BASIC TECHNIQUES
Profit And Profitability
The Beginning Traderby Thomas Bulkowski
Here are some tips to help a beginning trader become profitable.You may be approaching retirement and want to supplement your income or earn enough money to afford the rising cost of health care. You may be a decade out of college, employed at a boring job, and yearn to have a 30-foot commute. Your dreams may be of trading for a living and making a six-figure income while taking days or even weeks off without a boss asking where you've been. This article will help steer you in the proper direction to achieve those goals.
LESSON 1: KEEP TRADING COSTS AS LOW AS POSSIBLE
I used to think trading stocks was a zero-sum game where one trader wins a dollar and another one loses a buck. It's not. It's a negative sum game. The difference is the cut the broker takes along with a slice paid to the government - costs you have to overcome to be profitable. No one says you have to use only one broker. You can use a full-service broker and a discount shop. My preference is to use one broker to keep things simple. Simple is best.
I've always used a discount broker for my trading. They keep costs low and don't give investment advice, two ingredients I find valuable. Why spend $50 trading a stock when you can spend $10?
For example, in my portfolio, I hold a stock I bought for a split-adjusted price of 88 cents in 1990. It peaked recently near $44. I've traded it over the years but never sold all of my shares. In the 46 times I've traded it, my broker has made $1,720 off me, or an average of $37 per trade. I consider that commission huge compared to the $10 or less I can get Internet trading now. Why pay full price when you can get trading done at a discount?
LESSONG 2: START WITH STOCKS
When I first started getting serious about the stock market nearly 30 years ago, I selected stocks and followed them on paper for four years before I bought my first one. During that time, I read everything I could about investing and put to work what I learned. Paper trading showed me I was a lousy stockpicker and I needed to hone my skills. It took me four years because I was fresh out of college and didn't have money to spend anyway. My first priority was to replace the cardboard boxes with real furniture and keep food on the table for me and Tubifex treats in the fish tank for my Oscars.
My advice is to start trading common stocks, not options and not futures. Once you begin making money trading stocks, then you can try your hand at derivatives. Don't be in a rush to make money. If you do things right, the riches will come. The way to your first million is one trade at a time, one dollar at a time.
...Continued in the October issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the October 2005 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2005, Technical Analysis, Inc.
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