Time and money for your first year or two.

[bjw]

Suppose a trader is well educated, great judgment, has a nice track record. They don’t let their greed or fear cause them to do something stupid. But they have an account of 5k or less.

i don't understand how a trader can be well educated, knows he has great judgement AND has a nice track record, yet can't get a 5K account together. How did this supposed person build that track-record, trading pea-nuts?
If you can't get a 5K account together you should get a job to get 5K (or preferably a lot more), not start trading options.

 

[jake g]

. How did this supposed person build that track-record, trading pea-nuts?

It's a hypothetical. I'm learning.

A solid understanding with options, using 5k or less, would invite which problems?

 

[bjw]

to trade you need an edge and you need sufficient capital. options are useful for all kinds of things, but the way you want to use them all you do is increase risk. you might as well flip a coin. it's not trading, it's gambling against bad odds.

 

[Georgii]

As far as getting by while trading, my advice is to look into the following options (options meaning choices, not financial instruments ) if you want to day trade:

1. Move to an area where you can hold down a full time 9-5 job AND trade either US or European markets (Asian markets usually suck unless there's a crisis going on). This will be difficult as you'll probably burn out from both your work at 8 hrs a day and trading 6 1/2 hrs a day.

2. Find a job that will let you trade JUST the first two hours of the day, where most of the volatility is. You'll probably have to develop strategies to trade multiple instruments, e.g. stocks or different futures contracts and currencies. All you need is to catch one good move a day, and once you develop enough setups that is doable.

3. Move in with the parents and take good care of them. Probably the best option if it's available to you. If your parents are good people they'll be happy to help you and build a tighter relationship with you, and when they're gone you will be happy you spent more quality time with them. Yes, some people will say things behind your back ("he moved in with his parents to gamble in the stock market") but good entrepreneurs could care less about what other people think. Spouses can be more complicated, but it can work too.

4. Start a business that you can do outside of market hours and preferrably remotely. Figure it'll take you six months to come up with a good idea and research it, then a year and a half to get it off the ground and win enough clients, which you can do while working somewhere else and still having a little time to look at some charts. Then transition to the business, cut the day job, and then build your trading business. It's not the smoothest situation, and it requires a lot of dedication and patience, but it will offer you good flexibility.

One of the biggest things I've discovered in my journey is that a lot of the work is done OUTSIDE of market hours. Sitting behind the screen is all about executing a plan that has been hashed out very carefully through research. It's sort of like making a movie - most of the time is spent developing the project, the filming is usually the easier part. That by far doesn't mean that filming or trading is a trivial matter, but a movie with a bad script is as much a waste of money and time as a trader with a bad plan. The other good news is learning and researching is the cheapest part, just as writing a script is. Everything you need to know can be found for free over the internet, you just need to get your hands on some market data (broker provides it if you sign up) and you can get started.

Unfortunately this goes against what most people want to do right away, and I say this from firsthand experience. People just want to get down with it because they feel they're 'doing something'. The problem is that in the time it takes for you to experience one day's price action you could have studied at least 3 months' worth of charts. Most people don't get that and say 'I just need screen time'.

Anyway, some food for thought. Good luck!

 

[Georgii]

P.S. If I had to do it all over again, this is what I'd do:

a. Read some 101 stuff on trading, like Day Trading for Dummies and Technical Analysis for Dummies. This will give you some basic background.

b. Open up a demo Forex account just so you can play with the idea of making a trade. This is all about getting a very basic feel, not making money. FX markets are open 24 hrs a day so you'll be able to play with it anytime you want. If you 'make' a 'profit' at this point, do yourself a favor and attribute it to chance, because without a robust, tested strategy that's all it is.

c. Find some good books on trading strategy. This is very hard because there's a lot of trash out there. A good starting point that is 100% free is Adam Grimes's trading course. It'll give you enough of a solid background to start developing trading ideas and it will keep you away from a lot of garbage. Then do more research on specific strategies and see what could be a good template to further explore and develop into your own. Personally I recommend Bob Volman, he has some good strategies for short term trading that can be applied to any market. I also like Al Brooks even though he's a nightmare to read sometimes, he has a trading idea for every market environment you'll ever encounter (my suggestion is to read him later once you have some experience). Linda Raschke has some good ideas that people work with regularly, including on this forum (search LBR group). Be ready to read several authors and remember, good trading books aren't read, they're re-read. It's not unusual to re-read a book ten times in order to grasp things deeper. Make notes. Do whatever it takes to understand.

d. Figure out which market you want to get serious with. Get some market data. If it's Forex, it's free and available. For futures and stocks it's a bit more complex, either you open an account and get the data free, or you have to pay for data (you don't necessarily need tick data which can get pricey). You want at least 2 years of data. No less. Print out the data (I find it's easier to look at stuff on paper and it's also more convenient, you can take it with you when you travel), and begin trying to see the patterns that you're researching. It will take your eyes time to get adjusted, but the more you do it the better you get at it. Meanwhile, whenever you have down time each day, check the market you're focusing on and see how it's trading at the moment. Make mental notes.

e. Get yourself a free simulator like Ninjatrader, and on a weekend try to do a market replay of a day where you practice trading (be sure not to check the market that day).

All of these steps, a-e, can be done outside of market hours, and at VERY little cost. The important thing is not to be afraid to spend A LOT of time on 'd' and 'e'. That is what you need to do in order to build a trading plan. If you could spend 90 minutes a day doing these things while holding down a full time job, plus a little extra time on the weekends, you should get through this stage in two-three years tops. Not bad when you consider that it takes most people 4-5 years to do a part time MBA, or to pass three levels of the CFA exam.

Granted you're going to have to make the leap to live at some point, but before you do so you should be maximally prepared by going through these steps, because then you'll be using time with maximal efficiency and will be giving yourself a leg to stand on. And if you decide that after going through all this work that it's just not exciting you, aren't you glad you found out before you blew out your savings?

It's easy to say all of this in hindsight, but I don't really see any other way of getting started outside of getting hired by a trading firm that pays you a salary as a trainee (if you're over 30 years old, forget this option unless you're a star athlete, a mathematician, or have professional military experience).