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Day Trading Lesson #1

There are a couple of different schools of thought when it comes to trading a smaller-sized account. The first, and most prevalent, is to set your risk profile to only 1 or 2% like you would a larger account. However, trading like this on a smaller account would involve a long slog upwards in equity. You may find that it takes years to double the account size. Since most of us start out with $10,000 or even less, this is a common problem with many traders. Most of us are simply not patient enough to wait 10 years to turn that original $10,000 into $25,000. This is simply the mathematical reality of compounding interest and trading in general. So what can a trader do? It is a matter of waiting for the correct opportunity to employ a highly leveraged trade. While most trades will not fall into this category, every once in a while you will see the same kind of trend line up in several time frames, and even on a larger time frame support or resistance. As an example, let's say you want to go long the Euro. You are act weekly support, at the 1.30 level. The 15 min, 30 min, and both the 1 and 4 hour charts are all pointing up. You now have confirmation on several time frames, plus the added assurance that you are at support. You must get several time frames confirming this move, as this isn't the type of trade that appears every day. When these things all line up, it is time to go long the Euro. Because of this, you can employ a larger-than-usual leveraged trade. If your normal risk tolerance allows you to buy 1 contract, then perhaps you should buy 3. This allows a potential "break out" trade for your account to increase its size. The trade management will be slightly different than you are used to. You will not want to take profits right away. In fact, you will move your stop loss up to break even when you get "breathing room" for the trade, and wait for a larger time frames signal to take your profits. (Something like a reversal bar on the daily chart.) This will allow you the maximum profit on a "runner" like this. You need to keep in mind that this is a riskier strategy. You should only be trading with money you can afford to lose anyway. Do be aware that this can work against you as well, but if done properly, you might just get to that $25,000 figure in much shorter time than you ever expected. Join our active community of day traders and learn the ins and outs of day trading here