*** SOME OBSERVATIONS....keys to sanity and success ***
This is an excellent thread. I think all who have experience should contribute. Daytrading is not for everyone or even for 10% of us, and people who think it is easy are fooling themselves, maybe dangerously so.
One of the things psychologists say is that Daytraders who get lucky in the beginning, perhaps because of the Internut frenzy, sometimes get cocky and feel invincible, and this is perhaps the worst thing that can happen. They may be destined for huge losses when reality sets into the stock market, as it now appears to be doing somewhat. I got cocky a few years back. I won big on my first options trade, but over the next 3 years lost $50K in options. I came to find out that 90% of all people LOSE with options, so I rarely do those anymore except for hedging against a long or short position of a common stock I own.
Here are some other things I've observed:
1) Paper trading is a really good idea while you keep your job. Keep trading this way until you are 70% successful. Try to keep your job and daytrade, too, if you can. Do your work after Market hours.
2) Be extremely thorough in your research (i.e.Due Diligence or "DD") and stay away from questionable stocks and especially stocks that are down for some of the following reasons: lawsuits, acctg irregularities, bad earnings, out of favor sector, etc.
It is best to trade stocks with positive momentum in hot sectors, rather than beaten down stocks in out of favor sectors. Don't think a stock can't go lower, it can and usually will.
As an example, right now some big gurus that I follow are recommending XIRC...if you look at the chart it looks like it is too high priced, near it's 52 week high, but earnings are coming out Tuesday and many think it will go higher. It is a company that rarely disappoints on earnings day (and you MUST always be aware of earnings release dates, by the way). Watch it and see...it will be interesting. DELL and MSFT have been other examples....how rich would we all be if we bought those stocks in the beginning and held or even 1-2 years ago?
3) Very important-- Track PEOPLE on SI or elsewhere that know what they are talking about...bookmark Jenna for instance and learn a lot. Join her www.marketgems.com. It is well worth a few cups of coffee a month
4) Be very conservative when you first start out. If you start building up your portfolio, risk slightly more, but never without doing DD and never more than 5-10% of your portfolio on 1 stock.
5) Find a good brokerage house whose services don't come to a halt when the market gets really busy. I lost $3,000 one day last week because Waterhouse Securites had a 45 minute wait on hold and there website wasn't working. I am now looking for other firms....anyone???
6) Don't have illusions or unrealistic expectations that you will become a millionaire and if you start losing, quit for a week and see a counselor or talk to someone. THIS IS CRUCIAL!!!! DO IT!!!! There are always more stocks to buy, every day dozens. If you miss one, there are always 20 more. Don't kick yourself for any mistake (i.e. especially selling too early, but also getting in too late or missing out because you decided not to invest in a stock that ran up big....move on....learn every day!
I often hear people that kick themselves for only making a modest profit on a trade..."I sold too early". Hey, that's good! You didn't get greedy. That is a good quality.
PLAY THE ODDS...
For instance, I play the odds now and sell before the end of the day if a stock has really run. I don't like holding volatile stocks overnight anymore. Most go down the next day, not all, but most.
I got into IMON early Friday at 2-7/16. I researched the company thoroughly the day before. It is in an industry I am in, so I understand the significance of their product. I invested a modest $3,000 and sold it at $6.00 late Friday. I have learned that although it might keep going bigtime the next trading day, 80% of the time, stocks that may be overpriced will go down the next day, sometimes severely so. At least sell half on a double.
7) Get to know a stock (5-10 stocks in hot industries). Learn all about them and their trading pattern, when there earnings are coming out, call the CEO or IR, etc.
8) Be very wary of Penny Stocks or companies that are NOT reporting. It seems that 95% of all OTC BB companies have serious problems and most we can't find out about because they are not full disclosure companies or not FULLY REPORTING. That's a dangerous thing. Nearly everyone loses big in Penny Stocks, especially until you understand the very complex "GAME". I have only 20% of my portfolio in Penny Stocks and have learned some crucial things about them. Occasionally I will day or week trade them, but LONG TERM I only like two that I think have a great chance of netting me a big return (out of hundreds that I have researched). Also, I only bought them when the Market Makers panicked people out of them and they dipped severely (i.e I only bought during great buying opportunities).
In other words, I thoroughly researched the companies, got to know their trading pattern, and only added to my position on serious dips that were not the result of anything the Company was doing wrong. I made sure that people on SI that I respected for their DD abilities also liked the stocks. By the way, the symbols of the two stocks I love long term are TSIG and WINR.
8) THE BIGGEST THING OF ALL!!!!
If you are spending nights worrying about the next day, you are in dangerous ground....period....seek help or quit...it ain't worth it, pal.
In fact, if you don't enjoy stress, serious research work, and hours in front of the computer screen, forget it!
PS-- I am not a big trader. I have a 401K account and own 2 homes. I risk only money that I can afford to lose.
I started in the stpring of 1998 with $17,000. I ran it to $40,000 in the Penny Stock Market, then watched it sink to $22k, then got largely out of the Penny Stock Market, and have it back to $40 again. I do this for fun more than anything else. |
