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Blogs by Paul 'yogi' Nipperess BMin
Trading small accounts ..... 5/22/2006 12:36:16 AM
:)
Here's a different view of trading the markets,
with a small dollar-value account ..... :)
:)
Hi folks,
No doubt the would-be gurus mean well, but their skewed
ideas are quite FAR from the realities of trading with
a small account ..... :)
..... apparently speaking from the comfort of "deep pockets",
they simply spew out the standard "lower-the-risk" spiel,
that they have read in the text books of their trading hero.
That approach, simply will NOT work on small accounts,
unless you have a decade or three, before you want quit
your day job ..... !~!
Yes ..... $3,000 CAN go a long way towards building
a meaningful capital base, if we develop our own
profitable and tradable plan, in advance.
As there's no chance of leveraging, by the use of
margin trading (a risk in itself), then to make money
on limited capital, we must be prepared to take on
risk in other ways, if we want to make profits in a
reasonable timeframe .....
Spreading the risk across many stocks, simply increases
the brokerage load and substantially stretches out the time
frame to make comparable profits ..... likewise, investing
in blue chips may be safer, but our exposure in share
numbers is MUCH LESS and so our profit potential, in a
reasonable time frame is affected, yet again.
..... and blue chips go up and down too, so the buy and hold
theory does not apply to small accounts, since their pockets
are not deep enough to weather a sustained drawdown.
-----
So, higher risk is a factor, that most small account holders
have already accepted to a degree or they would not be
in the markets, at all.
Since we have the example here of trading two stocks, with
a $3,000 account, let's continue down that road.
Testing and honing a systematic, mechanical approach
to the markets should be easily achieved inside 1-2 months
of paper-trading (with some outside help) .....
..... it is a pointless exercise to paper-trade the markets
for extended periods, if the bugs have already been ironed
out of the system, because traders will not learn anything
about trading emotions, by paper-trading ... ie ... your mind
(and emotions) are with your money !~!
-----
Compounding our winners is a positive tool, but an even
more important tool is better market timing for both entries
and exits .....
..... "Being there, first" is the motto of Henry Weingarten's
Astrologers Fund and if our market-timing is good, then we
limit downside risk substantially, no matter which market
we may be trading.
If we enter early, downside risk is minimal and if we exit
before the masses, we again limit the risk of a fast downside
move, as other traders head for the exits, in a panic ..... :)
-----
In summary, before the skeptix tip-the-bucket on us, let's
look at a few of examples posted here, recently:
BRW - THX - EPE - PCP - CNN and more, like PHL .....
Last week for example, CNN finished 39% up in a
negative week for the markets, overall !~! ..... and some
handy complementary earnings for a wage-earner.
This week it's PHL ..... up marginally today, on
very low volume ..... not bad on a day, where the
general market was down, another 70 points !~!
Using our 2-stock model, for $3,000 we could have a
holding of 75,000 in each of the companies above,
online brokerage included ..... and certainly more attractive,
than a handful of boring blue-chips ..... :)
-----
Nope, we don't get them all correct, but we do get
enough right to pay the rent each week ..... :)
So for small accounts, better market timing, self discipline
regarding stop loss levels, compounding winners and cutting
losers adrift quickly, all add to more profit POTENTIAL
for small account holders.
So, take heart small account holders, it CAN be done .....
..... just by ignoring the self-annointed gurus and
"being there, first", yourself ... !~!
For a FREE dowload, addressing many of the issues traders
confront in building their own trading plan, please go to:
