All Entries in the "Trading Tips" Category
How to Grow Your Trading Account, Part 1
July 5, 2006 at 9:24 am
You and I may have different trading strategies and styles, but our goal is the same: extract profits from the market. I love trading, and I hope to continue doing it one way or another for many years to come, no matter how large I can grow my account.
Account sizes vary from trader to trader, and not just due to different financial situations. Some traders sweep excess funds at the end of the month out of their trading account, while others leave the majority of their money in their trading account feeling like it’s the best place for it.
Better trading means a bigger account, right?
Isn’t a growing account the result of making profitable trades? Well, yes and no. It is not necessarily the same as just making money trading. After all, you can be a profitable trader and as long as you are withdrawing the profits from your account it won’t get any fatter! Growing your account is the result of profitable trades, yes, but also results from a decision on your part to commit to leaving those profits alone.
Why trade a larger account?
Trading a larger account has numerous benefits if you’re a disciplined trader:
* Your buying power increases exponentially.
* The same trading performance which led your account to the current levels will mean even greater profits going forward.
* Your money will have the ability to compound, getting you ever closer to those financial goals of yours.
* Making the same income you’ve come to expect from your trading will mean you won’t have to achieve the same percentage returns. In essence, it becomes easier to make the same money, because you can be a more selective trader and only participate when the market acts like you want it to.
Is bigger always better?
When it comes to your trading account, that’s a question only you can answer. Speaking generally, a trader with poor discipline needs the smallest trading account possible so that he can do the least amount of damage! The remaining traders who aren’t willing to risk blowing out their accounts can see the benefits shown above. Some trading styles are naturally more capital-intensive (pairs trading) or less capital-intensive (scalping one trade at a time). If your style isn’t one which requires a great deal of buying power, then you might want to pay off the house or cars with that excess capital and buy yourself some financial freedom in the future.
So how do you grow a trading account?
Good trading is the short answer, but there’s a longer answer if you want it. The decision to leave your profits in your account is an important one. Having a secondary income from another job or your spouse can help minimize the initial impact of leaving your profits intact. Having a savings or checking account big enough to get you through several months can also make it easier. By making the commitment to retain profits in your account, you’ll soon see that your current level of performance is going to mean even bigger profits going forward. In Part 2, we’ll take a look at a pair of hypothetical traders in different situations with different plans for their profits.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Stock Trading, Trading Account, Trading Profits[/tags]
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Miss ’em Close!
June 20, 2006 at 4:40 pm
In golf, it’s not how good your hits are but rather how well you miss it. Leaving yourself in position to play the next shot is crucial on every hole, and taking chances you can’t afford to take can ruin your score (and bruise your ego!). Trading is so similar, because although we’re going to be right at times, we’ll all be wrong plenty. Successful trading is only partially about your winning trades (hits), but don’t underestimate the power of missing it big. Making a run at that 20-foot par putt after struggling to make the green can easily leave you walking away with double-bogey, compounding an already poor effort. Risking it all for just a little glory or doubling down when you’re wrong in a trade can quickly put you right out of the trading biz!
Instead, why not do your best to minimize pain? Let those losing trades hit your predetermined stop loss, just as you would punch out of the trees to get back to the fairway. Playing for bogey hurts a little, but it won’t kill you. So, accept at the beginning of the day that you might be wrong on some trades. Take your medicine when you deserve it, and live to play (trade) again!
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
[tags]Golf, Trading, Trading Psychology, Trading Tips[/tags]
By the way, subscribing to this RSS feed will mean you won’t ever miss a post!
Preparation
May 21, 2006 at 11:55 am
There’s a great post over at Invest2Success Blog about Winning Trader Traits which I wholeheartedly agree with and recommend reading.
I’ve discussed trader preparation before, and to the Winning Trader Traits post I would only further submit that the mental preparation involved in good trading is every bit as important as the physical side of being at the PC and studying results and methodologies.
The idea that “the great ones cultivate a work ethic that is superior to those in the good camp” is particularly true in almost every arena. Consider Michael Jordan or Tiger Woods or Lance Armstrong – three of the most successful athletes of our time. Although they may have had some talent to begin with, their desire to outwork their competition and prepare themselves for success undoubtedly elevated their skills, and almost certainly added the mental edge needed to compete and win on the highest levels.
