This chapter covers:
How to approach online trading realistically, based on your own practical limitations
How to assess time limitations
How to assess capital limitations
Why margin trading is a powerful and useful tool
Why margin trading must be used with care, especially in uncertain market situations
How to assess online access limitations
How to choose an online broker that suits your needs
You’ve seen advertisements that try to scare people away from online brokers and back to traditional high-fee brokers (you know, the ads that came out a year or two after the ones that said online trading was the inescapable wave of the future). You’ve heard about people who lost all their money in manic online trading frenzies (though maybe you’ve heard just as much about people who made piles of money). Your friends have warned you against trading stocks online, repeating the horror stories and shaking their heads in dismay. But you know money can be made in any market, bull or bear, and you think you’ve got the stomach for online trading and the ability to master a new skill. Maybe you’ve been messing around with stocks for a while and have finally decided to get serious. Maybe you’re a fairly accomplished trader who needs to overcome a few bad habits. Or maybe you’re a complete newbie who’s a cowboy at heart and can’t resist a good challenge. Whoever you are, the point is that you’ve decided to give trading a closer look.
The prophets of doom are right on one point: online trading isn’t for absolutely everybody. More importantly, though, it works for lots of people—but different kinds of people in different situations need to go about it differently. This chapter will help you identify your capacities and limitations so you can get real about how to make online trading work for you.
Trading involves a time commitment. To do it right, you have to figure out how many hours you have to devote to the task and choose your trading style accordingly. Start to think about it by asking yourself a few questions about the time you have for activities related to trading.
The first question you have to ask yourself is this: Are you going to trade full-time, or are you going to do it part-time while holding down another job? Unless you have enough capital to make a comfortable living by trading and preserve your financial cushion, even when the market is sluggish (see the discussion of capital limitations below), my advice is what every beginning actor and musician hears when first starting out: Don’t quit your day job. In other words, begin by trading part-time. Even part-time trading will require at least an hour or two a day for monitoring the market and your portfolio, as well as staying familiar with stocks you think might make good trades.
Especially if you’re trading full-time, the second question you have to ask is how much time outside market hours you can commit to trading. Basically, there’s no limit to how much time you can spend, but you don’t need to make it your life. If you’re trading only the morning NASDAQ gaps, you can do it in an hour a day (see Chapter 3 for an explanation of fading the gap up and gap down). If you’re trading full-time, though, it’ll take a bit more time than just 9:30 to 4:00. You won’t be able to roll out of bed at 9:25, switch on the computer, rake in money all day, and then log off at 4:05 to bask beside the pool with umbrella drinks until midnight. Plan to put in an hour or two each day outside market hours.
But what could take so much time? you ask. There are two main things: learning to become a good trader, which takes long-term study and time, and keeping up with the market, which takes some time each day. Remember, you want to rule the market! While you’re learning to be a better trader, you’ll want to make use of all the resources you can find, digest them, and refer to them again and again. And even when you’ve become a pretty good trader (though the education never ends, believe me), you have to keep up with what the stock market is doing and what’s going on with different sectors and individual stocks. This is called research, and it’s not optional. You should constantly be aware of current market psychology and conditions, which change every day. Every market is like a living being that has experiences and reacts to them. It has moods, habits, and a personality. Understanding the market is like getting to know a person. And, like getting to know a person, it can happen only by paying close attention over a period of time.
Especially if you’re just starting out, you should spend some time every evening looking at stocks and sectors, charts and news. This will help you understand why the market did what it did that day, as well as anticipate what will happen the next day and plan a strategy and some possible trades. You’ll rise and shine each morning between 7:30 and 9:00 to tune in to CNBC and check the futures and overnight news, and you may follow premarket trading beginning as early as 8:00. Aftermarket trading continues until 7:00 or 8:00 P.M., depending on the ECN. (There has been talk of 24-hour trading, but that hasn’t happened yet.)
The point here is that you can’t be a successful trader if you’re half-assed about it! As jazz musicians say, you gotta pay your dues—no one gets a free ride. Trading is work! But you don’t need to devote all your waking hours to it. Choose your style and make sure you have the time to do it right.
Should you trade full-time or part-time?
Many people dream of becoming full-time traders. It’s easy to see why. Trading lets you work at home—you can even do it naked!—and you have no boss and no office politics to worry about. There are no deadlines. You can take a day off whenever you want. There’s huge potential for ka-chingos. And your success or failure depends only on you.
