$$Money, Stock Market and tha good stuff.$$$

[Call_Me_Daddy]

Anyone here play the market? I've been tring to find myself a trading account. I've checked online sources and I've also gone to my local stock brokereage (TD waterhouse) But their fees are too damn high!!!

Anyway, I have about $500 CAD. Where is a good place to start at?

 

[madgame]

I've been playing the market for 5-10 years (depending whether you count the off-years), even though currently I'm not invested.

I started with a small amount of cash like you did, too, but I could only do that, because when I started I would invest together in stocks together with my dad (that way the fees were affordable for me despite my small amount of cash..which was like 500 Euros). As I made money from it and had a few thousand bucks, I started to invest by myself (I'm not saying this should be taken for granted or is easy to pull of or anything, especially considering it only worked b/c I was invested in internet stocks and if you were invested in internet stocks at that time..well..they went up).

But let me give you 2 pieces of advice, which in my opinion are absolutely crucial and maybe the 2 common mistakes why people usually don't profit from the market:

1) You need to figure out a way to set your self stop-loss prices (in case you dont know what it is read it up) for your stocks. AND you need to sell your stocks if the stop.loss prices are reached, otherwise you could as well NOT have a stop-loss price at all. It's especially crucial if you're interested in stocks which are a bit more volatile (not the coca colas or gilettes or general electrics), because..well they are volatile. Let me give you an example: Like I said I was invested in internet stocks when I started..and they really went through the roof..and like I said i was invested in them with my dad....and I had stop-loss prices (he did too..) when the prices of the shares reached those stop-loss prices..in the beginning it was hard for myself to actually sell in some situations..but luckily I did get myself to sell when they were reached (in most cases at least I was still a beginner ;-))...so I could keep most of my profits...whereas my dad was like "they're gonna go back up..." and wouldn't sell..and well all those stocks went as far down as they had gone up...

I think that's the general opinion of a lot of beginners (and also some pros, but that's only the ones who are invested (very) long-term)...they think they're doing something good b/c they are patient and dont sell, etc. but their problem is it's not a good thing they're only attached to their stocks and develop feelings for them (especially when they've profitted from a stock..they'll have an even harder time selling them). Honestly though people set themself stop-loss prices, but then dont sell saying "they're gonna go back up"....you use stop-loss prices to cut your risk (especially when dealing with rather volatile stocks)

2) Invest in 5..better 10 stocks. Years later some friends of mine started to invest in the stock market...and they were all europhic and stuff...and listened to some so called stock-market pros, especially to one... and would buy the stocks, that he advised.....but well they put all their money in like ONE or TWO different stocks. That's the second biggest mistake which I can think of (maybe its even bigger than mistake #1). End of the story is they were all dependent on that one or two(?) stock(s) and ended up loosing a lot of money and would never play the stock-market game again....(also they didnt respect their stop-loss price ...see mistake #1).

Of course it could have gone the other way and they could have ended up making a whole lot of money b/c they were just invested in one stock, but the less stocks you're invested in, the more the stock market game is about luck (there's always luck involved, but if you're invested in 10 different stocks you depend a lot less on luck)..if something you didnt expect to happen happens and you're invested in 1 stock the repercussions are extreme, whereas they aren't too bad if you're invested in 10....if you're invested in 10 it's also harder to make a lot of money...but then again you could also put all of your money on a random sports bet, either you lose it all or you double it...I assume you get the picture.

ANyways...Im not trying to give you advice about any golden system or whatever, that you have to figure out by yourself, but in my opinion not respecting those 2 rules (always be invested in a couple of rather than very few stocks) and setting yourself (and even more important adhering to) stop-loss prices are the 2 main reasons why I've seen people fail in the stock-market (even myself to a certain extent in the beginning).


Oh and about funds: I advise against buying funds. A lot of people will probably jump at me right now lol, but I say better buy umm...im not quite sure what the expression is but you can buy 'funds' which consist of the whole Dow Jones or S&P 500 index..something like that, that way you perform exactly as well as the market (and in the long run that usually means you make money). The funny thing is, that it's probably even as hard to pick a fund which outperforms the market over the long haul as it is to pick a single stock that'll outperform the market. I don't have any statistics on it right now, but you should have a look at how many fund managers outperform the market and how many of them underperform the market.....there's really just a very very small percentage of fundmanagers which happen to outperform the market in the long run (of course anyone might have a good year here and there...but it's about the long run, especially with funds)

 

[Bible_Belt]

That's good advice, especially about the stop losses. But it takes money to make money, and 500 bucks is not going to get you very far.

It's tempting when you don't have a lot of money, but stay away from 'penny stocks,' and by that I mean stocks that do not trade on the NYSE or NASDAQ. The official name is 'over the counter bulletin board.' Penny stocks are for suckers. The spreads are wide, commissions are big, and regulation is scant compared to nyse/nasdaq. Companies can keep printing shares like they are monopoly money, diluting the equity of existing shareholders.

interactivebrokers.com is very popular among traders. Their prices are low, but their customer service expects that you have some idea what you are doing.

