A lot of my advice boils down to trading is hard, so go after the easiest stuff you can find first.
Some call this defeatist. I call it realistic and practical.
A big part of trading is not screwing up. So, at the start, learning skills, defining processes, and building confidence are important.
A question we get a lot is I’ve got a small account; what’s the best way to manage that?
And the answer is slow and steady.
If I were trying to make friends, rather than give you good advice, I would say this:
If you have a small trading account, you can do really high-performing, low-capacity stuff. There are trades in crypto futures, and there are opportunities in constrained equity trades, where you can get very high risk-adjusted performance. And that’s because those opportunities aren’t really big enough for more sophisticated traders to be interested in. So let’s go after these really niche, constrained things.
But there’s a catch.
Those trades are tough.
They require more skill, more time, and often more technology than a beginner has at their disposal.
It’s like trying to run before you can crawl.
So what’s the alternative?
Start with the easy stuff.
I’m talking about strategies that might not set the world on fire with their returns, but are forgiving enough to let you learn the ropes without blowing up your account or destroying your mental health.
Think of it like this: on one end of the spectrum, you’ve got high-skill, high-return strategies. On the other, you’ve got lower-skill, more modest return strategies.
Where do you think you should start?
If you said “high-skill, high-return”, I admire your ambition. But let’s be real – you’re setting yourself up for a world of pain.
Instead, focus on the easier end of the spectrum.
Why?
Because it’s about building confidence, not screwing up, and learning to run processes consistently.
Here’s a real-world example: Risk premia harvesting.
It’s not sexy, but it’s a solid strategy that’s been providing a tailwind to macro traders for decades.
And guess what?
You can start doing it today.
Now, I know what you’re thinking. “But I want those juicy returns!”
I get it. But don’t worry – those high-return strategies aren’t going anywhere.
They’ll still be there when you’re ready for them. And trust me, you’ll be much better equipped to handle them after you’ve cut your teeth on the simpler stuff.
So what kind of returns can you expect from these simpler strategies?
Let’s talk Sharpe ratios.
For a single risk premium harvesting approach, you’re looking at about 0.5 to 1. In plain English, that means your returns will be about half your volatility, or a bit more.
If you’re smart about it and combine a few of these strategies, you could potentially bump that up to a Sharpe ratio of 1 – meaning your returns roughly equal your volatility.
Now, I know that might not sound earth-shattering. But here’s the kicker – you could potentially manage this kind of portfolio with just a monthly check-in. Try doing that with high-frequency crypto arbs!
As you build your skills and confidence, you can start venturing into more complex territory. Those constrained trades with Sharpe ratios of 4 or 5? They’re not going anywhere. But by the time you get to them, you’ll have the skills to actually capitalise on them.
Remember, trading isn’t a sprint – it’s a marathon.
Start slow, build your skills, and before you know it, you’ll be tackling those high-return strategies with confidence.
