In my opinion, advising a newbie to trade naked options is irresponsible. In addition, any reputable broker will not permit it. Not enough experience. The client isnt suitable for that trade. Finally, a small account cannot afford to take the hit if it doesnt work out. I am sure it is different on your planet. Thanks for visiting Steve
Sounds good. Let me add something that I want to emphasize how important the number 2 since when we are under-cap we're tempting to play with penny stocks and high flying stocks, and experience confirms this is wrong way to do.
If you are afraid to lose 5K - 7K then why bother to trade. They say there's a cost to learn. If I were you, I would try to be knowledgeable in the markets and then focus on what you wanted to trade: equities, forex, futures, etc. Find a pro firm that will cater to your needs. It is very hard to learn if you trade for a retail firm. You need to sit with a good trader and get some insights from him/her. You can ask any great traders out there, I don't know how many great traders are ET members, and they will tell you the ups and downs of trading. Every great trader has seen their worse nightmare in the beginning. This is what I went through and it certainly help me tremendously. Good luck!
I would really appreciate if this thread could stay on topic --and not into a debate of other issues. Simply what did "you" do. How did you survive your initial small account. Did you penny stock until your account built up a bit? Did you just stock pick your way up? Did you use margin right away? I find it hard to believe a newbie would go right into options or futures in the beginning with out experience? What did you do? cheers..
Naked premium is simply the safest thing out there for a new guy. Trading outrights is basically "naked with no premium". Naked with premium is highly advisable and much less risky than outright. I would highly advise this strategy and be patient with it. By the way, to keep on topic, I started with a small account and did ok, but it wasn't until options came into full vogue, that I was able to really able extend the net worth with naked premium.
Been there, done that, starting with $7k. 1. I have an account at IB. 2. I trade penny stocks, but only trade those that have exploded up and crashed down, then I buy the bounce. Only use daily charts. I made more money on penny stocks than playing large cap stocks this way in a very consistent manner. You need L2, and you want to get in at bid. You must have good T/A skills and know how to adapt that to work for penny stocks. The chance for you to pull that off, I would say, close to zero. 3. I daytrade on NYSE gap down plays. 4. I daytrade slow moving stocks like SUNW, JDSU, and SIRI with size. 5. You have to go all in, but keep the trade in stocks like INTC, MSFT, CSCO, stocks for prop traders, but play it for intraday swing trade. Until you figure out how to pick tops and bottoms before confirmations from other indicators, your chance to survive is really low, but you also minimize the risk of ruin. 6. Do not play news related stocks. 7. Try to diversify a bit in high beta stocks below $20, and get 100 to 200 shares each, provide that you know how to trade them. Use longer time frame charts, like 60min and daily chart would be the key to hold three positions at the same time. 8. Always check the earnings date, you could get killed by holding overnight. Or you can use it to play the end of day earnings anticipation run. Or you can choose to go all in on stocks like NT, hope that it will double by holding it for a long term trade. Do it two times, you have enough money to daytrade. Then you will lose the real daytrading experience, and probably get blown out right after reaching $25k for trying to be a daytrader/short term trader. I've done it without playing options and futures. It really depends on your skill. Besides, getting blown out once is actually a good idea to get yourself to follow the basic trading rules, from my experience... Hope this helps.
Personally, I think options are the best way to start. I'm living proof of that. The problem is that I can't advise some average Joe to jump into options trading. I'm the type of person that loves to study and become an expert in something. I'm talking about the kind of person that would buy Natenberg's book (or any other good book), read the whole thing that same day, and then pick it up and read it again the next day. I spent several hours a day reading through various strategies and analyzing the different circumstances accompanying each. I also spent a bunch of time considering my personality and goals. As it turned out, options allowed the trading style that I like, and fit my personality very well. However, I also have a good "real" job and losing a couple thousand dollars didn't break the bank. Back when I first started trading options, I did it with a ridiculously small account, only trading long calls/puts. It went well for a while and kept me interested. I eventually lost it all and considered that to be my tuition. I took about 6 months to study and get a few thousand dollars together and swithed to a broker that allowed spread trading. I tried to specialize in certain setups and strategies and eventually settled on a few that I really like. Several years later, here I am. If you can honestly say that you are that type of person, then I wouldn't eliminate options as a possibility. It should be very clear that there is a learning curve associated with every different style of trading. YOU ARE GOING TO LOSE MONEY SOMETIMES. You should accept that and figure out how best to limit the losses. Then you have a choice to make. You can be the type that trades (and loses) real money, or you can be the type that spends the next year paper trading. If you can't afford to lose your real money then I would suggest that you take the next year paper trading for a few hours a day.
I started at a trading firm that put up the money and I lost 10k of thier money. I made that back within a couple of months until realizing they had collected many times that in commish ($10/ticket). I left and saved up my own money. I stepped back, read the Logical Trader, and observed the market with the perspective of a former daytrader. This is important - most ppl on this board have never seen the NYSE Open Book or read the tape. I plotted the Opening Range and Daily Pivot Ranges and was amazed and how statistically significant they were all the while realizing when I would realistically be able to get into and out of stock based on the likelihood of favorable prints and risk/reward (if you short the top of the opening range after a gap up and are willing to get out within 2 cents above the top of that range - but want to make the entire range if it breaks down - that's a good risk/reward). I put up 5k at a trading firm and lived off of 10k in savings. AS I HAVE SAID BEFORE - the learning process in trading is expensive - both in terms of time and money. This business is not for anyone not OBSESSSED with the market - the margin of error is simply too small. But, those who say that prop trading with less than 5-10k is suicide, are rank amateurs who are hitting the buy key while watching Mad Money. It simply isn't true that it cannot be done. This is not to say that you won't have 1 or more false starts. But, you certainly do not need 50k to daytrade successfully.
I stated with a $5000 at the first of the year at etrade it is now worth $8000 and I use low priced stocks. I buy a basket of 10 stocks. I had backtested the sytem long before I started and had an idea of where I was going. I have probabably done 15 trades after buying the intial 10 stocks. It has worked out well for me.
Why not save up some more money? It's not that hard.... Spend maybe a year or so learning/reading/testing/learning, and save money along the way. Maybe you should indentify a problem and fix it, rather than crawling around it by asking ET traders how they traded without ample capital. This problem may seem to be important, but in reality, its the most irrelevant Understand one thing....You are up against the best and brightest in the world, so 5k and no experience is the first of your problems. Good luck