A Trade A Day

I’m starting a new 5 part series on things all new traders should do. Here’s part one. Have a great weekend:

I. Trade Small

When I started, all I could think about was the money I was going to make. I would constantly divide my capital by the stock price. Then buy the max number of shares and multiply the shares by the points I dreamed I would make. I looked for low priced stocks to maximize the number of shares I could trade. I thought if I could buy a thousand shares I could easily make a few hundred or even thousands of dollars a trade. I remember thinking , “if I can buy 1000 shares, and just make a couple of points, it will be so easy to get rich”. At that time, I was a new trader with little methodology and no risk management plan. I lost some and won even less. I was trading 100 to 1000 shares at a time. My capital didn’t last long.

The question you need to ask yourself is if you can’t make profitable trades with 1 share, how are you going to make any money with a 1000 shares. In the early part of your trading career, you need to focus on learning and preserving you capital. Trade as small as you can. Until you are consistently making good trades, resist the temptation to trade any larger. When you are profitable, you can start increasing your share size in small increments. I did 20 share increments. Again, the point isn’t to make money yet. It’s about learning and preserving your capital. When you get to 100 shares, you need to look at more sophisticated risk management techniques like using a percentage of your capital on each trade. Until you are consistently picking winners, trade small.

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