Trading is the same way – a little talent helps but a lot of hard work and determination will definitely get you to the next level.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
The Other Side of Discipline
May 14, 2006 at 11:24 pm
The “D” Word is for both sides of a trade.
While taking small losses is widely accepted as the way to survive in trading, good discipline will serve you well on the profitable side of a trade too.
TGB is a little stock which just gave us a huge upside pop in spite of it’s low share price. I recently listed this small gold stock in the “Momentum Movers” portion of The Bandit Broadcast stock newsletter with a buy point of $3.50.
The Road Map
May 10, 2006 at 10:17 am
(This is Part 4 of the Great Expectations Series for traders. In case you missed them, check out Part 1, Part 2, and Part 3!)
The cat’s out of the bag. You’re fully aware that it might take some time to become a great trader. Does that mean you just sit back and wait for time to elapse? Of course not! Your job now is to set up your trading plan by implementing a strategy that will suit your needs and serve as your road map, so let’s get to it.
The two most basic active trading strategies are day trading and swing trading. Each one has its own benefits and drawbacks, so we’ll look at them both. When it comes to your own trading plan, consider your own situation and which strategy will cater to your needs best.
A day trading strategy has a number of benefits over other trading styles during certain market conditions. Day trading offers up to 4-to-1 intraday buying power ($25,000 account minimum), which allows the aggressive trader higher leverage in order to generate big profits in short-term price moves. Day trading also requires less homework outside of market hours than other strategies, because a good real time streaming alerts program can generate trading signals for you based on your criteria intraday.
How Much?
April 24, 2006 at 9:45 am
Compounding money has been called the 8th Wonder of the World. It truly is amazing what can be done when you make regular incremental gains. It is no wonder then that successful active trading should include an understanding of the best ways to size positions properly according to your trading method in order to maximize profitability. I’ve known plenty of brand new investors who had just a small amount of money which they piled into one idea all at once. However, the experienced trader knows better than to do this with his entire trading account, so let’s explore this topic a little further!
Check Your Rolex
April 18, 2006 at 1:36 pm
There are traders and there are investors. To me, the primary difference is the timeframe you operate on.
One of Stephen Covey’s 7 Habits of Highly Successful People is to “begin with the end in mind.†This is a key element of planning a trade (or investment), as only knowing your timeframe will allow you to accurately evaluate your position. Covey goes on to provide some great advice, which can certainly be applied to trading…
“To begin with the end in mind means to start with a clear understanding of your destination. It means to know where you’re going so that you better understand where you are now so that the steps you take are always in the right direction.”
Deciding what kind of trader you should be depends on your timeframe as much as it does your personality. What kinds of trades do you prefer to take? Have you determined which trading strategies are right for you? Buying pullbacks within an uptrend? Short selling stocks on low-volume rallies right up to resistance? Or are you a buy-and-hope hold investor looking to be the next Warren Buffett? Your timeframe is the deciding factor.
Investors will often include fundamental data in their trading strategy and execution plan, knowing that the performance of the business behind the stock they own can have an impact on how the stock moves over time. Such an impact is not usually very quick (unless it’s earnings season), and as a result, investors know that their timeframe must be long enough to allow their fundamental thesis to pan out.
I’m a trader, and to me, short-term price action is more about supply and demand than the fundamentals of a company whose stock I’m trading. Business doesn’t usually pick up or fall off overnight…it takes many weeks and months and years. My trading timeframe ranges between several hours up to a couple of weeks. This normally excludes almost any fundamental impact on the stocks, because I’m swing trading the supply and demand shifts.
So whether you’re just starting out in the market and selecting a trading style that suits your needs, or if you’re already a trader or investor who is evaluating what to do next, be sure to examine your operating timeframe. If you have long-term ideas based on company-specific data, your investment timeframe should allow your fundamental ideas to prove themselves. On the other hand, if you’re looking to compound your money quickly and eliminate as much risk as possible, then a swing trading strategy may be better for you. The most important thing is to know your timeframe before you put cash to work, because only then will you be able to fairly evaluate if your stock should be kept or sold.
Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com
