.

Trading bigger requires having confidence in your trading plan, setups, patterns, and strategy.

Confidence is built over time through practice and repetition.

If you don’t have that and start trading bigger too soon, then you’ll get obsessed by watching your PnL swing back and forth.

Once you’re focused on the PnL, your emotions will get the best of you. My millionaire students focus on the plays.

The PnL is just a byproduct of their execution.

Find out what works for you and build on that.

Once you’re consistently trading one strategy well, gradually start to size up.

Your gut should guide you on whether or not you should be sizing up more. You should be saying stuff like That is a perfect setup for me and the type of trades I should be willing to risk more in. 

#2 Build Your Risk Tolerance Up

If you’re used to risking $100 on a trade, jumping to $500 is too big of a leap. You want to build your risk tolerance over time.

As your account grows, try to up the ante.

But you can’t skip levels.

If you’re finding success trading a specific setup and you’re typically risking $100 on the trade, try $120 or $130 the next time you play it. Now, that might not seem like a lot, but it’s a 20%-30% increase.

And if you’ve built up your account, you have some profits, giving you some extra room.

You want to avoid scaling up if you’re in a deficit. Experienced traders can sometimes get away with breaking the rules, but early on, you want to advance from a position of strength.

#3 Market Conditions Matter

In 2019 I made $125,000 in trading profits. However, in 2020 I made $1.19 million in trading profits.

Did I become a significantly better trader from 2019 to 2020?

While I do like to think I’m improving, the reality is the market was a lot better in 2020.

I capitalized in 2021, making $1.076 million. When trading got a lot harder in 2022, my profits were $130,000.

And right now, the markets are choppy. I am more selective, cutting losses quickly and taking profits faster.

Being aware of the market we’re in can help guide you on whether or not to be sizing up.

#4 What’s Your Risk of Ruin?

The risk of ruin is a formula some traders use to determine the likelihood of a trader losing all their trading capital. The formula is typically used in risk management to determine how much of their account they should risk on each trade.

The formula considers a trader’s winning percentage, the ratio of the average profit to the average loss, and the total number of trades.

It calculates the probability of a trader losing all their capital before making a profit based on their trading history and the number of trades taken. Traders can use the formula to determine their risk tolerance and adjust their position sizing and risk management accordingly to minimize the risk of ruin.

# 5 Trading Strategy Matters

Traders should consider their trading strategy before deciding when to scale up. For example, short-selling is a very risky strategy for traders who are inexperienced and have small accounts.

Another risky strategy is options trading. Options can be volatile, with wild price swings, making it hard to manage risk.

One of my favorite strategies is panic dip buying. But other traders may see that as trying to catch a falling knife.

The bottom line, you’ve got to analyze your strategy and see if it’s conducive to scaling up. But more importantly, if you can manage the risk.

Final Thought

Most people who hear about my success as a trader and my results as a mentor naturally get excited. And there’s nothing wrong with wanting to become a successful trader and being financially independent.

However, there’s a learning curve you have to be willing to go through. One of the greatest challenges is sizing up. Hopefully, I’ve given you greater clarity on  the process.

If you’re still trying to develop a strategy with the goal of one day scaling up one, check this out. It’s one of my favorite plays in the market. And has brought me a ton of success over the years.