starting as a trader

I was recently asked if $200 is enough to start a trading portfolio.

thats a good question...how much is enough?

there are many ways to answer this, some people would say $100,000 is the minimum if you want to make a living from it, others think $20,000 can get you started etc.

I think the answer depends on each individual's circumstances, but I would say the Absolute minimum is $2000, but even then you are making it extremely difficult for yourself.

here's some of my thoughts on it.
-whatever the amount is, it should be money you can afford to lose when you start out.
-you must remember that you pay brokerage on each trade.
-if you make 20% in your first year you are doing great...in fact if you make any money in your first year you are too :-)

so lets assume you do have $200.
20% of that is $40, so at the end of a good first year you may have $240.
but if your brokerage is $10 per buy and sell, thats taking most of your profit away.

if the amount is $2000, your target for year one is $2400, and the brokerage of $10 per trade is more manageable as long as you dont trade often.

so if you only have $200 to start with, I suggest you keep saving, and in the meantime do some imaginary "paper" trades...thats when you go through the whole process of trading on a piece of paper, do some imaginary buy one day and an imaginary sell another, and see what lessons you might need to learn before you start using real money.

New Zealand

I live in what I think is the best country in the planet, a relatively little set of islands known as New Zealand.

why is it the best? here's a few reasons:

-The government and its people are against nuclear weapons
-there is little pollution...the sky is blue, the air is clean
-most of us are friendly
-we dont needto carry guns for protection
-we are not overpopulated, there's only around 4 million of us
-the fishing is great
-its pretty

sold SMM - Summit Resources

one thing some traders forget, is that you can get out of a stock anytime you chose.

just because you have a trailing stop set at a certain level, doesnt mean you must stay with the trade until then. if you see signs of weakness, it is sometimes better to get out early.
trailing stops should not be moved lower, but they can be moved higher at any time.

SMM has been trading lower for a few days now, and i had a generous trailing stop since it is often volatile. however, this morning i looked at the depth and there were few buyers. I decided to pull the plug and SOLD at $0.71 with the expectation of buying in lower.

this turned out to be the correct decision, as my stop of $0.70 was reached shortly afterwards and the stock closed at $0.68.

now this goes back to the watchlist and i can get back anytime if there are signs that the buyers are returning.

trade updates

SMM.AX - Summit Resources Ltd, has had a bit of a retrace as expected.
the good thing is that this has been on declining volume, which means that the bulls are still willing to hold. the next few days should make it clear where this one is headed.

ING.NZ - ING Property Trust, had a divie record date on friday, so the closing price of $1.20 should see it open around $1.175 on monday. I expect the recent strength to continue, and wouldnt be surprised if it trades around $1.20 on monday anyway. I have raised my trailing stop to $1.16.

RISK on...religion

speaking of xmas, i should point out the following:

I am an atheist.
I do not believe in god or the church.

i believe religion was a necessary step in the evolution of human beings.
religion still helps many people to get through tough times.

many religious ideas are worthwhile.

the idea of love is most important...whether you believe in god or not.

xmas

christmas is not too far away, and by the look of things it seems that people are still spending lots of money on it.
I read somewhere that the average New Zealander will spend about $800 on xmas, so i think a lot of retailers will benefit from this season.
Im having a look at the warehouse this weekend for a long term investment.

Risk on...love

the most important idea, is the idea of love.

as the song says "love is all you need"

become aware of the love you feel within you, and you will see love surrounds you.

love will inspire you, energise, and strengthen you.

as long as you have love in your heart and mind, you will have happiness.

be happy :-)

(ps. today is my wedding anniversary)

Risk on...ideas

ideas are imho the most important things we can have as human beings.

ideas occur everywhere, from political and religious ideologies, to fashion trends, to technological and medical advances...they all start off as ideas...usually by a single individual.

unlike animals, we are able to communicate our ideas, we are able to share them and others can adopt our ideas and also adapt them to suit themselves.

blogs and internet chat sites are popular because they allow individuals to share their ideas and ideologies.

it is very important not to close your mind to new ideas.
once you do that, you become like the dog that cant learn new tricks: old.

limited time

some days i like to spend watching the markets and daytrading.
you can learn a lot that way.
other days i like to go outside and play.
playing is more fun, so i do it often. :-)

today i did the latter, but on checking the markets on my return i see that both my blog open trades did well.

ING traded at $1.20 to close at $1.19. i am tempted to move my stop up, but since this is now a longer term trade, i shall leave it for now.

