This article talks about the amount of capital, the more you have in the beginning the greater chance of success. That makes sense because of the commission cut. Any idea how much capital would put you into the 75% bracket of success, that is assuming you have the know-how of course?
I think it would be very difficult to be consistently profitable with an account size of less than $10k. This is not due to any reduction in commission costs given to high volume trading. This is a result of the much small position size that is possible with a small account relative to the per ticket commission rate. For example, a $5k margin account ($10k buying power) could only buy 200 shares of a $50 stock. Even assuming a reasonable commission rate of $20/ticket, the round-turn commission cost of $40 works out to be $0.20/share on your position. In other words, you will need to average a 1/4 point profit per trade just to break even. Not impossible, but much more difficult. Certainly, to be successful, a longer time frame or lower stock price would have to be considered to increase the chance for success.
However, I think this discussion misses the real issues faced by a trader opening up a new account. The critical issue is NOT to be profitable, initially. The critical issue is to lose the minimum amount possible as you learn the ropes of daytrading.
Sounds crazy, I know. But 99.9% of new daytraders will 'profit' from acknowledging that they will lose money in their first several months, and therefore seek to learn as much as possible while losing the least amount as their tuition fee. A smaller account can be perfect for this. I think a new trader ought to be able to open a $10-15k account and trade for 2-3 months will losses totaling no more than ~$5k. This trader may only make 0-2 trades per day, and will focus primarily on a lot of watching, reading and paper trading. He will only attempt the trades that look almost perfect to him. Then he will focus only learning why that apparently perfect trade lost money. These trades will initially be 100 shares, and should not increase in size until the trader is averaging a higher selling price on his trades than his buying price.
Once the trader has learned to be successful and consistently profitable he can safely add capital to bring his account to $100k+ and trade much more actively with higher position sizes. Until the trader has learned the expensive lessons along the Learning Curve, it is a mistake to trade a large account size, or to trade actively/frequently.
Good luck,
-Eric |
