Small Capital Trading Advanced Guide: Choose Niche Markets, Try Day Trading

Original Title: "How to grow a small trading account"

Author: adam

Compiled by: 深潮TechFlow

Before diving into the main topic, it's essential to remember that trading is a complex and high-risk activity.

There is no method that allows you to grow your account quickly in a short period without experiencing any losses.

In fact, those who can rapidly grow their accounts often do so by taking on significant risks, sometimes even approaching a do-or-die situation.

The focus of this article is not to tell you to patiently wait for ideal market conditions or to teach you how to analyze the market in depth.

Instead, I will share some methods to help you achieve rapid account growth while reasonably controlling risk.

If you are not yet familiar with basic concepts like "risk management," I strongly recommend reading this article on risk management first.

Why Trade in Niche Markets?

If you primarily trade large markets like BTC, ES (S&P 500 futures), major forex pairs, or gold,

you will be directly facing retail traders like yourself while also competing with large institutional players, quantitative firms, and others.

This is mainly because these markets have extremely high liquidity, allowing large capital players to easily participate in the competition.

While trading these markets is not impossible, if you do not have sufficient capital, you will actually find more advantages in markets with lower liquidity.

For example, many altcoin derivatives, NFTs, or on-chain coins are not very attractive to large players because these markets lack the liquidity to meet their trading scale demands.

When I began to delve deeper into the altcoin market, I often found the clearest trading signals in markets with lower liquidity.

At first, I was confident in these "low-barrier" markets, but when I tried to execute large positions, I found my orders stood out starkly on the order book, making me realize the disadvantages of insufficient liquidity.

However, for small account traders, this issue does not need to be overly concerning, as this liquidity problem will only truly affect you when your order size reaches high five or six figures.

Taking Velo's Lina as an example, the chart shows that potential breakout signals for Lina could be observed days before the breakout occurred.

Such opportunities can yield significant profits, but we also need to consider the potential risks.

By checking Lina's trading volume and open contract data on the Laevitas platform, we can see that Lina's daily trading volume was 16 million, with open contracts at 4.5 million before the breakout.

If this trade fails and you hold a large position, your stop loss may result in actual losses far exceeding expectations due to slippage. However, for small account traders, their position sizes are smaller, and stop losses can often be triggered close to invalid points, thus avoiding this issue.

Low market cap alternative derivatives are not the only things you can participate in. On-chain tokens or NFTs are similar.

When trading, the most important thing is to be aware of where the "meta" currently lies.

For example, NFTs were very popular a few years ago, but they have since faded away.

You need to understand the speed at which information spreads in this field to avoid taking on unnecessary risks while also not missing out on significant gains due to premature selling.

On-chain trading is very challenging. Although you may see many success stories on platform X, the likelihood of turning "1 SOL" into "1000" is very low.

In on-chain trading, there are some unique strategies you can use, such as tracking different wallets, analyzing position distributions, or simply relying on common sense to avoid tokens heavily promoted by KOLs.

Additionally, you will find that using simple support and resistance levels or trading indicators is often sufficient for trading, especially for larger market cap tokens with lower risks of rug pulls.

Day Trading

Prices exhibit fractal characteristics. This means that if I show you a chart, you may find it difficult to determine whether it is a daily chart, a monthly chart, or a 5-minute chart.

Moreover, for highly liquid markets, if you are not familiar enough with them, it can also be challenging to discern which specific market it is.

For example, the chart above shows XRP's 5-minute chart.

If you choose to swing trade, your trading frequency will be relatively low. Even if you are profitable, most of the time you will simply be patiently waiting for opportunities, which typically only occur 1-2 times a week in each market.

I will discuss swing trading in detail later, but day trading is different; it provides immediate feedback with numerous small fluctuations to trade each day.

Therefore, if you engage in day trading and execute a small number of trades in each trading session, theoretically, your account funds will grow faster.

However, day trading is one of the most challenging areas of trading. A slight distraction or a minor mistake can lead to losing all your profits in just a few minutes, just as quickly as you made money.

