Trading 101 (Last Update: 10/18/13) Summary: A collection of things I've learned while trading. Not a step-by-step guide, but more of a random collection of tidbits to help newer traders out.
1. Your brokerage must offer a platform that gives you Time and Sales and Level 2 information. Failure to provide either one of these items means you should not be using them as your broker. Equally important is the cost associated (if any) with your broker providing you this information. For example, a broker may demand you make a minimum amount of trades per quarter in order for you to receive this stuff for free. Try to avoid brokers that will charge you a fee regardless of how many trades you make (e.g. Suretrader).
2. Sell on the ask, not on the bid (called "bid-whacking"). It's all about psychology. Selling on the bid not only hurts us, but hurts you as well. If we (longs) begin seeing red on Time and Sales, it signals for us to sell because the momentum may be ending. If there is an endless stream of green (buyers) and not a hint of red, it places us (longs) in a more mentally stable position and scares the hell out of shorts, forcing them to cover sooner rather than later.
3. Once you enter into a position, place your sell orders. Don't allow your emotion (to take profit) get in the way. The instant gratification you seek lowers your overall profitability and you end up with a fraction of what you could've potentially earned. See a couple of my trades as examples (GEVO, FBN).
4. Unless it is a thick stock like ZNGA or GRPN, you never ever market order. If you market order with ZNGA at 3.00, you'll get filled completely at 3.00. If you market order with a thin stock (e.g. ZAGG, MEET, DMD), you will have a ton of slippage.
5. Scale out of your position. This goes hand-in-hand with trying to anticipate the top (before the pull back). I used to sell my entire position at once on the bid (because I was giddy at making a .05 profit) and get frustrated when the stock would continue it's push upward. My mentality is to always try to catch the HOD. I place multiple sell orders (1/5 each or less) to attempt to sell a portion at the HOD, give or take a few cents. When it begins to pull (i.e. profit takers stepping in), I use Fib Lines or another technical analysis tool to determine what it will pull back to.
6. If you're fresh meat, do not trade at all until you understand what is going on. Ask questions and get insight on how to get started. Personally, I lost $7K thinking I was King of the World until I learned.
7. Take a position size you can handle. If you take 2000 shares and the stock tanks .10, can you handle being down $200? If you can't, take a smaller position. Plan your maximum risk tolerance before taking an entry.
8. Don't ask people if/when you should sell regardless if you're green or red. It's your money. You decide when you're satisfied.
9. Don't chase. It's possible you end up buying at the top and next thing you know it crashes on you. If you've missed the train, you've missed it. Either move on or buy it when it pulls back.
10. (Chat etiquette) Don't ask people when they will stop out. Getting other people, if they're that ignorant, to reveal their cards is not wise on your or their behalf. Second, put stock symbols in CAPS.
11. If you're new to trading, do not day trade or trade options. Both will most likely result in death.
12. Don't trade on impulse. Ever get that itch that you'll score big when you fly solo? Don't do it. You'll just crash and burn. Check my record on Profit.ly and you'll see my biggest losses (Sept. 2013) are due to flying solo.
Trading 102 (Last Update: 10/11/13) Summary: After a year and some months of trading experience under my belt, I've got some more advanced advice for traders. Keep in mind you'll have to know basic trading terminology because I won't be re-hashing old material.
1. Position Size, Volume, and the Liquidity of a stock go hand-and-hand. In my opinion, assuming all else equal, your max. position size should be dictated by the liquidity of a stock. For thick stocks (e.g. GRPN, ZNGA), you can buy 50-100k shares without any fear of slippage. However, for thin stocks, you've got to be careful that you don't market order and hold a position size that - if stopped out - that won't give you a great amount of slippage. A couple of examples with respective variations are listed below:
Example A: Low Volume, Low Liquidity (Small Position Size) --> USU First, you'll notice it has a .03 spread. If you to enter 5k on the ask, it's possible for you to be filled at 5.88-5.90. However, if bidders decide not to move up and remain at 5.85, you're looking at a minimum of a -4 or -5c loss should you decide to sell. With slippage factored in, maybe a -10 to -12c loss overall. I'm not stating that is this the absolute case, but it's something to keep in mind. Second, look at the volume for the day thus far (taken at 2:30PM EST). At 430K, this type of stock is what I consider a snoozer. It'll probably bore you to death and trade sideways. However, keep in mind low-float stocks can put in a big range if people are willing to pay the price for it. But what I want to emphasize is proper position size. You can gain big time due to this snoozer's range (4.65-6.12), but the reversal is equally true and painful. For a stock that behaves this way, I would recommend 2000 shares max, unless you can handle being down a couple hundred and/or you're going for a big win.
Example B: Low Volume, High Liquidity (Large Position Size) --> ASTI Compared to USU, ASTI has less volume traded for the day. However, the difference between the two is you can buy 10-20k of ASTI and not have to worry about slippage or il-liquidity. The only drawback here is the your intraday expectations (for gains). The current range is 1.03-1.089. While you're able to buy a large position without worry (about slippage), you can't expect it to deliver +20c for you in a day (maybe even a week).
2. My opinion on whether you can be successful with a smaller ($5k) account starting off. This isn't a yes or no scenario. It's more of a, "How long can you wait?" Success %, gain %, loss %, proper capital allocation, and entry price, will all factor into the equation. Then there's the question of how much money would you personally consider successful. I had to use $26,000 with margin in order to make $67.5k (2012). That's a 259% gain based on the initial capital.
Assuming you had the same percentage gain off of $5k, your annual profit would be $12,950. However, you have to keep in mind because you're under $25,000, PDT applies to you. It's not easy navigating the waters with limited capital as there are multiple shackles on your ankles.
3. If you're a momentum trader, don't trade snoozer and low-volatility stocks. You'll get bored staring at the stock and sell for a loss due to a lack of patience. Trust me, it has happened to me plenty of times. Just resist the urge to do so by sitting on your hands. (That's how I lost $2500 on PTIX.)
4. How do I play newsletter alerts?Here (video #1) is an introduction video of how I do it. Topics include when to stop out and how to take profit. I'll be sure to update this section when I put out more videos on this subject matter.
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