One of the biggest mistakes traders make? Thinking every trade has to be a home run.
For them, a 10% gain doesn’t seem exciting. They see someone make 100%, 200%, or even more on a single position and want a piece of that action.
But that kind of perspective can lead you astray.
One of the most effective ways to build a trading account is by steadily accumulating gains. It might not have the same excitement as chasing big one-off wins, but it comes with a much higher probability of long-term success.
By banking smaller gains, we can snowball our account into something much bigger.
Of course, not every trade works out. There will inevitably be losses along the way. But the objective is to accumulate more profits than we give back, allowing the account to grow over time…
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While the “snowballing” concept might seem simple enough, putting it into practice requires discipline and patience.
That’s why when you’re starting out, I suggest keeping your position sizes relatively small.
For someone trading options, that might mean buying just one option contract. Your objective isn’t to make a fortune overnight. It’s to develop consistency, become comfortable with your strategy, and build up your account without taking unnecessary risk.
As your trading capital increases, you can consider trading bigger positions. Instead of trading just one option contract, you might trade two or three.
That means instead of making $300 on one contract, for example, you might now be making $600 or even $900 on the same move. The percentage return on the trade hasn’t changed. But the dollar profit has increased because you’re trading more contracts.
That’s where the snowball effect really starts to become apparent. However, trading a higher number of contracts also increases the amount you stand to lose if a trade goes against you.
That’s why you need to have a solid base of capital before ramping up the number of contracts (or shares) you trade. You let your account size decide how big you trade – not how confident you feel about a setup.
There’s also another side to the snowballing approach that’s just as important as accumulating gains…
There’s little point in stacking up profitable trades if one oversized position can wipe out those gains. You have to protect the capital you’ve worked hard to build.
That’s why you’ll often hear me talking about managing risk, taking profits off the table, and not forcing trades that don’t meet my strict criteria.
Sometimes that means accepting a modest winner rather than holding out for something larger. Other times, it might mean taking a loss before it grows.
It might not sound like a particularly glamorous way to trade. But these concepts are essential if you’re going to keep the snowball rolling.
Importantly, you need to appreciate that the process isn’t always smooth. There will be periods when your account goes sideways or you give back some of your earlier gains.
It can be tempting to increase your position size or take bigger risks to make up lost ground. But that’s where the most damage often occurs.
You won’t get into the Trading Hall of Fame by chasing one enormous, low-probability trade after another. You have to learn to be consistent, strictly manage your downside, and allow gains to accumulate.
Your account won’t grow in a straight line. But the goal stays the same: Start small, build steadily, and let your wins earn you the right to trade bigger.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