But, besides the other questions you should be asking yourself (such as Will I mind spending all day in front of a computer? and Do I want to give up my other work?), an absolutely crucial question is whether you can afford to trade stocks for a living—yet. This will depend on the answers to two other questions:
How much do I need to make per week, on average?
How much can I expect to make per week, on average?
If the answer to the second question is comfortably greater than the answer to the first question, you can probably afford to trade for a living. If it’s not, you’d better wait.
You should know the answer to the first question already. The much harder question is the second one. The answer depends on a number of factors, as discussed below, but it absolutely depends on how much capital you have available for trading, because your potential return in real dollars is limited by the size of your account. Example: What’s the average weekly dollar amount you’ll make if your average weekly return is 2 percent? Well—uh—2 percent of what? A person pulling in 2 percent a week on an account of $100,000 will be making $2,000 a week. Someone trading $10,000 and making 2 percent a week will gross $200 a week. You get the picture.
When you’re figuring out how much capital you have available for trading, realize that you must have some reserve—a financial cushion—if you plan to make your living trading. You need a cushion even after you’ve become a competent trader and are making pretty consistent returns. Your reserve should be even bigger if you’re just starting out. There will be days when it doesn’t make sense to trade, either because the market just stinks or because you’re not in good shape, either physically or mentally. There may be long periods—even weeks at a time—when the market is so choppy or so stagnant that trading will only churn your account and eat away at your capital. So if you want to trade full-time, you must be financially secure enough that you’ll never find yourself trading scared. If you trade afraid, you’re much more likely to lose money.
WAXIE’S STREET SMARTS
Trading scared makes you much more likely to lose.
Okay, let’s say you know how much you can put into your account. The tricky question is, what kind of return can you anticipate?
There’s no sure answer to that question, only conservative estimates. Your return will depend on a host of factors, including your experience and skill levels, the state of the market, whether you’re trading on margin, and whether you plan to take money out of your account regularly or allow it to grow (ah, the joy of compounding!). Let’s take a look at each of these factors.
First, experience: if you’re a complete newbie, you should be prepared to lose money at times during the first few months you trade, and on occasion after that. I don’t mean you should expect to lose—you should never expect to lose, because that kind of losing mentality makes it seem all right to lose, and if it seems all right, you’ll let yourself lose instead of doing what you have to do to win. (Anyway, if you really expect to lose, then why are you trading?) But you have to be prepared to pay a little for your trading education, and it’ll take a while for you to develop consistency in your trading judgment.
WAXIE’S STREET SMARTS
Never expect to lose. Instead, learn to manage and reduce risk.
Do you see the difference between expecting to lose and protecting yourself?
Next, there’s your skill level. Even experienced traders aren’t equally skilled at trading, and most people are more skilled at certain styles of trading than others (see Chapter 3 on how to find your own trading style). After all, how many things is everyone equally good at doing? Not many—that’s just the way life is.
On the other hand, no one should ever think they’re stuck at some predetermined or genetically based skill level. No way! Everyone, from best to worst, can improve their trading by learning and practicing. Your skill level will depend on the effort you’ve put into developing yourself as a trader, how well you follow the rules of the game, your temperament, and your enthusiasm for trading. As my friend and technical-analysis guru Tiny says, Luck = hard work + discipline + opportunity.
Another major factor affecting your return is the state of the market. During the bull market insanity of a few years ago, average weekly returns of 20 percent to 30 percent—or even more—were quite possible. This may happen again from time to time in certain sectors, but it isn’t something to count on. In more subdued market climates, rallies may bring 2 percent to 15 percent returns but won’t happen as often or last as long. When the market is trending downward and you’re primarily selling short, your returns will be more limited than in a bull market. This is because you can’t do more than double your money on a short sale and, at least with some brokers, you can’t increase the size of your positions by buying on margin. (If you don’t know why, see Chapter 10 on shorting.) And when the market is seesawing up and down without establishing any definite direction, it can be hard to make money consistently at all. On choppy days like that, you should seriously consider sitting on your hands and preserving your capital—knowing when to stay out is a very important part of the game.
All these estimated returns assume that you’ve got your trading game together and aren’t making lots of costly mistakes. Even assuming all that, you should realize that you’ll occasionally have a week that ends in a net loss, though you should do all you can to avoid it. Remember that this is a marathon, not a sprint. The key to success is to keep at it, making profits slowly and steadily.
RULES OF THE GAME It’s a marathon, not a sprint.
