Some words on learning the ropes: I have had many a question today about how to get started and how much to start with. Got me thinking about how I started and a few methods for learning the ropes without getting rope burn, or at least burned too much.
Firstly, I started as a long back in 88 or so, first purchase was AAPL because I was a misled MacAhaulic. Had no idea what I was doing but went down to Schwab and said "I would like to by Apple...huh-huh...and stuff" or something like that. Deposited $3000, spoke with a fellow in the trading dept. named Mo, and got my AAPL. Bought at 28 1/8 sold at 44 3/4. I was hooked.
Most of my trades were relatively long but as the years went on, they grew shorter and shorter, until today. I originally purchased 400 shares of AOL when they went public at 11. Sold at 13 1/4. Don't ask what it would be worth today....I don't want to do the calculation...yet again.
Owned CSCO early as well, only 300 shares. So now you see why they say not many traders get rich. I vehemently will defend the trading lifestyle and will say that smart traders can get rich. Realize trading for what it is, a goal of maximizing short term capital appreciation through taking advantage of daily swings in market and issue conditions. However, one can and should be both a trader and a long. Use your trading, when you have secured enough of a base, to acquire your favorite long issues. Mine are CPQ, CSCO, AMAT, GYMB, FMY, F, ABTX, CIEN, etc. But put these away so you cannot trade out of them in case of market down turn....a mistake I frequently make.
With that said, lets talk about a few things.
Base capital - This is what you feel you need to have on hand to generate an amount of income that meets your specified goals. You will find that this may move higher as you make more money. With me, I have set my base at between $50-60K. This sounds like a lot to many but this, for me, gives me ultimate flexibility. I can easily trade with much less, but we are talking about ideal here. Any more than that and I am simply increasing the amount of shares purchased. I normally like to trade a minimum of 1000 shares and a maximum of 5000-6000. Normally I stick with 2000-3000. The reason I like this base amount is that it allows me to split my funds roughly in two to play a position/swing trade and a quick in/out day trades simultaneously. I highly suggest this tactic if you find yourself having to liquidate one issue to by another. I rarely have three issues on the table at once. Find the amount that is right for you, it does not have to be a large sum. Give yourself time, set realistic goals, do your homework, and learn from previous mistakes....always learn.
This leads me to the next subject:
How to start out - Many suggest paper trading and I highly recommend this. But, I have never found anyone that paper trades with the same intensity or emotion as a real-life trader. It just isn't the same. Many people say "I am buying it at this price" and then write it down right then and there, only to sell it 1 minute later at 1/2 point above. If you are going to paper trade, use the same procedures that you would to do a live trade. If this means an online broker, prepare to wait 1-2 minutes before you get the price. This means picking your issue at real time, waiting 2 minutes, pulling a real time quote and saying "this is realistically what I could have bought at." Even then, this may be best case. Due diligence in paper trading is very important. Many paper trade in order to prove that they will do well, rather than paper trade to see how they would do. Big difference, be honest with yourself. I have answered quite a few emails recently asking "Uh, now what?" This is quite alright, but you must prepare yourself for the harsh reality. I venture to guess that 75% of new traders will not do well and eventually turn from trading.
A better plan - If you can afford it, bag paper trading. Go for the real stuff at extremely reduced stakes. Many places give day trading courses from $2000-$5000. They teach you how to trade, and give you nothing back from your investment other than, hopefully, knowledge. Try this on for size: If you plan to become a serious trader, swing or day, invest some money in learning on the job. I suggest taking $1000 as an "educational" expense and kiss it goodbye, as it could disappear. Go to Schwab, E*Trade, or your local online discount house and open an account. If you can't meet the minimum, find a place where you can get in for a low amount. Now, with your educational fund, trade and see how you do. No, you aren't going to be trading huge blocks on $100 stocks but you could certainly trade 200 shares of TAVA, 100 shares of PSQL, how about 500 shares of CTII. We are willing to blow $1000 on things in which we get no return from but are too afraid to take that same $1000 and invest it for fear of losing money. This is the best education you can buy. If you lose a large portion, how much will that experience save you if you hadn't tried it? What did you learn? Did you break any of the rules of trading? Remember though, this $1000 is real money and you must treat it that way. Trade it as if you were trading $10000 or $100,000. The point is, there is no better substitute for the real thing than the real thing. And that $1000 is a fraction of what any educational class is going for now days. Plus, the upside reward is that you turn that $1000 into $2000, then $4000, and so on.
Remember the rules - I know, I am repeating myself and you are all sick of it. Don't get greedy. Don't hold a loss unless you have a good reason. And that good reason can't be "I can't afford to take this loss right now". As soon as you say that, you will double that loss.
Most day traders will quit for one reason, they can't allow themselves to take the loss. They trade one time, the stock falls 1/4. They hope it recovers, it goes down 1/2. They get upset. It goes down 1, they freak out and start to panic, at 1 1/4 they punch up "Sell at Market", they sell out at -1 1/2. The stock bottoms, starts to run. They pick it back up near where they bought it the first time.....just as the traders that got in at -1 1/2 are selling to take the profits because they waited the extra 1/2 hour. The stock turns downward and the cycle repeats. Or worse yet, they buy, the stock drops, they become a long term investor and their stock languishes at 30% of its purchase price. It can be a nasty game.
Let me paraphrase from a good book: "The Electronic Day Trader" by Marc Friedfertig and George West. Again this is only a paraphrase but it makes the point. There are good traders and bad traders. A good trader may only pick stocks that move higher 25% of the time and still make money when a bad trader can pick stocks that move higher 75% of the time and lose his/her shirt. Being a good trader involves discipline and it is a learned skill.
I msyelf run about 50/50. 50% of my picks go lower. But the trick is not to let them run lower, cut your losses and move on. The other 50% move higher with 25% or so moving significantly higher. Cut your losses and let your winners run. But then, don't be afraid to sell and take the profits off the table. Don't let a a gain become a loss.
And most of all, buy the rumor, sell the news. I can't say it enough.
Good luck to you all, and I hope this helps. Please let me know how you are doing.
TJ |
