The newb is my girlfriend who's an American (I'm a brit, and not up on the US trading scene). She wants to start trading somehow, but is totally flummoxed by the terminology and has no roadmap (I must seem a real tease for scammers!) To the best of my knowledge she wants to buy/sell stocks, but it could be she's better trading options/eft etc. That's what I'm hoping to establish for her. Her trading stake is $10k, not much I know but there you have it. She is willing to lose 10% of that in the initial learning phase (however long that is). She's got software that picks 50 movers (I have no idea on what criteria). She was hoping to narrow that down to buy a portfolio of 2-10 stocks In her words, "In the 3 tier system, I use 330.00 for buying 3 quantities of stock to make a full position using the OS signal on the PPT. Then when the stock is OB I sell hopefully at a gain and then repeat the cycle with the same stock to compound the earning." She also wants to know what provisions exist in the US for stop losses, what percentages are best for them, what % brokerage fees are, etc. She is also hoping to focus on stocks about to break out. In short, she wants a 'Beginners Guide' style intro. Look forward to your considered replies, gents!!! Jaybee.
I'll try and tackle this. Things to watch out for since you are only using $10K and only want to lose $1K: -watch out for overtrading since that may lead you into the Pattern Day-Trader regulations. If this happens you will have trouble in that account unless to put in $25K, which I assume your girlfriend doesn't have. So be careful to not have more than 3 daytrades in a 5-day period. -I recommend only trading 1 or 2 stocks/ETFs mainly because the commission will be too high and eat away at your trading profits. Unless you use a broker like Interactive Brokers (IB) but they require a minimum of $10K and you are right at the edge there. I would recommend TD Ameritrade (TDA) or some other large brokerage house instead of the high frequency brokers like IB. They have a tendency to have a lot of fess for services that you may not need. I personally use TDA for investing and IB for trading. -when I first started trading I also used a breakout strategy for stocks & options and it is good for beginners IMHO. This is probably the toughest part of trading as a beginner. Figuring out where to get in and to manage your trade. As for stop loss orders? It is common on all brokerage house platforms. So this should be no real problem for her. -you mentioned that your girlfriend wanted to scale into & out of positions (the 3 tier system comment) and that is a good strategy, generally but you should be careful of the added commissions required to do this and with $10K it may not work as great for 10 stocks but it might be okay for 2 or 3 stocks, which is why I recommend only trading a few stocks vs. 10 that you mentioned. My personal recommendations: -study any breakout patterns you want on paper first and see how they perform so you can judge the efficacy of that system. -if the above is okay just start trading and limit yourself to 2 or 3 stocks. If you traded 3 stocks and traded a breakout pattern and used a 10% stop loss on the trade immediately you should be okay. This is obviously not written in stone so it will be an 'art' such as it is. I've personally been in breakout trades that went against me >10% and I got out and later on the stock went on to go up a lot so there are always false breakdowns. Of course the reverse has happened to me as well. -another thing to watch out for is overtrading which should be limited. -also the most successful traders are the ones that can be detached from the results but that is hard to achieve as a beginner. Hope that helps. Good luck to you and your girlfriend, -Sid
trade futures, 10k won't do in stock trading (pattern day trading rules) or put 25k minimum into the account.
I agree. If she wants to actually trade, tell her to try futures. If she wants to stick to stocks for some reason, she needs to develop some kind of longer term strategy.
Chaps, thanks for the replies so far. Sid - thanks to you in particular for the detailed reply. Would you agree with the others that Futures would be better for her than Stocks? Others - thanks, I know from my own experiences that Stocks are a long road to wealth, but of all the alternatives, why Futures?
She should study Volman's book on FX scalping, open a small account with Oanda and practice the stuff in that book. She'll risk very little and learn a lot about price action trading, which eventually translates to effective trading of any liquid instrument in various time frames through all market conditions (trending, ranging, calm, and volatile).
She needs to trade on a demo acct first for at least 3-5 months (forex, futures or stocks) until she can show CONSISTENT positive returns on a weekly or monthly basis. Does a pilot fly a plane successfully without first practicing on a simulator? If she doesn't practice first with fake money and develops a strategy that works then the odds are very strong that she will crash and burn quickly. Best Regards
I agree that futures & forex is a lot cheaper to trade and of course you learn the price action as NoDoji states. The thing is you mentioned more individual stock trading. Futures & Forex trading are really more refined since they are actually broad indexes and indexes move differently than stocks so that is one thing to keep in mind. Indexes tend to not be as volatile so there is less to lose (or gain) on any individual trade. Of course you have to be mindful of the leverage you can get in futures (~15X-20X) or forex (20X-100X). If you are going to trade broad indexes, it is cheaper to trade the ES future vs. the SPY ETF due to the commissions involved. I was originally a breakout stock trader (I still do it sometimes) who trades mainly the ES & Forex now (EURUSD pair). The price action is different if you are swing trading stocks vs. Futures/Forex. Also, southbeach4me's commentary of using a demo account is a good idea. Thats a good way to learn the basics of trading with no risk. Ultimately however trading without risking money is like playing poker without betting. If you are going to trade futures/forex I would recommend Interactive Brokers since they do everything and they have a good demo account as well. They have a decent platform and their data fees are essentially free if you do >$30 of commissions (else it costs $10/month).
======== JB; Well futures may help; expensive education always does.LOL Best bang for the buck; study ''books'' top green line this page- wisdom is profitable to direct