What can we expect of the market in the future? Obviously, the future is impossible to predict—and anyone who says he or she can predict it long-term is just messing with you. For traders, the long-term direction of the market really doesn’t matter because traders can make money in any market. We should simply assume that the market’s direction will vary a lot: There will be isolated weeks when it will be possible to make 20 percent or more, weeks when you’ll make 1 percent to 5 percent, and weeks when you can hardly trade at all because the market lacks direction. If you expect change to be a constant in the market, you’ll be nimble and ready to switch direction quickly. You’ll be able to go with the flow of the market, and that’s the hallmark of good trading.
Besides market conditions, another important variable in your potential return is whether or not you’re trading on margin.
Margin, used properly, is an incredibly useful tool that can increase your percentage return by 100 percent or more. What is this magic tool? Buying on margin means using the shares you hold in your account as collateral to borrow money from your broker to buy more shares. If you’ve set up a margin account, most brokers will let you borrow an amount equal to at least the total value of the stocks you hold, and possibly more, depending on your trading history and the size of your account.
TRADER TALK Buying on margin means using the shares you hold long as collateral to borrow money to buy more stock.
What does this mean? Well, let’s say your account is worth $20,000. If you buy stock worth $20,000, you’ll have available margin of $20,000, and with it you can, in theory, buy an additional $20,000 worth of stock. That means if you made a profit of 8 percent on your account without using margin, with margin you’d make 8 percent on twice as much stock—which is the same as making 16 percent on your actual capital. Ka-chingo! Of course, the flip side is true as well: If you lost 8 percent of your account’s value without using margin, you’d lose twice as much if you were fully margined: 16 percent of your account’s value. Just shoot me now! This is why margin is a double-edged sword and why you must have the proper respect for your margin capacity. Another important rule is to buy long on margin only during periods when the market is solidly trending upward. Margin buying is very risky in uncertain or fast-changing market situations.
There are a lot of other important things to understand about margin trading which are outside the scope of this chapter. See Chapter 11 for more on how to use margin effectively and keep yourself out of trouble.
TRADER TALK A margin call is a call from your broker saying that your losses have made you exceed your margin capacity and that you must deposit enough money into your account to bring you back within your borrowing limits; otherwise, the broker will sell enough of your holdings (at the current very low price) to raise the cash to meet your margin requirement. If the market is falling very quickly, the broker may not even call you—it can just liquidate your positions and let you know what happened afterward.
NEWBIE TRAP Going hog wild with margin is a recipe for disaster.
Margin calls are way beyond bad news. If your broker sells your positions, you’ll have unspeakable losses and will be left with little, and maybe no, capital remaining for a comeback. It’s entirely possible to lose your entire account in a margin call. You could even end up owing the broker money.
Used carefully, margin is a wonderful tool, but you have to understand what you’re doing and avoid taking foolish risks.
The last thing your potential return depends on is whether you’ll be taking money out of your account on a regular basis or allowing your trading capacity to grow with your profits. Letting your account grow is similar to compounding in an interest-bearing account. For example, if you started with $50,000 and made 8 percent the first week ($4,000), the following week you’d have $54,000 to trade with; if you made 8 percent again the second week (now $4,320), you’d have $58,320 to trade with the third week; if you made 8 percent again the third week (now $4,665.60), you’d have $62,985.60 to trade with the fourth week; and so on. By contrast, if you took all the profits out of the account while making 8 percent a week on $50,000, you’d make $4,000 every week and your account and dollar return wouldn’t increase at all. Either of these approaches is perfectly fine; they just mean different potential returns.
So, back to the big question: what’s a reasonable estimate of your average weekly return if you’re trading full time? The honest truth is that I’d only be making things up if I tried to guess what someone, anyone, could expect to make per week or per year. Remember that any estimate you make is of an average weekly return, since your actual return will vary a lot from week to week. Assuming that you’re somewhat experienced and trading well but not perfectly, using margin at least occasionally, periodically taking money out of your account, and trading in an up-and-down market that regularly goes through untradable periods, it’s certainly possible to double your money or better in a year if you’re trading full-time. Of course, nothing is guaranteed; this is just a reasonable estimate of what’s possible. On the other hand, one trader I know took an account of $1,500 and turned it into $150,000 in six weeks during the spring of 2001. I turned less than $50,000 into millions in a little over a year. It’s hard to give you a more specific answer than that. The best idea is to make a conservative estimate of your returns and let yourself be pleasantly surprised if they turn out to be better, rather than expecting too much and then making less than you need to live on.
Should you trade at all?
Maybe your plan is to start trading with a very small amount of money at first, just to see how it goes, and use more later. Or maybe you can spare only a few thousand dollars to fund your account. If your starting balance is small, there’s another aspect of capital limitations you need to think about: the extra challenges people face when they trade with small accounts.
Small means less than $5,000. Even accounts of between $5,000 and $10,000 are harder to trade than larger accounts, but it gets progressively easier as the account gets bigger (at least until your account is really a monster).
Before listing the challenges of trading small accounts, I should add that they have some advantages. For one, it’s much easier to enter and exit positions quickly when they’re small than when they’re huge. When you’re trying to get rid of thousands of high-priced shares (or tens of thousands of cheapies), there simply may not be enough buyers to purchase them all. It may take a long time to sell them, and you may be vulnerable to major losses if the price is falling and you’re unable to exit the position. A trader holding a small position rarely encounters this problem. The mouse can usually escape from the thicket that traps the elephant.
Besides making you more nimble, trading small positions makes your actions almost invisible. Trades of less than one hundred shares don’t even show up on Level I quotation systems, while big trades send signals to the market and can even move prices, often to the disadvantage of the large-position trader. Traders buying or selling large positions often have to enter positions in stages to avoid making their intentions obvious.
Now for the challenges in trading small accounts. One disadvantage is that it may not be possible to use margin. Some brokers, for example, won’t let you trade on margin if your account is worth less than $2,000. This not only means that you can’t borrow money to buy extra shares, it also creates a bigger problem: If you don’t have margin capacity, you can’t sell short. This means you’ll be sidelined much of the time during down-trending markets. These problems will disappear, though, once your account’s value tops $2,000, or whatever your broker’s margin requirement happens to be.
Another problem with accounts of less than $10,000 is that most direct-access brokers (see below) require a minimum account balance of $10,000. If you don’t qualify for a direct-access account, you’ll have to trade with a slow, unreliable Web-based e-broker and will constantly be at a disadvantage until your account has grown enough to qualify for a direct-access account.
A new problem has arisen with the amendment to NASD Rule 2520, which restricts rapid trading in accounts containing less than $25,000. Check with your broker to see how many times you can buy and sell a single stock in the same day during a five-business-day period. If your account contains less than $25,000, options trading may be a useful alternative.
Besides the limitations brokers and the government impose on small accounts, there are also some more fundamental challenges. First, there’s the important issue of trading fees. For small accounts, the cost of making a trade is always large relative to the size of the position. If you place a trade worth $2,000 and your broker charges you around $20 for a limit order, the fee has lost you 1 percent of your capital before the stock even does anything. Exiting the position will cost you another 1 percent. In Chapter 9 I state the rule that you should never lose more than 2 percent of your portfolio’s value on any one trade. This rule has to bend if you have a very small account, and that means increased risk.
A small account also makes it much harder to diversify your portfolio. Diversification is as important in trading as it is in investing. In general, it doesn’t make sense to put less than $3,000 or $4,000 into any stock position you trade. This means that if your account is worth $8,000, you’ll find yourself holding only two stocks at a time. And that means you’ll be risking half the value of your portfolio on each of them—which is not ideal money management. A related problem is that having enough capital for only two or three stocks at a time really limits your flexibility: You’ll quickly get fully positioned and have no reserve in case a great trade comes along later.
Finally, having a small account can feed the desire to make buckets of money at warp speed, which can lead a trader to take excessive risks such as overusing margin or trying to hit home runs with riskier plays instead of consistently hitting singles with solid plays.
TRADER TALK A single is a respectable return on one trade, such as 3 percent, 5 percent, or 8 percent. Ka-chingo!
A home run is an incredible return on one trade, such as 40 percent, 75 percent, or 100 percent. Wowsa!
If you want to start off small but can spare more than a few thousand dollars to fund your account, it makes sense to bring it up to at least $5,000 so as to avoid the worst difficulties of a very small balance. If you can’t spare more, that’s okay—just be aware of the challenges and make allowance for them when you judge whether a trade is safe and likely to succeed.
To trade online, you have to have reliable online access. Obvious, no? But access constraints can arise from lots of sources you may not have thought about, including you.
