I’m new to the market, will be graduating college in 6 months. Recently I’ve been reading up on technical analysis and options books. I was wondering if anyone is an active/successful trader? If so, how long did it take you to become successful over the years, not just the bull market of the late 90’s or the bear market that ensued.
I daytraded the emini s&p futures for about a year. I started with way too little cash, which is a sure way to lose your money and stock trading takes even more money. I had some excellent weeks and some just as spectaularly bad weeks. You need a huge balance sheet and the ability to suffer the losses while or if you learn. So read up, paper trade, both of those helps but neither can replace the real feel when you put on a trade and you lose your internet connection, PANIC haha. Good luck if you end up trying it. Oh yeah one more thing its good to read the so called guru’s on trading , you can learn a lot from them. But from my own personal experience I did a lot better when I followed my own gut and made my own trading decisisons. I was with a couple of different pay trading sites with good records but lost with both of them. I did much better on my own. I tried stocks, options and futures and daytrading futures suited my personality best and it was the one I made the most money on too, or should I say lost the least amount of money on haha. Good luck again man and be careful it’s a tough ass game.
IF you are looking to learn to invest for the long term pick up books by peter lynch(one of the most sucessful mutual fund mgrs) and benjamin Graham(warren buffet’s mentor)…I just graduated with a finance and mgmt degree and I learned more reading their books then I did in 4 yrs in college. I’ve just starting working on wall st & the #1 thing ive learned is to invest for the longterm and that day trading is a good way to lose money!!
Thanks for the advice. I’m not interested in day trading at all, don’t really have the time for that. I am, however, interested in short term trading, a few weeks/months. I can already see that it takes a lot of capital to do anything in the market. I do agree that long term trading is important, that’s what I’ll use for the retirment account. I like the options game, the book my McMillan is great, reall opened my eyes to more than just buying calls or puts.
I assume that when you talk about options you are intending to buy option (either puts or calls) not write them? As opposed to the problems of trading buying options is especially hard since you have to beat the market (i.e. price) but also have to do it by a certain time (i.e. before the options expire). Trading is hard enough with out this problem as well.
Before you do another thing you need to WRITE DOWN YOUR TRADING PLAN. I can?t stress how important this is.
A trading plan should include:
The markets that you are going to trade
The style of trading that appeals to you
Your entry rules
Your stop loss rules
Your profit taking rules
Your position sizing rules
The exercise of WRITING down your trading plan should answer a lot of your questions.
Also once you start trading you need to keep a record of you trades (e.g. traders spreadsheet, equity curve, etc). And learn from your trades, both good and especially bad.
Trading is just like any other activity or profession it takes a lot of work and some time (i.e. years) to become good at it. Just need to survive the learning process, hence the need for strict money management from the get go.
xracergs
I don?t think the buy and hold method is all that relevant today in either stock or bonds. Prices have been bid up and dividends are very low. There is just not much upside left.
Plus the 20-year cycle of falling interest rates seems to have finished. When interest rates rises bonds and stocks fall in price and their dividends (i.e. interest) rise.
IMHO there just is little ?value investing? as described by Buffet or Graham to be had in stocks or bonds.
Thanks for the advice on the trading plan. I will start that soon. Overall, I won’t actually put any money in until I can make a decent return on my virtual account, like at least 20% annual.
I like options because of the leverage there is. Actually, a very small percentage of my capital will be dedicated to buying only calls and/or puts. Most will be in writing covered calls and using different types of spreads. Despite their limited profit potential, I like spreads because of their downside risk protection. And, if I chose to use calendar spreads, I can exploit the time value premium given to options. I’m also going to start my 401k and IRA once I graduate.
I would check out Marc Faber’s book Tommorrow’s Gold, John Mauldin’s Bulls Eye Investing, Taleb’s Fooled by Randomess and for kicks Financial Reckoning Day by Bill Boenner. Ben Graham’s book Intelligent Investor is also a must read along with some of the Buffet books. There are also I plethora of quality websites worth checking out
also – Barron’s, FT, WSJ all make great reading
There’s a theory out there called Efficient Market Theory. Basically, it says that the price of a stock will instantly adjust to match all of the public information known about the company. As such, it is IMPOSSIBLE to pick winners or losers, as the stock has adjusted to the potential gain/loss. A monkey would be as good as your broker.
That being said, the Wall Street Journal held a competition that went over something like 10 years where they would have the top analysts pick stocks and then pick out some at random. What they found was something to the random stocks were about 50-50 gain/loss and the experts were 61/39 gain/loss. However, when you factor in commissions and other fees, it turns out that the whole thing was a wash, neither side being better.
So, this is a long way around to explain what my B.A. Corps. professor said. His theory is that you should diversify as much as possible through a mutual fund or otherwise (return is traditionally 12% annually). Then, learn as much as you can about one or two stocks - I mean like research everything about this company. When you find one that you know inside and out and are confident will succeed, put a bunch of money in that stock. His friend did that at a time when a stock was falling from $9 to $1 and everyone thought was going to collapse. He knew it through and through, and instead of selling, bought 1 million shares at $1. By the time the stock hit $34 a few months/year later, he had raked in a cool $30 million.
