It all looks exciting but I still think I'm missing something

[grswickes]

Hi All,

I am really, really, really new to the stock market! (I think everyone will get my point).

Done heaps of reading and research on the Internet, signing up for an Etrade account, and feel I am starting to understand the BASICS of the market. Also been reading the posts here for a few weeks, good stuff!

Do not intend to invest more than 5K to start with and of course will follow risk management rules.

I have a few questions for those more worldy & wise traders.

What's best to start with Stocks or Options?

Is the market normal at the moment or flat because of all of the company announcements??

Anyway that's enough to get the ball rolling.

 

[wayneL]

Definately start with stocks. Stay right away from options until you become more aquainted with how the market works...amd have done lots and lots and lots of study on options.

Cheers and good luck

 

[grswickes]

Thanks for your prompt response!

OK stock's you say, aren't the principles for stocks and options the same? If the trend (technicals) and fundamentals are there why not the option option? To high a risk?

I have been watching the market for a few weeks now using The Bourse and it appears pretty skitty at the moment. Is this just my novice interpretation or is the market a little iffy at the moment??

 

[tech/a]

I'll echo Waynes comments.

Options are as similar to Stocks as Summer is to Winter.
Both weather----both vastly different.

I know your excited and you've found the road to riches---we have all been there.
But remember 20% return on $5k is $1000.
Dont try to have your $5k turn into 30K this year.If you can return 20% then your doing better than 95% of fund managers with offices full of research staff.

$5k unfortunately is a limiting factor.

If your going to trade the pennies---which I'm sure youll be tempted with trade small parcel sizes and try to carve out 20% next year---

DONT HOLD LOSING TRADES

 

[grswickes]

Hi tech/a,

I will be more than happy with 20% return and intend to follow a very vigorous risk management plan.

What do you mean by the following???

If your going to trade the pennies---which I'm sure youll be tempted with trade small parcel sizes and try to carve out 20% next year---

 

[emily]

i fink what he means by pennies is stocks that are very cheap, like under 5cents
i am in the same boat as u grswickes.............just looking for that initial capital first....hehe

 

[grswickes]

emily,

Have you started trading yet? Winning?

 

[tech/a]

Most new traders are under Capitalised.


To offset this many travel the path of low priced stocks those under say 10c.
These can and do rise at times 100-200% but its rare.
These can and do fall to 50% of their value and it happens more often that they rise 100-200%.

They also are lured to options/warrents,CFD's infact anything with leverage--well before they are experienced enough to trade them---95% of aspiring traders fail.

If your interested why not post your "very vigorous risk management plan"

For critique---I'm sure that any comments will be constructive.(Well I hope they are) .

 

[ice]

First rule is know thyself.

I have met traders who set sensible stoplosses then find they can't pull the trigger. You need to be able to accept a loss because it is going to happen at some point. If you can't bring yourself to close a losing trade then you are an investor not a trader.....not that there is necessarily anything wrong with that.

If you'll permit my touch of whimsy I see 4 stages of trading the markets.

1 is where you know almost nothing and know you know almost nothing. (relatively safe)
2 is where you know a little bit but think you know a fair bit. (somewhat less safe)
3 is where you know a fair bit but think you know everything (extremely dangerous)
4 is where you know a great deal but realise you know almost nothing. (fairly rare)

Get to 4 and you are probably ok.


ice

 

[Smurf1976]

In my opinion you need to have a PLAN for you trading operation. I'm trying to help here by making you think about it though it probably seems like I'm being difficult.

Listed in no particular order:

1. What stocks are you going to trade? Any stock on the ASX? Stocks under 10 cents? Stocks over $1? The top 300 stocks? The top 200? The top 50? The BT margin list? Only industrial stocks? Only mining stocks?

2. How much are you prepared to risk on each trade? 2% of trading capital if you sell at the stop loss? 1%? 5%? Automated stop loss? Manual stop loss?

3. How many different shares will you trade at any one time?

4. What is your criteria to buy a particular stock? Technical analysis? Fundamentals? Dividend yield? Drilling results (mining stocks)? Commodity prices? Changed management? Something else?

5. What is your criteria to exit a trade? Price target achieved? Time? Company project has gone ahead? Drilling results announced? Just raise the stop loss until it gets hit?

