BASIC TECHNIQUES
Profit And Profitability
The Beginning Trader
by 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.
Return to October 2005 Contents
