Well, I’ve finally taken the plunge as a young professional to dip my feet in the cold waters of Wall Street as an amateur day trader. Last week I signed up for an account with SogoTrade and deposited a decent chunk of change to give this whole Wall Street thing a whirl. I know that now is probably the worst time that anyone could start to invest in Wall Street but from what I’ve read and been told countless times, those who can make money in the worst of times can make even more during the best of times. So, I thought I’d help support this great capitalistic society of ours by infusing my few free dollars into the American dream.
I know that trading stocks isn’t for the faint of heart but I figure I throw plenty of my money away on new gadgets and nights out on the town so I might as well start doing something constructive with my spare cash. SogoTrade seems to be the perfect online broker for an amateur trying to make their way into the Wall Street game as they offer the cheapest trades on the Internet. When you sign-up they give you 100 free trades (as most online brokers do) but the trick is, their standard trades are just $3.00 each… that means as a day trader your total swing on a trade is just $6.00 in total commissions, which makes a huge difference when dealing in small trades. Better yet, if you become a premium member for just $10.00 a month your trades are just $1.50 each!
Now, I don’t encourage anyone out there to just jump into day trading head first, I hope they all take time to think about it, research it and then make a decision. I’ve read a lot of great information regarding day trading and plan on reading even more. I’m about 100 pages into The Complete Guide to Day Trading and still have the following books waiting for a read:A Beginner’s Guide to Day Trading Online, The Complete Guide to Investing in Short Term Trading: How to Earn High Rates of Returns Safely, The Little Book of Bull Moves in Bear Markets: How to Keep Your Portfolio Up When the Market is Down and The Neatest Little Guide to Stock Market Investing. Bottom line: read, read and read some more. Day trading is not a get-rich-quick scheme.
Excitingly enough, I made my first trade yesterday afternoon, buying 100 shares of the CIT Group (CIT) at $4.43 a share… and just about 30 minutes later I unloaded the stocks for $4.83 a share, scoring $40.00 in profit. I had done it, I purchased 100 shares of an American company and turned a profit! Sure transactions like my first one won’t make me rich overnight but it isn’t a bad start either, especially considering the past 48 hours the Dow Jones Industrial Average has lost over 800 points. I am going to continue to make "safe trades" like CIT over the next several weeks until I can refine my plan for trading. The goal I am making for myself during these first weeks is trying to prove to myself that even during the current turmoil on Wall Street that there is money being made.
My current plan is simple, I plan to buy and sell shares of low dollar stocks ($1-10 per share) multiple times a day to hopefully pull in $50-300 of profit a day… during these first weeks I am going to limit myself to a maximum of 100 shares per purchase. This is where SogoTrade’s low dollar trades come in so handy for beginners. For example: let’s say I buy 100 shares of GM (GM) at $4.50 a share, then an hour later I resell those 100 shares at $4.80 for a profit of $30, with SogoTrade’s premium account buying and selling those shares cost me a total of $3.00 leaving me with a profit of $27. Taking those same numbers and using Scottrade ($7 per trade) my profit would only be $16 while TD AmeriTrade ($9.99 per trade) would only be $10.02… you see where I am going with this?
In the end I’m hoping to continue to improve upon my plan while making damn sure that I stick with that plan. All information regarding day trading mentions making a plan, refining that plan and sticking to that plan… "your plan is your life-line" as they say. My current plan is watching 61 low dollar stocks from the S&P 500, purchasing a maximum of 100 shares at a time and selling all shares by the end of the trading day (3:00PM CST). Over the coming months I hope to leverage the profits I make in my trades as more buying power to diversify my daily portfolio allowing me to buy more and more stocks at 100 shares each, so I can turn those $40 profits per trading day into hundreds of dollars a day.
Why low dollar stocks? Well, there are a few reasons. First, the risk is much lower on low-dollar stocks… 100 shares of a $4.00 stock is a lot easier to swallow than 100 shares of a $20.00 stock. Secondly, low-dollar stocks generally have a lot of trading volume when compared to other high-dollar stocks. Sure there are exceptions to this rule but the vast majority of the stocks I’m watching have at least two million shares bought and sold in an average trading day with some going as high as one hundred million shares. That kind of volume pretty much guarantees that these stocks will fluctuated a minimum of 10-20% in a trading day, which is the kind of movement I look for in making those $40-$50 sales.
I know I have an uphill battle on my hands and I know I will have my good days and most importantly my bad ones, but the key is that I learn from those bad days so I make them few and far between. Today I’m going to keep my eyes on Ford (F) and GM as they both release their earnings reports this morning which should be dismal considering their asking for a 25 million dollar government bailout. I’ll also be keeping my eye on the National City Corporation (NCC) and Wachovia Corporation (WB) as both of them may see another 100 million volume trading day today. National City just happens to be my mortgage lender… funny how that works, as I’m sure they’ve seen better days; they’re down over $15.00 a share for the year, OUCH!
Over the coming days, weeks and months I hope to post frequent updates and reviews about my trading experiences… including reviews on all the books mentioned above. So stay tuned and wish me luck!
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