SMM reached my target of $0.77 but i did not sell as all my targets i trade manually and i was away.
in fact SMM traded at $0.78 at one point then retraced to $0.735 to close at $0.765.
this shows a ot of buyers are still around, this share remains volatile, so the stop remains at $0.70 until we get a new high.

remove stoploss fast

although it can sometimes work against me (see my SEN trade), i like to replace my stoploss level with a trailing stop as soon as the trade is profitable.

that way a winning trade is not converted to a losing one.

once i have set a trailing stop, i am usually slower in moving that up.
that way i can give a winning trade a bit more room to breathe than a trade that i have recently entered.

today SMM traded around $0.695 most of the day but then moved to $0.725 in the last hour. the range it was on was truly broken, and hopefully this trade will be more profitable than the range trade i never entered.

a breakout trade usually has lots of momentum as it gets started, but SMM is a speculative stock so you have to be weary of wild swings.

I have removed my stoploss and created a trailing stop at $0.70.

trade: ING - ING Property Trust

as mentioned previously, my original intention for ING was a dividend stripping trade, but after a trading halt and a positive placement, this becomes a more attractive short to medium term breakout trade.

as you can see in the barchart above, ING has traded at $1.18 today.
the buy depth looks very strong, with large orders between $1.17 and $1.15.
therefore I have just bought at $1.18 and have a medium term target at resistance around $1.28, with a stop loss at $1.14

Code	Buy	Stop	Target	Risk/Reward	Comments
ING.NZ	1.18	1.14	1.28	4c/10c	breakout

RISK on...this blog

welcome, my child... :-)

the first thing you should know is that you are the first real person ever to visit this blog...everyone else is busy doing something unimportant.

this blog is just a place to put some of my beliefs and ideas on paper.
(yes i know its not real paper, but its the best i could do.)

as i write this, i hope that when my children are older, they accidentally stumble upon this blog, and quickly learn some of the things that took me a lifetime to learn.

of course i'll also teach my children these same things in "real life"...
but it always pays to have a plan B.

i have not told anyone about this blog...not even my children.
i've left it all to chance.
thats what RISK is all about.

ING placement

ING seems to have a lot of institutional support.

the placement intention was for $25mill to $30mill, but they were able to place $35million in no time at all.

this is very positive for the company, so i'm considering adding ING to my long term portfolio.

my original intention was to use this as a dividend stripping example, but now i may buy more stock and keep some longer term.

wisdom: follow hot sectors

not all stocks are the same, and neither are the industry sectors.

sometimes mining stocks are hot, other times its technology, property, biotech, etc.

even within sectors there are subsectors that can be hot.
in mining you might have everyone trying to buy gold shares, or uranium for example.

it pays to keep an eye on whats moving as a sector, especially when you are doing short term momentum trades.

you must always remember that it pays to follow the trend and be part of the crowd rather than to fight against it...but it also pays to jump ship BEFORE everyone else gets the same idea.

trade: SMM - Summit Resources Ltd

technical analysis is more of an art than a science.
different traders can interpret the same chart in different ways, and both can be correct.

my previous charts of SMM showed a trading range.
I was waiting for an ideal time to enter, but the lows were getting slightly higher and the highs slightly lower.
in other words the trading range began looking more like a triangle pattern.

today this was broken on the upside so i entered a trade of the breakout.
there is still the possibility of the range resistance at $0.70 cent, so i will use a very tight stop around that level.
my entry was $0.665, my target is $0.77 and my initial stop is $0.64.

Code	Buy	Stop	Target	Risk/Reward	Comments
SMM.AX	0.665	0.64	0.77	2.5c/10.5c	breakout

the unexpected

the markets are always throwing up unexpected events and nothing should surprise you since everything is possible.

today ING - ING Property Trust went into a trading halt pending the institutional placement of $25mill to $30mill units.

my order was already waiting to buy at $1.15, but sometimes unecpected things happen after a trading halt, so i'll have to step back a little and see how it resumes.

my other property dividend stripping share is MGP - Macquarie Goodman Property Trust, and that chart looks a bit more positive so i may buy that one instead.

remember there are always opportunities so best not to rush things. :-)

ING - ING Property Trust

here's yesterday's closing chart:
as you can see ING is technically still in a downtrend (lower high and lower low), but there are signs the stock might be about to turn (it has broken the confirmed trendline).

i have drawn a tentative range between $1.13 and $1.17. this gives me a stop loss of $1.12 pre divie. i want to get in at $1.15 if possible, but the closer we get to the divie record date, we want to be closer to the top of the range so that we dont fall below it ex-divie. (i expect it to drop $0.02 to $0.025 cents ex divie)

dividend stripping

one technique which i sometimes use for buying short term stocks is known as "dividend stripping".

this means buying the stock before its dividend record date, and selling not too long after.

the idea is that often after the record date, the share goes down in price less than the dividend amount, thus you gain a little bit for nothing. of course it could also go the other way, but its a technique i have used succesfully in the past, so im looking for another one.

for this i have looked at the NZ property sector. this sector tends to be less volatile than others, and it pays good dividends.

