I've been daytrading for seven months. This is the first
thing I've done in my life that I truly love and have a passion
for. I'm not making a lot of money, but I'm learning
alot. I want to offer some guidance for others out there like
me. I have a $30k account (so $60k with margin). Yet I
seldom have more $10k in stocks at a time; usually no more than $2k
per stock. When I'm on the right side of the trade I only
make about $80. But when I'm on the wrong side, I only lose
about $80. It's not trite what they say about "capital
preservation". I would paper trade, but I found
nothing gets you more focused than when you're using real
bullets. I recommend only use the bullets that sting, not the
ones that kill.
I
see this time period as an apprenticeship to learn a very difficult
trade.
In the beginning it’s
not about making money, it’s about learning.
And there's no way to
rush the learning process. You pretty much have to make every
mistake along the way. Only look back to assess your
mistakes, learn from them and then move on. Maybe I'm just
slow, but I have a hard timing seeing how you can learn this trade
working less than 10-12 hrs/day. This blog has a room full of
teachers in addition to Steve & Matt. I try to learn
everything I can from you guys.
It may sound corny, but this is the best personal growth experience
I've ever had. This is a place where all your demons come out
and push your buttons at the worst possible time. I can't
tell you how many times I've felt like Charlie Brown. Lucy
promised she wouldn't pick up the football when I go to kick
it. But she does EVERY TIME! I'm convinced I will not
be a successful trader until I refuse to kick the ball and find
another way.
NEVER GIVE UP!
OH...and by the way. I learned about capital preservation
after losing $10k in the first two months!
Posted by billrosen on 15th of May 2009 at 09:06 am
Best advice anyone could ever give a new trader is
trade only when you are sure it is a very smart and objective
decision, and then you will still be wrong half the time, but here
is the key, use an objective, not random, stop
everytime of not more
than a 3-5% loss.That way even when you are wrong on your 2k
trades you lose no more $100 and when you are right let them run
and make big profits. Be sure to take profits after and 8 - 10% run
up with 50% of your position and then raise your stop to your entry
and then raise your stop objectively should you be lucky enough to
get into a rocket stock that sails up quickly. The reason most new
traders lose their shirts is they do not think in percents, they
think in dollars...like OMG I just lost $300 in 15 minutes!!! When
in reality it might be a small orderly pullback or restest of
a breakout and everything looks OK. They panic and sell at the
wrong time because of their own fear or worse they do not
use stops and say a stock that is down 15% has gotta come
back and keep adding more capital as price drops. Pull up a
chart of FAZ or SRS and see how that strategy would have worked the
last 10 weeks. You would be wiped out. I always use stops 100% of
the time and while many times I get stopped out only to watch a
stock run back up, yes very frustrating, I always sleep at night
and average 10% per month trading...works for me.
bill -- I don't think its so valid to have an arbitrary 3-5%
limit for every stop order. To me it makes more sense to
decide how much of your trading capital you are prepared to risk on
each trade --1% or 2%, maybe 3%............and then adjust position
size according to where an objective stop falls for the trade you
are making, so that you are always risking an appropriate amount
(no profit without risk) but never more than is prudent for your
account size.
If you haven't read Tharp - Trade your way to Financial Freedom,
it will be the fastest profit from an expense to help you in this
market. I was unable to produce stable returns until I starting
using a spreadsheet for position size. Part of the exercise is you
can't enter the trade without knowing your stop. Tharp also has a
book on stops. Entries and exits from Dr. Alexander Elder is good
also if you have read his 'Come into my Trading room. Books for
thought. Wishing you some good trading success.
Posted by billrosen on 15th of May 2009 at 10:07 am
Michael agreed, if day trading, using trendlines as stops on a 3
or 5 minute chart would give a stop much tighter than 3-5%, I was
referring to a swing trade with those stops, point I never take a
loss more than 3-5% on any one position.
bill -- ok. If you're never giving a swing trade more than
3-5%, my question is, what is that based on? Where does 3-5%
come from? If its not arbitrary, then it has to be some
reflection of position size vs account size that gives you those
percentages, and then waiting only for setups that allow those
percentage stops. Which is a good discipline. I'm just
wondering where those percentages come from?
Posted by billrosen on 15th of May 2009 at 10:26 am
the max 5% loss rule is for me personally, if you lose 5% then
you have to make 10% to get back to get to even and in this market
the last number of year, techincal trading is a lot harder now and
often times sensible execution is not respected as we have seen
over and over again with this market. I am a longtime reader of IBD
and they have the 8% rule, same philospohy, I like to let my
winners run after I take half off after 10% gains and raise my stop
to entry, so I am OK getting stopped out maybe more than I should,
it is just what I do, certainly not saying it is right for
everyone.