The first thing to do is assess, realistically, how much time every day you’ll actually be able to track and trade stocks at your computer—as opposed to sitting in three-hour-long office meetings in conference rooms, getting projects done under deadline pressure, or attending to other duties. Figure out whether there are certain times of the day when you’ll consistently be able to trade and monitor positions. If you have regular online access at certain times during the trading day, you may be able to build a trading strategy around those constraints. For example, if you have access before and during the opening hours of the market—say, between 8:30 and 10:30 A.M. Eastern time—plus a fast Internet connection and a direct-access broker (see below), you can trade the gaps up and down every morning (see Chapter 3). This strategy works especially well for people living in the Pacific or Mountain time zones, since they can trade from home for an hour or two every day before going to work. As another example, if you work fewer than five weekdays each week, you can trade on your days off. There are lots of possibilities; see what kinds of creative solutions you can come up with.
The point here is to be realistic about how much attention you can commit to the market. Trading demands a certain amount of time and attention every day you trade—at least two or three hours, on average, while the market’s open as well as another hour or two when the market’s closed. Read and think about the questions in the Exercises section at the end of this chapter. Weigh your priorities, make a plan, try it for a week or two, and see if it works.
Another major access issue is the quality of your equipment—your computer and Internet service provider. Do you have a slow computer and dial-up Internet service that you get through an outdated modem? Or do you have a fast, high-capacity, state-of-the-art computer with a broadband connection to the Internet such as cable modem, ISDN, DSL, or T1? The quality of your Web access and hardware will make a huge difference in your trading.
If you’re serious about trading, I recommend the following: A relatively new computer with as much memory as you can stuff into it and a hard drive capable of running sophisticated trading software; two or three monitors (one for your trading and portfolio-tracking software, one for a Level II quote screen, and possibly a third for communications with other traders and Web research on company news, market updates, and such; if you don’t have a third screen, you can do communications and research on one of the other screens); and a printer for printing out your list of positions, occasional order screens and execution reports, and any other information you’ll want on paper. Your Internet connection should be at least as fast as a 56K modem, and preferably a broadband connection. What you want is something ultrareliable that isn’t going to periodically flake out on you by cutting you off or slowing down. Those things aren’t just annoyances; they can really cost you the big bucks, and that’s excruciating.
If you have a medium-sized to large account (over $10,000) and are serious about trading, you should have access to Level II quotes. Level II is available by subscription for a monthly fee, but some brokers provide it to higher-volume traders free of charge. You should also have access to real-time charts, which are available from proprietary charting software companies such as Quote.com and from various direct-access brokers such as TradePortal.com.
TRADER TALK Level II is a real-time streaming stock quotation system that shows all market makers’ and electronic communications networks’ posted bid and ask prices and order sizes. It therefore shows whether there is selling or buying pressure and how great it is, as well as lots of other useful information.
By contrast, Level I is a basic stock quotation system that shows only the current best bid and ask prices and order sizes, along with the price and size of the last executed trade and its percentage change from the previous day’s closing price. Real-time Level I quotes are available for free on most Web-based online brokers’ Web sites as well as on sites such as TrendFund.com, FreeRealTime.com, and RagingBull.com. These brokers and sites also provide information such as the stock’s opening price, high and low of the day, and current volume.
Be nice to yourself and get a comfortable office chair, too. You’ll be at your desk every day for most of the trading day, and you don’t want to develop aches and pains as a result of your trading. Go ahead and get cozy—trading should be fun!
The last thing you’ll need is a good broker.
Your trading capacity will depend on the kind and quality of the broker you’re using. The faster and more dependable your broker is, the better your trading will be. If your broker constantly causes delays and irregularities, your profitability will suffer, and trading will become annoying instead of fun.
There are three kinds of brokers: old-fashioned live brokers (they walk! they talk!) whom you have to call on the phone; Web-based online brokers; and direct-access online brokers. To trade successfully, you need a fast, reliable online broker. Waiting for somebody to answer the phone and do your trading for you definitely won’t cut it. The markets move way too fast for that kind of bulldinky.
So, then, what’s the difference between the two types of online brokers?
There’s a big difference. With Web-based brokers, like DLJ Direct, Fidelity, Schwab, Datek, and E*Trade, placing an order essentially means sending an e-mail to the broker, who forwards it to a market maker such as Knight Trading Group, who actually executes the trade. This has a couple of important implications. First, there are greater time lags while all these communications take place, and the additional steps mean more opportunities for delays and screwups to occur. Second, the broker doesn’t actually execute the trades; the market maker does. Although the market maker is supposed to get you the best available price, the actual execution price is completely out of your and the broker’s control and often isn’t the best. Market makers are in the business of making money, too, and if they can get an extra .05 per share out of a trade instead of giving it to you, they will. (Of course they’re not supposed to, but the world isn’t a perfect place, as you should know by now.) Third, a Web-based broker doesn’t give you access to all the Electronic Communications Networks, one or more of which may offer a better price at any given moment than a market maker.
