Ask Colin

How would you make a trading plan for a very small amount of money? I have set aside $5,000 to trade (and learn) with. Your trading plan, formulas and equations are for much larger amounts. I am watching stocks up to about $6 and have had some successful paper trades but have not formed a clear trading plan as yet.

$5,000 is a very small amount to trade with. You are going to have to take much higher risks that a trader with larger capital is able to do. I think these are the things you have to do:

1. You have to risk more than 1% of your trading capital. However, 5% should be considered a maximum. Even so, if you get away with up to 5% risk and grow your capital, you should start to reduce your risk as soon as you can.

2. You will also have to accept lower diversification than I do. This also increases your risk.

3. You will find that many of the trades I take are out of your reach. You will have to select trades with close stop-losses, or your position size will be so small that the brokerage will destroy your capital. This means you will also be stopped out at a small loss more often, but that is probably a good thing.

4. You must find the cheapest broker and you cannot stage your way into trades as I do. This will also increase your risk.

I really think $5,000 is not enough. I suggest you save up more and just paper trade till you have at least $20,0000.