Posted by fixdgear on 15th of May 2009 at 10:12 am
SO ON A 1.20 OPTION YOUR STOP IS 1.15?....thats doesnt seem
reasonable if you are trading options....it only seems reasonable
if you are trading $60 stocks.
every trade needs to have some room otherwise you continually
get stopped out and get whip sawed too easily.
You are right though. I have also learned the hard way
that the market needs to be respected, and that is something that
we all need to be reminded of from time to time. It's amazing
how gains can make a trader overconfident.
For newbie traders, it's amazing how many will buy high and
sell low. This market can take your shirt if you don't have
any discipline.
Posted by burkmere on 15th of May 2009 at 10:35 am
Nope...I'm not a trader, per se, with my money...more long
term..occasionally I will trade, but love this site more for
intermediate trading/investing...
I think the academic studies as well as the anecdotal
experiences bear me out. I'm just trying to warn him.
Do you know a ton of people who have become wealthy trading?
I have a defined benefit plan..I can become comfortable just
going to work for 30 years....
I won't become filthy rich, but I can become quite comfortable
if I am reasonably successful investing/trading....however, for
someone with no backup..i.e. they are depending on their sole
income from trading (and they have just started), I think there's a
very high percentage chance they will not make it and may lose it
all.
Posted by paige386 on 15th of May 2009 at 08:33 am
Ultimately you have to realize that you aren't trading
stocks.....
You are trading people. Stocks are no different than pokemon
cards. knowing when people are selling their merchandise too
cheaply or wanting to buy too high is what you want to exploit.
Keep your losses small and like you are doing work on being
consistant. Once you are consistant then you can raise the amount
you risk on a trade. When placing a trade have your plan set.
1. entry 2. exit 3. targets
Newbies
Posted by jd111 on 15th of May 2009 at 01:27 am
I've been daytrading for seven months. This is the first thing I've done in my life that I truly love and have a passion for. I'm not making a lot of money, but I'm learning alot. I want to offer some guidance for others out there like me. I have a $30k account (so $60k with margin). Yet I seldom have more $10k in stocks at a time; usually no more than $2k per stock. When I'm on the right side of the trade I only make about $80. But when I'm on the wrong side, I only lose about $80. It's not trite what they say about "capital preservation". I would paper trade, but I found nothing gets you more focused than when you're using real bullets. I recommend only use the bullets that sting, not the ones that kill.
I see this time period as an apprenticeship to learn a very difficult trade. In the beginning it’s not about making money, it’s about learning. And there's no way to rush the learning process. You pretty much have to make every mistake along the way. Only look back to assess your mistakes, learn from them and then move on. Maybe I'm just slow, but I have a hard timing seeing how you can learn this trade working less than 10-12 hrs/day. This blog has a room full of teachers in addition to Steve & Matt. I try to learn everything I can from you guys.
It may sound corny, but this is the best personal growth experience I've ever had. This is a place where all your demons come out and push your buttons at the worst possible time. I can't tell you how many times I've felt like Charlie Brown. Lucy promised she wouldn't pick up the football when I go to kick it. But she does EVERY TIME! I'm convinced I will not be a successful trader until I refuse to kick the ball and find another way.
NEVER GIVE UP!
OH...and by the way. I learned about capital preservation after losing $10k in the first two months!
JD
Best advice anyone could ever
Posted by billrosen on 15th of May 2009 at 09:06 am
Best advice anyone could ever give a new trader is trade only when you are sure it is a very smart and objective decision, and then you will still be wrong half the time, but here is the key, use an objective, not random, stop everytime of not more than a 3-5% loss.That way even when you are wrong on your 2k trades you lose no more $100 and when you are right let them run and make big profits. Be sure to take profits after and 8 - 10% run up with 50% of your position and then raise your stop to your entry and then raise your stop objectively should you be lucky enough to get into a rocket stock that sails up quickly. The reason most new traders lose their shirts is they do not think in percents, they think in dollars...like OMG I just lost $300 in 15 minutes!!! When in reality it might be a small orderly pullback or restest of a breakout and everything looks OK. They panic and sell at the wrong time because of their own fear or worse they do not use stops and say a stock that is down 15% has gotta come back and keep adding more capital as price drops. Pull up a chart of FAZ or SRS and see how that strategy would have worked the last 10 weeks. You would be wiped out. I always use stops 100% of the time and while many times I get stopped out only to watch a stock run back up, yes very frustrating, I always sleep at night and average 10% per month trading...works for me.
STOP LOSS ORDERS
Posted by fixdgear on 15th of May 2009 at 09:30 am
SO IF U BUY AN OPTION AT 1.20 LETS SAY WHERE IS UR STOP?
stop loss size
Posted by Michael on 15th of May 2009 at 09:42 am
bill -- I don't think its so valid to have an arbitrary 3-5% limit for every stop order. To me it makes more sense to decide how much of your trading capital you are prepared to risk on each trade --1% or 2%, maybe 3%............and then adjust position size according to where an objective stop falls for the trade you are making, so that you are always risking an appropriate amount (no profit without risk) but never more than is prudent for your account size.