Just remember that the stock market is like one big casino. There are winners and losers. Your goal is to try to play the odds that are best in your favor.
emt assumes that we are in a bull market ie prices are rising. if we are in a secular bear market (like the one that began in 2000) then buying index funds and using diversification might help you to match the market, but your returns would still be miserable. john mauldin’s bull’s eye investing runs the numbers for returns when the market is expensive (ie high pe ratios) vs cheap (it is high currently)and returns pretty much suck when the market is over valued.
as far as emt, when ever everyone believes something to be true, that is when one waits for it to be proven false. the 2000 blow up began the bear, so make sure you have your seat belt on. take japan…12yrs the market went down, did you want to keep buying the market then? now japan looks like a much better investment than the us. if you plan on “buying the market” just remember that there is more to the “market” than the sp 500, which unfort most us investors (or their brokers) don’t realize.
your professor was basically giving buffet’s theory of value investing. obv this doesn’t work for everyone (assuming that they can actually find value),
“Most people get interested in stocks when everybody else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
Warren E. Buffett
Newsweek (1 April 1985)
“You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
I’ve traded equities fairly well for almost 6 years now (hence the name). Options are killers, so beware; I find my executions on options are not nearly as good as with equities, and my annual returns on futures (commodities) options was -99%. I was about even on commodities for one year.
Developing your own system is the only way to make money consistently. I also highly recommend a subscription to IBD (Investors Business Daily). Paper trade for 3 months or more, until you have a profitable system developed. When you start with real money, trade in small lots first, until you get your trading legs.
Best of luck to you. And remember, there are many people out there spending 60 - 100 hours per week researching the market; don’t take them lightly or they will take your $$$.
I don?t think the buy and hold method is all that relevant today in either stock or bonds. Prices have been bid up and dividends are very low. There is just not much upside left.
Plus the 20-year cycle of falling interest rates seems to have finished. When interest rates rises bonds and stocks fall in price and their dividends (i.e. interest) rise.
IMHO there just is little ?value investing? as described by Buffet or Graham to be had in stocks or bonds.
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BLuey…I disagree i could ramble off several undervalued companies many of which are just starting to be turned around by good mgmt…IE Schering Plough… Look at SGP with about a two year horizon. Fred Hassan is truly a great manger. I believe that he will do what he did with Pharmacia-Upjohn, and before that American Home.
I would have to agree. Regardless of the economic environment, there are too many stocks and/or bonds to say there is no value. Especially now, with the market fading the massive rally of last year, there are some good values out there.
xracergs, thanks for the sgp tip. I’m always looking for more companies to add to my list of charts.
traderdad, thanks for the advice. I’m not going to touch commodities for awhile. I plan to start slowly. First with equities and then covered calls. Then I’ll eventually move into spreads.
Hey couple humble words of wisdom. I am an ex broker from morgan stanley and my time taught me a few things.
There is money to be made in spreads but unless you have sufficient capital the $$ amount that you make on each transaction is very small.
There is always money to be made in the market.
Pick an acceptable ROIC and stick with it, During the boom I had many clients who got greedy and lost substantial sums due to unrealistic expectations.
Read Security Analysis by Ben Graham. Take notes while you read it since the lessons are still true today. I would purchase the 1934 original version since it is not dumbed down.
I have since become an analyst at a small firm that does automotive research. The most beneficial thing that I have learned is the importance of listening to conference call on any company’s website. The info that you learn on those call will give you the best sense of the companies performance and since the calls are quarterly you can get a good sense of the short term and medium term outlook.
Holler if you got any question I can talk about this stuff all day.
Additionally I just tried grow and red bands for the first time and they are both awesome. I am suprised that all the claims on the website about the products are true! Keep it up!
Prices bid up, without a massive increase in earnings how much further can they be bid up? Especially considering that interest rates are now raising and thus less money in flowing into bonds and stocks. Thus limited upside potential for capital gains.
Negative real rate of return. Thus limited potential to earn dividends.
Company: Schering-Plough
Ticker: SGP
Quote: $19.56 (even after the market falling of late)
Last 4 dividends (for quarters): $0.055, $0.055, $0.055, $0.055
Real rate of return: Dividend yield ? inflation = 1.12% - 3 % (conservative measure) = -1.88%
Investing in Schering-Plough (i.e. buy and hold for some time) would mean that you are going backwards in terms of real money. Not what I would call ?value?. The only way you could make money is to trade in and out (i.e shorter time horizion).
The dividends of most stocks and interest rates on most bonds are much the same (i.e. negative real rate of return).
In general individual stocks will be carried up and down by the market as a whole, so if the market as a whole has little value to be found?
Not sure how Buffet and Graham measure value, but to mean dividends are the key if following a buy and hold investing approach as opposed to a trading approach.
Basically as I see it:
Trying to capture capital gains then trading on some timeframe
Buy and hold collecting dividends then investing
Just my frustration from not being to find much yield anywhere.
But to me (at least) would be looking to protect paper profits with a trailing stop. As personally I can’t see myself holding the stock if there are not capital gains into the future (i.e. the dividend without a capital gain is just not enough for me). This would be trading to my mind not investing, symantics I know.
I used to trade commodities for a short time. I started doing okay following what I learned from reading a few books but then I began to subscribe to “services” and ended up losing all the money I had to trade with($20,000). I spoke with a few others who used “services” to help them trade and not one made any money. Beware of trading “services”.
Thanks for clarifying your point. The differences you present are more than just semantics, they are trading styles.
My style is definately trader, and you’re right, sgp looks very bullish overall.
Bottom line, I need enough capital to get started in the game. If you don’t mind me asking, what type of minimum have you all brought in? I was thinking at least 10k, probably more like 20k. Any thoughts…