Stock Trading
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OptionsTrader
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Small enough that you can lose a significant part of it and not care too much. The money can't be retirement money and can't be money that is needed for bills. It has to be 100% discretionary like money you would go travelling with or go to vegas with. The reason is that your first brokerage account is likely to sustain heavy losses, and that is good, get those losses out of the way with a small amount of money. Learn, and you will not make the same mistake twice, hopefully.
That amount varies per individual. If you are going to be trading stocks, I would advise starting with about $2,500. That lets you get in 3 or 4 positions, and have enough in them that the trade in and out doesn't kill you commission wise.
A couple of rules:
1) Don't trade too often, you will churn your gains away in commissions.
2) Don't buy based on the advice of anyone on TV. Especially Cramer.
3) Realize that you do not always have to be long a stock, you can also buy shares of inverse funds that go up when the market or sector goes down. Examples:
DIG and DUG
4) Explore ETFs as trades since individual stocks can be too volatile for someone with only 4 positions to start with. You can trade the ultra ETFs for more leverage and amplify the risk and potential reward. The point is to learn and build experience.
ETF list info:
http://www.ishares.com
http://www.invescopowershares.com/
http://www.proshares.com/
http://www.ssgafunds.com/etf/index.jsp
5) NEVER EVER EVER EVER EVER EVER EVER EVER EVER buy penny stocks. They are not cheap, only low in price. First time investors fall for these scam companies and if you buy a penny stock I will have to tar and feather you.
6) Buy the following book:
The Encyclopedia of Chart Patterns, by Bulkowsi.
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By "stock trading" do you mean "trading" stocks or "investing" in stocks. There is a big difference.
If you are inexperienced, I'd say forget trading and stay away from options. It's not an easy game to win, especially if you are pushing around small amounts of money.
If you mean investing for the long run and not just gambling your money away, then check out some books on value investing. Learn how to pick up stocks of good companies when they are cheap. I highly recommend Benjamin Graham books for this type of market play.
If you are inexperienced, I'd say forget trading and stay away from options. It's not an easy game to win, especially if you are pushing around small amounts of money.
If you mean investing for the long run and not just gambling your money away, then check out some books on value investing. Learn how to pick up stocks of good companies when they are cheap. I highly recommend Benjamin Graham books for this type of market play.
OptionsTrader
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OptionsTrader
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The trouble with going long only (value investing) is that if the overall market trends down, you lose no matter how good of a pick you made. Individual "undervalued stocks" do not shake the macro trend no matter how bad you want them to. And buying your favorite company stock and holding no matter what makes you succeptible to falling in love with the stock, defending it all the way down, and you just plain cannot afford to do that.
He didn't ask about value investing
You never know these days when they say "trading." To me it means blowing money on short-term movements of the market, but some people use that phrase for just buying stocks.
In any case, I now realize the last sentence of his post means he was looking for comments from specific users. I now rescend my offered advice.
Go write some naked calls and have a blast...
OptionsTrader
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It's a tool. No tool should be used in a vaccuum. One of the most powerful tools is having a good feel for the market and what kind of news is likely over the next 6 months to a year for instance.
If you want someone with good "feel" read Todd Harrisson on http://www.minyanville.com
Don't follow his advice necessarily, but try to think like him and make your own judgements independently. He's wrong a lot like the rest of us, but he is really disciplined and intuitive about the markets.
forsmant
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I did meaning just buying stocks. I know about inverse funds and short selling, I just don't have enough money to start with, or the knowledge of what companies to short.
OptionsTrader
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You don't need to short companies, you can short currencies, country indexes, commodities, just about anything you can think of.
Shorted oil today because I think its putting in a head and shoulders head and my "pizza delivery guy" index pegged high today. When the pizza man wants to buy oil, its time to sell...
Shorted oil today because I think its putting in a head and shoulders head and my "pizza delivery guy" index pegged high today. When the pizza man wants to buy oil, its time to sell...
By the way, just one comment. When the macro situation looks bad, shorting isn't always the best solution. I know I mentioned the value investing approach before, but I dabble in some small options and shorting positions here and there. I will say, however, that I am up about 15% on my stock positions this year and I have had zero short positions and no currency trades.
AceNZ
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I guess I'm the contrarian here. My two cents:
-- When used correctly, options can be much lower risk than stocks. They are definitely worth understanding.
-- I believe we're in a long-term bear market in stocks. It's a bad time to be a value investor. Traders should still do OK, but trading in the current high-volatility environment is risky.
-- For stock trading, it's still a good idea to know how to read and understand an annual report and financial statements. At the very least it can help you avoid (or anticipate) big surprises.
-- There is less risk investing in commodities than in stocks. There are also only a very small number of them compared to stocks, so learning and understanding the markets is easier in some ways. I believe we're in a long-term bull market in commodities. Look into commodity indexes, ETFs, etc, which can lower your risk even more. Options are also available.
In the current high-volatility market, my opinion is that technical analysis, while still valuable, isn't as reliable a tool as it once was. Proceed with caution. Also, using TA by itself is almost always a mistake. Look at fundamentals first, then use TA to fine-tune entries and exits.
-- When used correctly, options can be much lower risk than stocks. They are definitely worth understanding.
-- I believe we're in a long-term bear market in stocks. It's a bad time to be a value investor. Traders should still do OK, but trading in the current high-volatility environment is risky.
-- For stock trading, it's still a good idea to know how to read and understand an annual report and financial statements. At the very least it can help you avoid (or anticipate) big surprises.
-- There is less risk investing in commodities than in stocks. There are also only a very small number of them compared to stocks, so learning and understanding the markets is easier in some ways. I believe we're in a long-term bull market in commodities. Look into commodity indexes, ETFs, etc, which can lower your risk even more. Options are also available.
In the current high-volatility market, my opinion is that technical analysis, while still valuable, isn't as reliable a tool as it once was. Proceed with caution. Also, using TA by itself is almost always a mistake. Look at fundamentals first, then use TA to fine-tune entries and exits.
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