Where is your stop
Posted by schnellinvestor on 15th of May 2009 at 09:55 am
If you haven't read Tharp - Trade your way to Financial Freedom, it will be the fastest profit from an expense to help you in this market. I was unable to produce stable returns until I starting using a spreadsheet for position size. Part of the exercise is you can't enter the trade without knowing your stop. Tharp also has a book on stops. Entries and exits from Dr. Alexander Elder is good also if you have read his 'Come into my Trading room. Books for thought. Wishing you some good trading success.
or maybe much closer stops
Posted by Michael on 15th of May 2009 at 09:50 am
or maybe much closer stops on daytrades..............
Michael agreed, if day trading,
Posted by billrosen on 15th of May 2009 at 10:07 am
Michael agreed, if day trading, using trendlines as stops on a 3 or 5 minute chart would give a stop much tighter than 3-5%, I was referring to a swing trade with those stops, point I never take a loss more than 3-5% on any one position.
bill -- ok. If you're
Posted by Michael on 15th of May 2009 at 10:16 am
bill -- ok. If you're never giving a swing trade more than 3-5%, my question is, what is that based on? Where does 3-5% come from? If its not arbitrary, then it has to be some reflection of position size vs account size that gives you those percentages, and then waiting only for setups that allow those percentage stops. Which is a good discipline. I'm just wondering where those percentages come from?
the max 5% loss rule
Posted by billrosen on 15th of May 2009 at 10:26 am
the max 5% loss rule is for me personally, if you lose 5% then you have to make 10% to get back to get to even and in this market the last number of year, techincal trading is a lot harder now and often times sensible execution is not respected as we have seen over and over again with this market. I am a longtime reader of IBD and they have the 8% rule, same philospohy, I like to let my winners run after I take half off after 10% gains and raise my stop to entry, so I am OK getting stopped out maybe more than I should, it is just what I do, certainly not saying it is right for everyone.
ok, thanks Bill.
Posted by Michael on 15th of May 2009 at 10:32 am
ok, thanks Bill.
STOP
Posted by fixdgear on 15th of May 2009 at 10:12 am
SO ON A 1.20 OPTION YOUR STOP IS 1.15?....thats doesnt seem reasonable if you are trading options....it only seems reasonable if you are trading $60 stocks.
every trade needs to have some room otherwise you continually get stopped out and get whip sawed too easily.
have a good w/e
new traders should stay away
Posted by 1800promote on 15th of May 2009 at 09:36 am
new traders should stay away from options
Trading..my prediction..
Posted by burkmere on 15th of May 2009 at 02:49 am
I know this sounds cruel, but my prediction is there's about a 90% chance you will lose all your money...maybe greater...don't say I didn't tell you.
Are you speaking from experience, Burkmere?
Posted by pebs on 15th of May 2009 at 06:43 am
You are right though. I have also learned the hard way that the market needs to be respected, and that is something that we all need to be reminded of from time to time. It's amazing how gains can make a trader overconfident.
For newbie traders, it's amazing how many will buy high and sell low. This market can take your shirt if you don't have any discipline.
Not my from experience..
Posted by burkmere on 15th of May 2009 at 10:35 am
Nope...I'm not a trader, per se, with my money...more long term..occasionally I will trade, but love this site more for intermediate trading/investing...
I think the academic studies as well as the anecdotal experiences bear me out. I'm just trying to warn him. Do you know a ton of people who have become wealthy trading? I have a defined benefit plan..I can become comfortable just going to work for 30 years....
I won't become filthy rich, but I can become quite comfortable if I am reasonably successful investing/trading....however, for someone with no backup..i.e. they are depending on their sole income from trading (and they have just started), I think there's a very high percentage chance they will not make it and may lose it all.
newbie traders
Posted by paige386 on 15th of May 2009 at 08:33 am
Ultimately you have to realize that you aren't trading stocks.....
You are trading people. Stocks are no different than pokemon cards. knowing when people are selling their merchandise too cheaply or wanting to buy too high is what you want to exploit.
Keep your losses small and like you are doing work on being consistant. Once you are consistant then you can raise the amount you risk on a trade. When placing a trade have your plan set. 1. entry 2. exit 3. targets
Take profits, don't be a pig.
Trade well!
Newbie comments
Posted by cdjd on 15th of May 2009 at 08:52 am
You don't have to be a newbie to screw up.
I have been trading on off for many years and I still (much too often) buy High and Sell Low.
losses are part of the
Posted by paige386 on 15th of May 2009 at 09:26 am
losses are part of the game, the key is to keep your losses smaller than your gains.