I have narrowed my search down to ING.NZ - ING Property Trust , which is currently at $1.15, and has a divie record date of 25th of november. which means i have just over a week to find the best time to buy.

position size

while the 2% rule shows you how much you risk per trade, you need to have a method to calculate the position size of each trade.

most stocks are unlikely to fall to zero value overnight.
so if your risk is $2000, you could buy $10000 worth of shares as long as you sold once you've lost $2000.

the way you work out the number of shares to buy depends on the type of trading you are doing and where your stop loss level is.

for example, if i range trade SMM, and buy at $0.58, with a stop loss of $0.56, then i am risking $0.02 per share. $2000 divided by $0.02 is 100,000.
which means that if i use a 2% rule and my initial capital is $100,000, i can buy 100,000 SMM shares at $0.58.

using position sizing and the 2% rule, along with sticking to your stop loss levels and planning each trade, is the bare minimum you need to survive as a trader.

wisdom: money management

to trade succesfully in the long run, you have to do anything possible to preserve capital and avoid the risk of ruin.

the way to do this is to manage your money, so that you limit the negative effects of any losses.

the best way to do this is by having strict rules to determine how much money you will risk for each trade.

a common rule is known as the "2% rule" which basically says that any single trade will not put at risk any more than 2% of your total capital. SO if your capital is $100,000, you will not lose more than $2000.

personally I use a variant of this rule. I only risk 2% for longterm trades, 1.5% for medium and short term, and 0.5% for daytrades.

some people believe that in a long term trade you risk losing more than in a short term trade, but the reality is that short term trading is riskier.

Risk

most worthwhile things in life involve some amount of risk...from trivial things like crossing the road, to starting a relationship, and trading in the markets.

wherever there is risk, there is also often a reward...sometimes its emotional satisfaction, or a goal achieved, or a physical reward.

in trading, if we wish to be successful, we must always remember the goal is to make money in the long run. we can only do this by sticking to a realistic plan.

the purpose of the plan is to minimise risk and maximise the financial reward.
the reward must be financial, if you are after thrills or excitement, or other emotional reward, make sure you get that from some other aspect of your life.

i like to focus on managing risk, and the rewards take care of themselves. hence my name "risk".

risk management is money management.

chasing stocks

the sharemarket is always full of opportunities...both to make money and to lose it.

sometimes it is wiser to wait for stocks to reach your price, than to chase the stock price up.
however, sometimes you have to be flexible and chase it up a percent or two...the market always knows best and some opportunities wait for no man.

I still have not bought into SMM although it has been close to my buy price a few times. (a couple of times my order would have been met if i hadnt pulled it due to my feelings about the market in general).

a range trade offers limited reward, so you have to be careful about how much extra risk you take on.

if SMM broke above that range, i would have no hesitation in chasing the price up a cent or two, but at this stage im still on the sidelines watching the bears and bulls struggle for dominance.
fascinating, we are getting lower highs, and higher lows...I feel something is about to give.

hindsight

hindsight can be a wonderful tool.
whenever you complete a trade you should review that trade sometime in the future and see if there's anything you can learn from it.

today i reviewed my Senetas daytrade.
SEN closed today at $0.61, thats an 8% increase for the day.
if i had daytraded SEN today instead, my trade would have been much more profitable than it was.

but you should always remember that things were different at the actual time of the trade than at the time of the review.