I recommend that every beginner trader try day trading, as it allows you to quickly receive market feedback and accelerates the learning process.

One major advantage of day trading is that you can focus on highly liquid markets, making trading scalable. If you focus on BTC, ETH, ES, NQ, gold, or major forex pairs, you will not encounter limitations on position sizes.

Nevertheless, day trading is very difficult and not suitable for everyone. It requires high levels of focus, quick decision-making, and decisive stop-loss actions.

Thus, it is crucial to develop a detailed trading plan and strategy for each step. Once you enter a trade, emotions can affect your judgment, and this is when a pre-prepared plan will come in handy.

There are many methods for day trading, such as operating based on price movements, order flow, news, technical indicators, etc. Each method has its applicable scenarios, and there is no absolute superiority or inferiority.

If you are interested in my day trading and swing trading methods, you can check out the Tradingriot Bootcamp, which is a training course designed specifically for traders.

Trading with Other People's Capital

In recent years, the online prop firm sector has developed rapidly.

If you are new to these types of companies, you need to pay an evaluation fee and comply with trading rules in a demo account to gain access to a funded account.

This model allows you to trade with larger capital, with the only cost being the evaluation fee.

However, if you are not familiar with trading, you may waste funds by frequently paying evaluation fees without ever obtaining a funded account.

Although prop firms often spark controversy, I believe they present a great opportunity for those with trading skills but lacking capital.

As this sector rapidly expands, it becomes increasingly important to choose a reputable and stable company. In recent years, we have seen some companies refuse to pay profits, set rules that are nearly impossible to pass, or even go bankrupt outright.

I may be a bit biased here, as I am directly involved with the Breakout prop firm. But if you focus on cryptocurrency trading, Breakout is a very good choice. It offers daily payouts with no record of refusing to pay, and the evaluation rules are very reasonable.

High Time Frame Analysis and Low Time Frame Execution

If you find that day trading is not suitable for you, do not be discouraged. This method can also help you grow your account quickly while being easier to operate.

In fact, this approach is not limited to small accounts; I have personally completely shifted to this trading style because I no longer want to spend a lot of time staring at charts.

That said, I still want to emphasize that my experience over the past few years in day trading, studying different futures markets, and understanding market microstructure has been very important to me, and I am glad to have gone through it.

While we mention that prices exhibit fractal characteristics, key points on higher time frames such as daily, weekly, or monthly charts often elicit greater market reactions than points on a 1-minute chart. This is because more traders and algorithms pay attention to these key points on higher time frames and act accordingly.

For example, at the end of February 2023, Solana rose to a daily resistance level before pulling back to the next daily support level. If a short position was established at the daily close with a stop loss based on the 1-day ATR, a 2.5 times risk-to-reward (R) could be achieved within 18 days.

Of course, achieving a 2.5 times return in 18 days is quite good. But if your account is small, for instance, with a single trade risk of $100, then making a $250 return may not be exciting; in contrast, if the single trade risk is $10,000, earning $25,000 would seem very substantial.

If you want to grow your account quickly, you can switch to lower time frames while following the trading ideas of higher time frames (HTF). This means keeping your targets the same but executing trades on lower time frames (LTF) to narrow the stop loss range, thereby increasing position sizes.

You do not need to switch to 1-minute or 5-minute charts; H1 or H4 time frames are sufficient. Focusing too much on lower time frames may increase risk-to-reward ratios but also significantly raise the risk of being stopped out before a trend starts.

If you choose H1/H4 time frames, you may still not achieve ideal entry points or get stopped out before a trend starts. However, in my experience, giving the trading ideas of higher time frames 1-3 attempts at execution on lower time frames usually yields better results than relying solely on daily charts.

Conclusion

Trading is not easy; it requires time and patience. But as long as you manage risk well, small amounts of capital can gradually grow into larger sums.

In trading, always try to break out of fixed thinking patterns, maintain patience in execution, and develop a comprehensive trading plan.