Excerpt from: Day trading newsletter Issue No. 013
~~~Trading small to build confidence~~~
From: Michael G.
Hello,
I have tried day trading before, but I have had only very
moderate results. Can you give me advice on starting with
not much money but a way to start making gains?
Michael G.
~~~Christopher's Response~~~
The best method would be to begin to trade small. By trading
small you will be able to minimize your risk while building
your confidence. It's also a very good idea to get into the
habit of reducing your lot size whenever you begin to
experience a loosing streak. If you are loosing money when
you trade, why continue to loose more when you could loose
less? Why continue to loose on a 100 share trade (or more)
when you could just as easily loose on a 10 share trade?
The point here is that the trade won't change if you reduce
your share size but your emotions about the trade will.
I say the trade will not change because I am assuming that
you have already planned the trade before entering. You should
have planned your entrance, your exit and an emergency exit
plan before you even entered the trade. Let's say you trade
10 shares of stock that you would normally trade at least
100 shares of. Let's say your risk on the trade (entrance -
stop or vice versa for a short) is 1 point. If you are
trading only 10 shares the most you can loose on the trade is
$10 where the potential loss on a 100 share trade with a 1
point stop loss would be $100. Now you know that you are going
to behave a lot more sober and unemotional if and when your
stop comes up if you have much less at stake. Believe it or
not you can also practice "scaling out" of a 10 share trade
as it moves in your favor in exactly the same way that you
would scale out of a 100 or a 1000 share trade. You should
handle/manage it exactly the same, it's just a smaller scale.
For these small share trades you could use an inexpensive
online broker like Interactive Brokers that charges just $1
for any number of shares less than 100.
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