I made the right decision in selling SEN because it stopped me turning a winning trade into a losing one. yesterday there was no way of knowing that SEN would go up 8% today. we only know that in hindsight.

trading is all about probabilities. there was a change that the triangle target of $0.64 might be reached, but when the buyers disappeared and SEN traded at $0.57 and below, the probabilities changed.

todays increase happened mostly in the last half hour, the stock was going sideways most of the day, and my plan said to stay in only while it was going up.

sometimes hindsight will show you that a stock you sold keeps going up. you have to accept that reality and move on happily. :-)

completed trades here

for the record, i'll keep a history of my trades in this post.
this page last updated on 21/12/2005 NZT

Open trades

Code	Buy	Stop	Target	Risk/Reward	Current
OCO.AX	0.02	0.017	0.025	0.5c/0.3c	0.019
ING.NZ	1.18	1.16	1.28	4c/10c	1.18

Closed Trades

Code	Buy	Sell	$	%	days	Comments
SMM.AX	0.665	0.71	+0.045	+6.76%	11	breakout
SEN.AX	0.57	0.575	+0.005	+0.88%	2	daytrade

the perfect trade

i believe any trade that goes according to plan is a perfect trade...
and if you stick to your plan, by definition that trade must have gone to plan.

sometimes i get trades that dont meet my targets, but as long as i stick to my plan i consider that a succesful trade.

my daytrade of SEN didnt meet my target expectations.

today it opened with a 500k sell order at $0.58, and although it briefly traded at $0.59, after an hours trading it was still at yesterdays close of $0.58. i got ready to pull the trigger.

then all of a sudden i noticed a lot of the buy orders at $0.56 and $0.55 began to disappear.
the time to act was now, so I SOLD my holding at $0.575. this trade ended up with only a half a cent gain, or just +0.88%.

once SEN lost momentum, there was no point in staying on this trade.
pretty soon after i sold it was trading at $0.555...when you trade volatile stocks you have to be quick on your feet.

trailing stops

yesterday I bough SENetas at $0.57 and it had an intraday high of $0.595 (+4%) closing at $0.58 (+1.75%).

since my target of $0.64 (+12%)wasnt reached, and the buy depth still looked strong at the end of the day, i decided not to sell. this morning I will watch this one closely and use a manual trailing stop at breakeven of $0.57 or higher if I see weakness.

i think trailing stops should always be used, and you should never turn a winning trade into a losing one.

my general rule with "daytrades" is to only hold while there is good momentum going forward, and sell at the first sign of weakness. there is no point in selling if its still going up.

SEN still has momentum. it closed on a higher high and the intraday high was also higher. $0.60 might prove to be a bit of resistance and if this is not touched today I shall sell regardless, but if this is broken we may yet see my target reached.

wisdom: plan each trade

the success of any venture often depends on having a realistic plan.

in a future post I will cover creating a general trading plan, but as well as having an overall plan, your chances of success are greatly improved if you have an individual trading plan for each and every trade.

each stock is different, even the same stock can act different at different times, so it is sensible to tailor a plan to deal with each different scenario. in daytrades i am only interested in trading a short rally in price.

the plan for SEN was to buy and get out quick. this is currently a fast moving stock and we only want to be in it while the momentum remains strong.

on the other hand SMM is in a trading range, so we must trade it as such. we cannot assume it will break from this range just because we buy into it. once we reach the limits of the range we are aware that there is the possibility of a break, but we must trade the market as it is now, not how it might be in the future.

daytrade: SEN - Senetas corp ltd

SEN - Senetas Corporation Limited has had a good run for about a month. This stock keeps making new highs, and yesterday it made an intraday high of $0.575, with a close at $0.56 which is also the highest close.

This morning the depth shows there's more buyers than sellers, especially around the $0.55 mark.
it opened at $0.565 and quickly went to $0.57. I watched the depth and sellers at $0.57 seemed to be drying up, so I bought at $0.57.
I will use a stop of $0.55 which was the previous high, and my target is $0.64 which is a projection from the triangle shown below.


In future, I'll summarize each open trade in a table like this one:

Code	Buy	Stop	Target	Risk/Reward	Comments
SEN.AX	0.57	0.55	0.64	2c/7c	open daytrade

types of trades and timeframes

i wont post all my trades in this blog as that would take too long, but i'll try and include a variety of them.

there's lots of different ways to trade the markets.
there's range trades, trend trades, and pattern trading to name a few.
there's also different time periods to trade.

my own definitions are something like this:
daytrade - anything from 5 minutes to about a week
short term - from about one week to a month
medium term - a month to about six months
long term - anything over six months
these definitions can differ between traders, but now you know what im talking about.

the SMM setup mentioned before is obviously a short term range trade, i wouldnt expect to be holding longer than a week or three, and i can afford to wait another week or two for the right conditions to buy.

for day trading there is no such luxury.
hesitation can mean the difference between a profit or loss.