TRADER TALK A market maker (MM) is a firm authorized to buy and sell securities on an exchange at publicly quoted bid and ask prices.
TRADER TALK An electronic communications network (ECN) is a computerized exchange system that makes market makers’ and other parties’ orders available for execution by third parties.
On top of that, most Web-based brokers have fee or other payment arrangements with particular market makers based on the size of order flows. For this reason, these brokers may preferentially route your orders to their preferred market makers even if another MM is offering a better price. A Web-based broker may also have an ownership interest in one of the ECNs, and may preferentially send it orders for that reason. This biased order routing can cost you a lot of money over time.
By contrast, direct-access brokers, such as TradePortal (which I use) or CyberTrader, give you direct access to the electronic systems the market makers use as well as to all the ECNs and the stock and options exchanges themselves. This eliminates the extra step of routing through a Web-based broker. Instead, the direct-access broker’s system electronically searches for the best available price among all the market makers and ECNs as well as the exchanges themselves, and has your order executed at that price. All this usually occurs within a fraction of a second. A direct-access broker that has no preferential routing arrangements and automatically seeks and finds the best price in the market is going to save you a bundle of money in the long run. The speed of direct access to the market will save you a bunch, too, since delays in fast-moving markets can be extremely costly and can prevent you from making certain types of trades at all (for example, playing the morning gaps up and down).
Direct-access brokers generally have their own trading software for you to install on your computer. If you want to use a direct-access broker at home but are planning to do part of your trading from work, you should find out whether you can trade from your office computer. If you can’t install the trading software at your office because of computer network arrangements or firewalls, find out whether you can reach your account through the Web.
Other things to consider when choosing an online broker are fee arrangements and the availability of options trading. If your account size is moderate to large, minor differences in the size of fees per trade are probably not as important as the overall quality of the broker, but you should make sure your broker’s fees are competitive with those of other brokers of its type. Some direct-access brokers charge a monthly fee for the use of their software in addition to per-transaction trading fees, but most provide discounts or free software use if your trading volume is high enough.
Far more important than fees is the availability of options trading. Being able to trade options is an incredibly useful tool, because it can be highly profitable and because you can use options as a hedge against the risk in your stock trades. Although a full discussion of options is outside the scope of this book, I highly recommend that you set up your trading account with both options and margin capabilities instead of opening a plain-vanilla cash account. That way, those capabilities will be available when you’re ready to use them.
Finally, find out whether your potential broker’s customer-service department is helpful and available. You’ll experience an occasional screwup with any broker, and believe me, being able to avoid the headache of slow or unresponsive customer service is worth its weight in gold.
Now take a look at the questions below. They’ll help you get real about your trading capacity, and understanding that capacity plus the stylistic factors you’ll identify in Chapter 3 will help you create your own personal trading style.
I. Should you trade full-time or part-time?
Are you a complete newbie?
Do you have enough capital to comfortably make enough to live on and preserve an adequate financial cushion if you trade full-time, allowing for the ups and downs of your own learning process and for periodically sluggish markets? (see question III below)
Do you want to be a full-time trader, or do you have other work that you don’t want to give up?
Do you mind sitting in front of a computer screen all day?
II. What are your time limitations?
Can you spend several hours each day during market hours monitoring your trades, the market, and promising sectors and stocks?
Can you spend several hours each evening doing research and learning to be a better trader?
III. What are your capital limitations?
How much money do you need to make per week, on average?
How much capital will you start with?
Is your financial cushion adequate?
How experienced a trader are you?
Will you use margin for trading?
Will you regularly take money out of your account or will you let the account grow?
As a conservative estimate, how much can you expect to make per week on average?
IV. What are your online access limitations?
Can you count on having computer access during the times you’re planning to trade?
Do you have the flexibility to keep an eye on the market and your positions while performing your duties at work?
Can you avoid being so distracted by other work concerns that you can’t exercise sound trading judgment?
Is your schedule predictable, or are you often called away from your desk?
Are your equipment and Internet connection up to the task of trading?
Is your online broker fast, reliable, and unbiased in its order-routing practices?
Does your online trading account include margin and options capabilities?
V. What are your dreams?
Think hard about this question, and keep thinking about it in the coming days.
What are your financial dreams?
What are your other lifetime dreams?