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For New Traders - Thoughts on Daytrading - Part I
Let us assume you are a new trader. You have never traded stocks or futures. You have never traded anything except your baseball cards as a kid and that was years ago!
You have worked hard, are successful in your field or in your employment, and you have decided you wish to trade securities with some of your accumulated savings and/or retirement funds. You see or have been told that Joe, down the street, got his new Lexus with his profits and Todd, a teacher at the kids school, got a boat on a school teacher's salary and you know that this is for you!
The world of stock trading is made to sound simple by the ads on TV. In fact, many firms offer your first 20 trades free of commission cost if you open an account with $500. My question is very simple! What do you expect to accomplish with $500? What are you going to trade or invest in with only $500?
Considering risk free rates of return, $500 will earn about $25 or $30 in interest if left on deposit for one year. If you bought a share or shares in a junk bond mutual fund, you might get $35 or $45, but then again you might lose the $500 or part of it.
So you may say, "Well, I have done better than that guy and I I have $10,000!" Okay -- this is great. Congratulations on your great success in comparison to your neighbor with the $500.
Now we are getting some where, $10,000, boy, that is a lot of money to some people. In fact, if government statistics are correct, 40% or more of the population reach the age of 65 without having anywhere near $10,000 in savings and live from their Social Security payments, in poverty, until they die.
So we have $10,000. Are you willing to lose it? It is said that 70% of securities investors and traders lose their money or a major portion of it. It is also said that up to 94% of futures traders lose their money or the major portion of it, and never again trade in their lifetimes.
Why is this so when the advertisements make it sound like you are missing something? After all, didn't Joe quit his job and go into day trading full time at the local day trading firm? Why is this so when the advertisements make it sound like you are missing something? After all, didn't Joe quit his job and go into day trading full time at the local day trading firm?
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