That wasn't intended as a comprehensive list, just a few pointers.

Now, what I'm leading to here is that I think you need a SYSTEM (plan) for trading stocks. And you need to KNOW that it will make a profit over time without ever suffering massive losses that send you broke (since then you're out of the game and whatever profit you could have made afterwards is irrelevant).

It might be easier to think in terms of something more familiar. Imagine that you have a large dam that you are going to use to supply water. You need two things to occur for it to be sustainable. Firstly, you can't take more out than flows in or eventually the dam will run dry no matter how large it is. Seccondly, the amount you take out in any given dry period must be less than the dam holds no matter how much "excess" water you normally have otherwise it will run dry. If it runs dry then you're in BIG trouble because translated to share trading that means you've gone broke.

Sounds simple? Same with stocks. You need to make more $ than you lose otherwise your account will become empty. Just like the dam. And you can't lose so much on any series of trades that your acount runs to empty otherwise you have a BIG problem. Again, it's the same as the dam.

And if you were going to be building dams then you would want to KNOW how much water flows down the river and how much is going to be used. Just like with share trading I think it's a lot better if you KNOW that what you are doing works rather than just throwing $ around hoping to make a profit.

This means you need to TEST what you are planning to do in order to see if it works. Testing on paper saves $$$ when you find that what you were planning to do doesn't actually work as well as you thought it would. Incredibly boring in my opinion, but very worthwhile and saves $$$.

Now all you need to do is come up with a system that meets the criteria... (And note that I didn't intend this post to be in any way comprehensive. Just explaining a few things that cost me rather a lot to learn the hard way.)

 

[ob1kenobi]

I agree with Smurf. Have a plan and trade to it. Invest in companies that operate in areas that you have some knowledge or expertise. It can help with the decision making. Equally important, have some type of system in place that works for you. Good luck!

 

[wayneL]

Thanks for your prompt response!

OK stock's you say, aren't the principles for stocks and options the same? If the trend (technicals) and fundamentals are there why not the option option? To high a risk?

No. Quite apart from the leverage, option pricing contains some complexities not reflected in an ordinary share chart. Like tech says, both weather, but different.

A worked example: (this sort of thing happens quite often)

Yesterday xyz was trading @ $20, but today it gapped up to $22 at the open; a 10% gain overnight.

One would be expecting call holders to be rejoicing!

But in this example the ATM near dated calls were trading at $2.95 yesterday; yet today they are trading @ $2.60.

How so?

Unless you know when and why this type of thing happens, you will be burned in the options market....and that's just one example.

With options you need to know how to turn this sort of thing around to your advantage and it's too much to learn initially.

Take your time.

First things first, as rest of the excellent posts in this thread implore.

Cheers

 

[grswickes]

Hi,

Simplified draft cunning trading plan, that is risk management strategy.

1) Invest no more than 20% of capital in any one trade.

2) Base trades on technicals. Stock trending up, no reporting due (silly season), min 2 peaks higher and 2 troughs higher than previous, etc.

3) Set fixed stop loss at 5%, automatic.

4) Set fixed profit taking points at 30% & 50%, automatic.

How's that look for a basic set of rules to follow????

 

[Garpal Gumnut]

Hi All,

I am really, really, really new to the stock market! (I think everyone will get my point).

Done heaps of reading and research on the Internet, signing up for an Etrade account, and feel I am starting to understand the BASICS of the market. Also been reading the posts here for a few weeks, good stuff!

Do not intend to invest more than 5K to start with and of course will follow risk management rules.

I have a few questions for those more worldy & wise traders.

What's best to start with Stocks or Options?

Is the market normal at the moment or flat because of all of the company announcements??

Anyway that's enough to get the ball rolling.

Sorry for the delay in replying.

Stocks would be better for a beginner.

Buying materials yesterday would have been best, timing is always difficult, I wish I had bought more.

Then again the market is a fickle partner.

But exciting as you say.

Just watch all the threads in ASF.

Each sector has it's day or week or month or year in the sun.

Yeh, exciting.

gg

 

[charlsie]

Sorry for the delay in replying.


Yeh, exciting.

gg

what's 17 years between friends LOL