Hi RobbRacer; Some general daytrading notes from
a guy who is slowly improving, but has a long ways
left to go...
As you suspect, about 90% of the people who try
day trading lose money... As time goes on, one
gets better and better at it, so part of the
secret is to not blow too much money before you
know what you are doing.
Look for a place that allows commissions below
$20 per trade of 1000 shares. (i.e. $40 for a
round trip.) That will allow you to make a
profit even on a 1/16th move.
For learning, look for a place that has reduced
commissions for below 1000 shares, or start with
a really big account.
Avoid overtrading. This doesn't mean making too
many trades, it means don't place any bets that
involve more than a very small percentage of your
capital. The books suggest 1%, I think that is
too large by 3 times.
For instance, if you have a $100,000 account, don't
risk more than around $333 per trade. So if you
buy 1000 shares of a stock, your absolute stop
loss must be about 5/16. If you exceed your stop
loss due to your being late, then take the loss
that you have, even though it is worse than what
you planned for. Things may not get better...
If you can't resist holding postions overnight,
then observe the overtrading rules. Restrict
your share count to a number so low that even
the worst sort of overnight gaps (i.e. 50% drops
in stock prices) will not cause you to exceed
a loss of 1/3% of your account.
Biggest error by new traders is trading in such
a way as to make small profits with very high
probablity, but huge losses with a very small
probablity. This is a lose, it is a gamblers
error used frequently in Los Wages, so don't
do it. Techniques that allow this include:
Holding (large) losses until they return to
profitablity instead of stopping losses. And
increasing share size when you have a loss in
order to make back up the loss.
Know that you will have many, many down days,
and face that certain knowledge as tuition in
the school of hard knocks. If you are down in
the morning, don't do something stupid in order
to make good your loss in the afternoon. Instead,
take a break from trading if you find yourself
concentrating on your losses.
Remember that nobody cares what you paid for a
stock. Just try to sell it at a good price, and
similarly try to buy it at a good price.
Keep calm, after a absolutely stunning victory,
take a break.
Demo trade (i.e. paper trade with real prices
in real time) for at least a month. Keep complete
records of your paper (and live) transactions.
After the market closes, use the internet or
what have you to print paper 2-day charts for
the stocks you traded. Mark your purchase and
sale points on the charts, and contemplate how
you could have done better. Note that this may
not apply to scalpers in highly liquid stocks.
Don't modify your trading style on the basis of
a short term (i.e. 1-day) change in your results.
Remember that this is a game of averages, and
that the vast majority of your trades will be
either lucky or unlucky to some extent. Don't
imagine that you are a rock star until you have
made enough money to buy a rock star's house,
and then try to avoid thinking about it. (I look
forward to having to follow this advice. :)
Keep your share size down until you consistently
(i.e. over 20 consecutive trading days) beat
the market. Then allow higher share size so as
to increase profits. I suggest 100 or at most
200 shares to start. If you lose more money than
you are comfortable with, reduce your share size,
then reduce it again. The market will still be
there after you are an expert, save your money
until then.
Buy and read as many books on trading as possible.
Ask other traders for suggestions. Go down to
the local big chain book store once per week and
spend $300 on trading and stock market books for
your first two months. Then you can reduce your
purchases somewhat, but remember, this is an
education and will require quite a lot of effort
on your part.
Above all, I always try to remember that in order
to take money out of the market, I have to find
another trader, or combination of traders, that
is somehow stupider than me. This is not necessarily
an easy thing...
-- Carl |