to select a daytrading stock, i find it easier Not to have a predetermined watchlist, but to just follow the news and see where the action is on any particular day.

so im off to read some news and chat sites to see where the action might be today.

range trades

when a stock begins trading in a range, the longer the range continues, the more significant it becomes.

a range is a sign of equilibrium. buyers are accumulating the stock, once it reaches the lower support, they just cant help but buy. sellers are just as equally keen to sell once the higher resistance level is reached.

when a range is broken, this equilibrium is disturbed, so the price can change markedly until a new equilibrium point is found.

here I have drawn a range inside the original one for SMM. i believe this inner range is much more significant. it is also a more realistic one to trade. My plan now is to buy around $0.60 with a target of $0.66 thats a 10%gain. if I miss out on buying then, there is still the possibility of a breakout above resistance which should provide an even better trade.

Rod Donald dies aged 48

I just heard that Rod Donald has died. He was co-leader of the Green Party of Aotearoa New Zealand.

I think he was one of our better Members of Parliament.
An intelligent man of principles, he was committed and inspirational.

New Zealand will be the poorer for the loss of this great man.
Thanks for caring Rod.

you can read more about him at the Green's Blog

wisdom: patience

sometimes one of the best things you can do in trading is to sit on your hands and wait.

patience is often rewarded.
patience is also often its own reward.

time taken to think and deliberate can be relaxing.
the less stress you feel the better your trading will be.

the original chart of SMM was posted when the current price was $0.62, now a week later the price is still $0.62. The stock has gone nowhere, but our patience has been rewarded. the trading range is even clearer now, and we can narrow our plan on how to trade it.

exactness

I think people in general like to see things as black or white, and most traders are no different.

But the reality is that most things are no so clear, there are many shades of grey.
the closer you look, the less exact things become.

sometimes it is better to forget about being exact, and take a look at the bigger picture.

I have mentioned before that SMM went from $0.30c to $0.90c and is now at 50% retracement at $0.60c. If you look closely you'll notice this isnt exactly true...there are a few cents difference either way. But my inexactness is deliberate. I am looking at a 6 month chart to get a bigger picture than my intended time period.

this picture tells me the crowd became highly motivated to buy SMM for 3 months. but since then it retreated to a less exhuberant level. the trading range shows there is currently a concensus of the worth of SMM shares.

more on SMM - Summit Resources

I have been succesfully trading in and out of SMM since May 2005 and it remains in my watch list.

In those 6 months it rose 200% from $0.30 to $0.90, mainly due to Uranium being a hot sector, and a good recommendation in The Dines Letter

I identified SMM as being a speculative stock, with lots of potential.
They have a lot of Uranium resource but cannot yet mine it due to a Uranium mining ban in Queensland. However, there is a lot of pressure to allow mining at some stage, which would be very positive for the company.

Because of the speculative nature of this stock, I decided to only trade it Short term, only holding it anywhere from a day to a month. Like most speculative stocks, SMM can become very volatile and 10% moves are not unusual.

The trading range I identified earlier is about 20% wide, which is a reasonable reward for a speculative short term trade, especially if you can buy towards the bottom of the range, hopefully limiting your risk.

wisdom: keep it simple

I have read everything I can lay my hands on regarding share trading...and have come to the conclusion that a lot of what is written is not necessarily useful in "real life" trading.

But amongst all the different opinions, there are a few very useful ideas, and its these ideas that can make all the difference to success. So I'll highlight some of these under the "Wisdom" heading in some of my posts.

One of these ideas, and one I have followed even before I started trading, is the concept of KISS - or Keep it Simple Stupid. This means if something is not complicated, there is no point in complicating it...to do that is just silly.

In trading, the goal is to make a profit overall.
Its all about dollars and cents, in other words, its all about price.

What the price does is what affects our bottom line, not what the chart indicators, or even the volume do. It is only the price that makes a difference.

Sure some of these tools can give you an indication of what price action might do...but when it comes down to it price action does that all by itself.

In the chart of SMM I posted earlier, I only included price and some simple trendlines.
That is all you need to profit from trading.

SMM - Summit Resources Limited

SMM seems to have settled into a trading range.
It rose from $0.30 to $0.90 odd cents and there seems to be some support around the 50% retracement level of $0.60cents.


Current price is $0.62 -
My plan is to BUY at around $0.57-$0.58 depending on the indexes, and add to my position if it breaks above $0.70 - will post more details when/if I trade this.

why now?

...because the time is now right.