Money Management & My Trading Secrets
Because there are certain fixed costs involved with trading, the more you have to begin with, the easier things will be for you. However, you can start with any amount of trading capital you choose as there’s no ideal figure to go on.
You’ll tend to find that it’s the brokerage you need to be aware of as the vast majority of brokers charge a set fee. Obviously, the more capital you start with, the more affordable the fee will be for you.
To make this a little clearer, let’s take an example where two traders wish to open a trade, using the same broker who charges a fee of 0 per trade. Trader number one has a fund of 00 while trader number two has a fund of ,000. In this case, the trader with 00 will need to make a win of 10% just to break even while the trader with ,000 only needs to make 1% in order to break even.
Yes, you can start trading with a small fund but you just need to be aware of the fact that those with a larger fund tend to have the advantage.
Likewise, the size of your float is going to have a direct impact on which stock trading system you use.
If you’re starting out with a relatively small fund then I’d advise you to look at a long term trading system rather than a short term system like day-trading. Of course, while there are many reasons for me saying this, the most important benefit is that a long term system can be managed with great success even while you continue working in your regular job. As you gain experience and become more confident, then yes, start experimenting with a short term system.
For someone with little experience, going and investing a huge sum of money into trading is simply being reckless. Admittedly, the more you invest, the bigger your windfall will be if you win but remember, if you loose, you’ll be loosing a large sum of money. The reason I mention this, is because many people like to plan ahead by saving a large amount of cash before they start trading for the first time. Likewise, there are those who get swept up in anticipation and end up maxing out their credit cards, which really is something you should avoid. Once you’ve got the necessary experience, you can always apply for a bank loan instead.
As Don Miller mentions in Trading Markets World Meets the Traders, new traders should focus on good trading rather than making money and for this reason, funding your trading with credit cards is a bad idea. Why? Because you’ll end up spending most of your time worrying about the repayments and far too little time worry about good trading. In fact, unless you have enough money set aside, you shouldn’t even consider giving up your regular job and when I say “enough money”, I mean it should be enough to support you for at least two years.
Take a bit of advice from the professionals and start trading part-time only. This way you’ll be gaining some experience and at the same time you’ll start to see some returns coming in.
Short-term trading systems and long-term trading systems:
Short-term systems where trades are typically from one to thirty days require a great amount of expertise and experience, not to mention the fact that they’re extremely time consuming as well. In this case, traders seek to accomplish a high number of wins by taking part in more trades.
Long-term system ‚ In this case trades are at least a month or more. Of course this means fewer trades and less wins but then again, you don’t require as much capital and you don’t require as much skill.
As I mentioned earlier in this article, nobody can say what an ideal starting amount is because it depends on a wide range of factors. These include, but are not limited to, the amount of money you have available, how much risk you can cope with, and which sort of market you’re looking at. However much you decide to start with, set that money aside as a stand-alone business. Doing it this way will help to prevent you digging into profits which in itself results in one loosing focus.
My advice is that you should start out with a minimum of K and remember, treat your trading as you would a regular business.
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