BASM - can only strongly agree to what you say.
Had some e-mail conversations with NEO before and urged him to be very very careful with his ST trading attempts. Not that one can not make money with 4K as starting capital , but the current environment is so choppy, that it's hard enough for the better capitalized traders to make some money at the end of a month, let alone a beginner with very little money. The odds are strongly against those attempts.
In order to improve the odds at least a bit, I suggested, to take some of the more proven routes to trading success , i.e. scanning for strong stocks ( also with strong fundamentals ) and buy the dips ( not the breakouts or new highs ), holding them for several days or even weeks rather than trying to catch shortlived breakouts or do bottomfishing on "oversold" stocks.
Let alone trying to swing-trade in the most volatile, well known daytrading subjects ( DRMD is currently not amongst them, though )
Since intraday trading possibilities are very limited with 4K , I'd say, that most of those well known daytrading strategies just won't work for him.
He'd be better off, although this may sound not so "exciting" as daytrading or ST swingtrading, to do something like the O'Neill strategy ( CANSLIM ) in order to enhance the capital base for ST trading , if this is his ultimate goal. I guess , NEO is in the markets to make money, not for excitement.
Of course, I'm not in the position to give any advice here. I can only make a few suggestions. It's his money and he has to find his own route to success.
But Wallstreet is littered with failed daytrading wannabees, which started with too little money and too great expectations.
Wouldn't like to see NEO amongst them.
Undercapitalization, aside from not being mentally prepared well enough, is one of the major reasons why newbies fail to survive the game.
With a 4K account, you just can't sustain ( mentally and financially ) the drawdowns many ST systems and strategies inherit.
In the attempt to "comply" to some "iron daytrading rules"
(min. round lots, trade the usual high volatile suspects, close your trade by the end of the day under any circumstances etc. )
and living the dreams of catching only the big fishes, undercapitalized traders take often much larger positions than they should and consequently, they have to set stops so tight, that their positions will inevitably get stopped out more often than necessary just by daily volatility ( noise ).
This is not only emotionally devastating, it's also reducing their chances of making it back substantially ( if they have any ).
They also face difficulties to practice sufficient MM strategies, unless they get rid of some of these "dreams".
Yes, trading is a probability game and if your system tells you, that it would have made money on 60% of the trades, this doesn't mean, that one couldn't have 10 or 20 of 2% loosers in a row. Also devastating for a small account.
Nothing is carved into stone when trading the markets. Anything can happen - at any time.
Needless to say, that a 4K account cannot survice very long under those conditions if not managed very very prudently.
I recall one sentence I read in trading book couple of years ago :
"If a trader / fund-manager is able to make 25% - 35% annualized profit consistently year over year - he is King on Wallstreet."
Just like any fundmanager would rarely sell a companies stock when this company has proved over 10 or 20 years, that the can make 25% - 35% Profit year over year. This company would be everybodies darling, wouldn't it ?
Well, in light of the irrational excuberance, as one famous person liked to call it 2 years ago, in the stockmarkets during the late 90's, 25 %- 35% APR for a trader seems to look a bit mediocre.
But when I scan my fund-databases for funds who achieved at least 25% APR for the last 10 years consistently, with interims drawdowns of less than 10% - than the selection list becomes very very short.
Another good example is the MetaMarketfund - a daytrading fund where the investors were able to follow each and every trade in RT on the Net.
see their requiem @
http://www.metamarkets.com/
The 2 or 3 traders working for this fund were real professionals.
Equipped with the latest state of the art trading technology, own research, and millions of capital.
They made almost 200 trades a day in the best times of this fund in late 1999, but were not able to make any serious money until August 2001, when the fund had to be closed due to redemptions and heavy losses.
So if professionals, who do nothing else than trading all day long, cannot survive this market, what are the odds of small trader when trying to compete ?
IMHO, the odds for the small trader can only be enhanced by trying to following and catch the longer term trends in strong or weak stocks and to stay out of the daily noise, until the account size is large enough ( and I don't refer here to the arbitrary 25K the new rules are asking for ) to move on to higher risk ST trades.
I'd say, despite the new rules, that ST multiday swing-trading is very well possible with a 10K - 15K margin account ( which still gives you 20 - 30 K buying power ). It may not be enough for making a living, but one can take several positions / opportunities ( thereby enhancing the chances off success ) and start to practice proper MM.
Sorry for the long post.
(
. I however think that it is really the best option for me or I will just end up spending my money on something stupid. And In Croatia there aren't actually ANY possibilities to enlarge that acct into something bigger. Besides, I think that It was JMC Graw that said how he managed to turn a small 6k acct into like 12 or 15 I dont remember anymore in like a couple of months.
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