The nasd passed rules a few years ago, the 'pattern day trader rule,' which requires that you have $25,000 US in your account before you are allowed to day trade. The rule is idiotic; it reflects the ignorance of the people who make the rules, but that is another debate.

imho, if you want to be a trader and not an investor, the best trading account on the cheap is an e-mini s&p futures account. You can get started for 3-5 thousand dollars.

 

[madgame]

It's tempting when you don't have a lot of money, but stay away from 'penny stocks,' and by that I mean stocks that do not trade on the NYSE or NASDAQ.

I'm not sure if I mean the same thing as you, but in case you mean very volatile stocks, that sort of multiply your wins/losses, because they are so damn volatile, I have to agree..actually I was gonna type that too in my post, but thought it'd be too long: For me the stocks I made the most money with all in all, were those, that were neither the really really long-term ones, which you'd expect to buy and then look at them a couple of years later and see them up by 30% or so (that's exaggerated but I hope it gives you an idea), nor the really volatile/speculative(exp?) ones...I tried the very volatile ones, too (even if I was never heavy on them), but every time I tried I wouldn't really make any money out of them...

When I start to invest again (which I won't do before I'm out of college and earn some money I can invest), I'll probably go for a index fund...which has the exact same stocks as the S&P or Dow Jones (or maybe the german DAX...or something like that..just saying DAX b/c I'm in germany...). Plus I might try to track down a fund manager/a fund who has been outperforming the market over several years. I haven't looked for that too much, yet, but I'm sure that there ARE some fund managers who do know their buisness (even though most of them SUCK...) and that you should be able to find some fund manager who's been outperforming the market over the years....anyways I'd go for those 2 things as a long-term investment..

and I'd go for a well let's call it mid-term investment in stocks that are somewhat volatile/speculative, BUT that are NOT highly speculative...plus of course I'd use stop-loss prices to cut my losses (I think the reason for my success with those stocks compared to other ones might be somewhat due to the fact, that those stocks do go up and do go down..compared to the really long-term investments which hardly do that...but once they go up, they usually continue to go up for a while...and once they go down they can go down by a lot, too (that's why they might not be more successful in the long run in general), but you seem to have a good chance of selling them at a beautiful point, because they usually follow their up/down trend for a while (I think for other stocks the stop-loss price thing might not be as effective, because you might run into too many situations where you sell those stocks at your stop-loss price and then they go back up....of course that's something that always happens, but I think those stocks, which are a little volatile, but NOT too much are best for that thing to work).

interactivebrokers.com is very popular among traders. Their prices are low, but their customer service expects that you have some idea what you are doing.

I dont know interactivebrokers.com, but that's the rule: if they don't offer you any service (suggesting to you stocks etc. - other than their own fund, which usually does not outperform the market, of course.........) it costs you less..because you don't have to pay for their suggestions and service etc....so if you try to play the stock market yourself, usually that IS the thing to go with...especially if you have little money..

However Bible_Belt is right...it's actually not possible for you to pull of buying 5-10 different stocks if you have 500 Canadian dollars...b/c that way you'd pay a third or so of you're money for transaction costs, which you just have to keep low in order to be succesful, if you're serious about it.

...However one thing you mentioned makes you seem like you might have some success with that (when you have enough money) and probably understand what we're telling you...you said you have played stock market simulation games etc. ....and that's a very good approach in my opinion..matter of fact, Im gonna try to figure out a system/ way to invest that works for me by trying it out with stock market data of the past (if I find a program or something like that which allows me that), because....what's the point of trying to figure out a strategy that works and risking your money if you can do it without the money? If it works...put your money on it and go for it..if it doesn't do the stock market will be mostly a game of luck.... (however I'm only saying that b/c I have been invested before and do have the patience now :-D especially as I'm in college and prefer focussing on that (and having a great time of course) at the moment...).

If you can find a company which allows you to invest in multiple shares (or well at least more than one..or two...) you can try it out of course, but 500 or so canadian dollars are probably just a bit too little money to get started (unless you know somebody else who wants to join you...which might bring other problems up, though...) though things could have changed over the last years..

 

[Call_Me_Daddy]

This is good advice guys. Especially bout penny stocks. But seeing as I have little money... how could I get into the market?

(I'm not sure the 25K rule applies to me, I'm in Canada.)

Do you guys know of anyone who started out small? What could be another good way to make money... What kind of results have you guys been getting on eBay?

 

[Bible_Belt]

fwiw, the 25k rule is from the SEC and applies to all market participants regardless of geographic location. But the SEC does not control the futures markets, because a 'future' is not a 'security.' So e-mini accounts have become very popular, since they only require a few thousand to start.

This is not very exciting advice, but you are probably best served to find some sort of second job, compulsively save your money, and rid yourself of debt and monthly payments. It only takes a couple of years, and those years are going to pass anyway. Tending bar, waiting tables, delivering pizza - save $100/week and you can have enough money within 2-3 years to actually make money from your account.

