October 9th 2007
5 Career Saving Tips for New Traders.
1. Start with as much capital as possible
My favorite market cliché goes like this “if you want to make a small fortune in the futures market, start with a large one.” I think that traders stand a better chance of making money than this cliché would have you to believe, but whenever I am asked “how much trading capital do I need to start?” my answer is always: As much as possible.
The reason is, like the market, a trader’s performance is characterized by streaks. One day is profitable Three are not. Three months are profitable. One is not. One year is profitable and the next one isn’t…you get the idea. With less experienced traders, swings in your trading equity can be magnified through over trading, the use of leverage, and just plain poor decision making. Experienced traders are not exempt. Drawdowns and mistakes still exist and are a constant threat to their bankroll. Starting out with an account as big as possible cushions your psyche from the inevitable swings.
2. Commit to a method
One of the most difficult things to do is to stop second guessing yourself. In every trader’s career, there are times when you ask the question. “Does this method still work?”. If your method gives you an edge, if you have a sound risk management plan, there’s probably nothing wrong with it. Do yourself a favor and stick to your method. The nagging feeling that you could be doing better never goes away. Feel free to tweak and experiment, but commit to a method.
3. Take ownership of your actions
Do you record your trading activity in a journal? Do you know why you did well today? Or why your last trade went against you? Did you follow your rules? You need to take ownership of your trading. You should be able to tell anyone why you entered and exited a trade. How much you risked and why. These simple questions should be answered for every trade. They focus your mind and allow you to reflect on what works and what you as a trader need to work on.
4. Trade small
This should be my tag line. “A Trade A Day: trade small”. I know that I have advocated trading small before, but it’s worth repeating. Trading smaller lessens stress and anxiety. If fear and emotion are impacting your trading decisions, this is the way to get rid of them. Earn the right to trade size. If you’re following your rules and your trades are winning, then bump up your size. The opposite holds true. Use it as a risk management tool. It’s saved me countless larger losses.
5. Get a mentor
If you want to learn to trade, it helps to learn from someone who’s been through it. Experience remains the best teacher, but it’s helpful to have another pair of eyes to look over your mistakes and to provide guidance. Finding the mentor is easier said then done. Being an independent trader is a lonely profession. That’s part of the reason why I blog about trading. One of the best mentorship opportunities right now is through the blogosphere. Each of the blogs in my blogroll has good content that traders of all levels can benefit from. Of course you can always leave a comment or shoot me an email at Jonathan@atradeaday dot com, and I’d be happy to do what I can to answer or at least point you in the right direction.
See you tomorrow!
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18 Comments »
MillionDollarJourney on 09 Oct 2007 at 4:59 am #
What would you say is the minimum bankroll size a newbie should start with?
Jonathan on 09 Oct 2007 at 5:21 am #
Depends if you’re trying to trade for a living. It also depends on what markets and what style. As an example, if I was a new trader, I wouldn’t day trade stocks for a living with anything less than 100k.
Bubs on 09 Oct 2007 at 5:59 am #
I believe that number 2 and 3 are big problems for new traders. A lot of traders are switching methods in the beginning trying to find the “holy grail”.
MillionDollarJourney on 09 Oct 2007 at 6:06 am #
Jonathan, that’s a fairly large bankroll to start with! Do you trade for a living?
Jonathan on 09 Oct 2007 at 7:19 am #
It is a big bankroll. But a new trader usually doesn’t think about losses, and when you are starting out there will be losses. The extra capital gives your mind a break from the stress of the constant decision making that comes with day trading. It allows you to lose and learn, provided that your risk management plan is sound.
thewild1 on 09 Oct 2007 at 4:17 pm #
I personally think that if you are not trading for a living and just look for some extra cash flow, $5000 is a good amount for a beginner. That is what I did when I started. I eventually built that up to $7000 in 6 months.
Jonathan on 09 Oct 2007 at 6:05 pm #
Absolutely, it’s all about your personal situation.
BTW, thewild1. Congrats on the return. That’s awesome.
Afraid to Trade.com Blog - Overcoming Stock Market Fears » Link: Five Career Saving Tips for New Traders on 09 Oct 2007 at 6:41 pm #
[...] Jonathan at the A Trade a Day blogspot recently posted a brief but helpful post regarding Five Career Saving Tips for New Traders. [...]
anal yst on 10 Oct 2007 at 10:34 am #
I personally think that 1 million dollars is a good stake to start with, though there may be a few people that cannot meet this amount.
Good to Go Pile . . . « Trading for the Masses on 10 Oct 2007 at 12:57 pm #
[...] 5 Career Saving Tips for New Traders. [...]
Jeff White on 10 Oct 2007 at 6:44 pm #
Jonathan,
Great blog and this post in particular makes 5 excellent points.
#1 is so true, I think the more a trader starts out with the less pressure is on them to make X dollars rather than a good percentage on their capital by the end of the year. A trader needing $50,000 to pay bills who only starts out with $25k will have to put up 200%, which for an experienced trader is a very tall order. However, a larger starting sum allows for more selective trades and scaling out into good moves rather than having to press every good trade to the limit.
#5 is another good one. I’m a big believer in letting the wisdom of experienced traders provide some shortcuts for beginners.
Keep up the good work!
Jeff
Jonathan on 10 Oct 2007 at 8:04 pm #
Hey Jeff,
Thanks for stopping by and taking time to comment. I’m a fan of thestockbandit dot net. I could go on and on about starting capital. There never seems to be enough discussion on how much you need to cover your losses as you learn.
dbae on 10 Oct 2007 at 10:36 pm #
My problem is ‘afraid to pull the trigger’, and see the stock prices running away from me so many times. Just can not accept a losing trade.
How do you over come the ‘gun shy’ thing? Where do you find a proven trader/mentor via online? Your responds would be appreciated.
dbae
Jonathan on 11 Oct 2007 at 5:28 am #
dbae,
I would start with Toni Hansen at tradingfrommainstreet.com
I don’t know if she still does mentoring, but it’s a place to start.
SelfInvestors.com (Tate) on 11 Oct 2007 at 8:26 pm #
Jonathan, nice list.. I’d have to say that mentoring is by the far the biggest key here. You can be a successful trader on your own and do all the reading, testing, discovering nuances, etc. In my opinion, going this route can take at least a few years. I would argue that finding a good mentor can push this up to a year. I provide mentoring at my own site and have seen absolutely green traders come into the live rooms on worden’s telechart, learn from myself and other traders in there and begin doing quite well after just a few months.
Carnival Mania and More - Oct 12, 2007 | Million Dollar Journey on 12 Oct 2007 at 12:32 am #
[...] A Trade a Day has "5 career saving tips for new traders". [...]
Anand on 12 Oct 2007 at 11:07 am #
I will advise newbie to start with first only 1k and there are 99% chances that they will loss almost all of that but this will make them think and re think and go back to reading and research of their own rather than following someone else. Any newbie should atleast spend 1 year (correct 1 year) reading and learning about stocks also paper trade. After getting enough confidence and developing few systems of their own to make living by trading, 25 k to 50 k investment reqd (for daytrading or short term trading). I try to keep my gains 5% to 15% in 1 week to 1 month time frame for any stock I buy. Hope this helps to some newbies…..
Anand
Options Strategery on 19 Feb 2008 at 5:15 pm #
I wish I had seen this earlier. #1 is probably the most valuable lesson. Even if you trade small, the drawdowns force you to sell at the worst times.
On the advice of #2, I spent the day trying to write out my own trading plan (A naked put selling focused options trading strategy explained).