 

[mpimpin]

Your gonna want to diversify your portfolio. Don't put all your eggs in one basket. I recommend saving up some more money then investing. Perhaps about 3-5K. I just purchased a Vanguard retirement fund. I invested 3K the minimum investment. I don't have to worry about managing my own investments. My investment is spread into both domestic and international indexes as well as 10% in bonds. My investment is set to mature in 2050. Through the years the ratio of Stocks to Bonds will be adjusted. After 20-25 years the amount invested in bonds will increase slightly. The last 10 years some of the investment will be tucked away in cash. My investment is compounded through the years. This is a very well diversified investment. Its something to think about. If your looking for a get rich quick investment this is definetely not it and I'm not sure they even exist. If you find one let me know.

 

[Call_Me_Daddy]

I'm not into get rich quick. Just get rich. There is no quick and easy route.

 

[A-Unit]

Re:

My experiences...

I haven't grown it enough to STOP working, and I probably wouldn't stop anyways. I'd always to grow my wealth. I have made enough to pay haphazard bills, like a recent car accident (about $600) that won't dent me financially...

You buy about 10 stocks. I personally only buy about 5. Back months ago, I'd bought TIE when it was on a dramatic run-up through a program I use, and it tripled my money in a few months. Other purchases I made did well, too, but not as well as TIE. Recently TIE fell off, and I'd sold before that anyway. I used the profits to buy other companies like TIE, although the market's general direction, inspite of the value of companies is consolidating at the moment.

Important FACTOR One: Go With the TIDE

In general, don't go against the market. You don't buy looking for profit now on stock that might, fundamentally be great, yet see it waiver around. Go with the TIDE. The Tide of the market is consolidating, meaning confusing. Stocks will go up, then go down. Those who see a company rise 10% better watch out, because they're like to go down, UNLESS the whole market is going that way. APPLE (IPOD) went up on strong earnings, but has stopped. A company like APPLE is ok, but it won't move much until the market moves again, too. Even Livermore stressed noticing the flow. The hugely successful TURTLES of trend trading fame (not the book) would buy on long positions sometimes using a 200 day moving average. THAT is a long trend. Some buy 20 day moving averages. Know the direction of the market and invest accordingly.

Important FACTOR Two: Set Stop Limits

Set them up ahead of time. The turtles also set up stops, and would move them as they gained, and kept them tight initially. IBD advises 8%. Other's might say 13%, since most people set them at 10%. Each stock will be different. The TRUE RANGE is a test of variability of stock over a period of time that sets out how much a stock oscillates along a trend. If you choose a certain stock, find out how widely it has oscillated and pick a % for that. Initially you might set a 8-10% in case it pulls back immediately, but then you can set your own stop.

Important FACTOR Three: Know Your Type

Some guys can do day trading. Some like long-term investing. Other's like methodologies like IBD (CAN SLIM) or the Turtles & John Henry. All that matters it that you find your niche. I began with $500, using an expensive brokerage firm, made $1500, then transferred to Scottrade. I know all brokers are different, but unless you're day trading, I personally don't think slippage or daily fluctuations matter. You're looking for big profits (%), at least if you're going longer than a few months. Other's might squeeze profit from thousands of dollars, but by day trading, and just making a few thousand bucks. I don't know those guys, nor do I know any hugely successful investors.

This is perhaps the most important, and to drill it in, go read the MARKET WIZARD BOOKS. There, all sorts of investors thrived, but it took them time to find out what works to make them money. Likewise for me. I've used programs with indicators people couldn't interpret, yet saw something different and succeeded. I also went to school for FINANCE, so I have a background in what I do. The numbers come to me. What any guy posts here is ONLY WHAT WORKS FOR HIM. Fundamentally, you want to find a cheap broker, use a min. of $500, and buy a few stocks. $500 isn't likely to be enough, since you can't REALLY buy many shares, but as I said you can "get lucky". I'd bought TIE, just before it SPLIT, then SPLIT again, essentially going up like 1,000% in a short-time. That doesn't happen often. But I've bought other stocks which plod their way up, don't oscillate much and stay up. That's a nice position.



A-Unit

 

[Bible_Belt]

Some of the Market Wizards may have not fared well in recent years. It's hard to know for sure. I was taught to follow trends, and those methods were great in the 90s, because the market tended to make extended runs in one direction. But after the nasdaq decline, the intraday volatility dried up, and long intraday trends became much harder to find. So then the trend traders switch from trend indicators like moving averages to overbought/oversold indicators, oscillators like stochastics. On a choppy sideways day, it pays to buy into dips and sell into bounces. A trend indicator and an oscillator will usually give opposite signals. The overall market's movement is usually what controls the stock, but the thing is you never know for sure where the market will go. When taking on a position, a trader is making a prognostication about the overall market. Buy and hold when you think it will keep going up; sell short and keep the position as long as you are a bear. For sideways markets, it gets a little more complex. One can write out-of-the money options to generate income, covered calls, spreads, straddles, etc.

Also, world events such as the war on terror have created many individual stock opportunites in defense companies. News tends to move the price more than the rest of the market. I am out of it all now to focus on school, but if I were still trading I would be researching small companies that provide missiles, bombs, missile defense, and other war supplies. Israel is shooting off their fireworks and they will want to buy more.