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Beginning with Sufficient Capital

Perhaps one of the worst blunders that any trader could commit whether trading from the day time frame or from a position trade perВэspective is to attempt trading with insufficient capital. The argument may be made that the day trader does not need to have substantial capiВэtal in his or her account since trades are closed out at the end of the day and therefore the necessity for sufficient margin to maintain positions is eliminated. While this may be true, it is also true that those with limited funds cannot play the game as long as those with larger funds can. It is important in any venture to start with sufficient capital in order that the trader not feel pressured to perform and to allow the particular trading system or methods sufficient opportunity to ride through periods of poor performance.

The trader with limited capital will not only be a nervous trader, lookВэing always to minimize losses beyond the point of realistic trading, but also will frequently be knocked out of the game after a series of losses, before his or her trading methods have had the opportunity to perform. Consequently, capitalize your trading account sufficiently or decide ahead of time that you will trade only a very limited portfolio consistent with your available capital. Do not start with an undercapitalized account, since this is a near certain invitation to failure. In order to begin trading with sufficient capital the aspiring trader will have to be realisВэtic and, above all, patient enough to gather the speculative capital which will be needed.

The Ability to Use News to Your Advantage

Many a trader has learned the hard way that following the news can freВэquently lead to losses. I have discovered that there are ways in which the trader may use the fundamental news or developing international, domestic, or political news to his or her advantage. To use the news in your favor, do not be a follower of the news, rather be a "fade" of the news. Use the news to exit positions which you have most likely established well before the news has become public knowledge. I am a firm believer in the old market dictum: buy on rumor, sell on news. On an intraday basis, markets are very sensitive to news well before the news is known by most traders. Insiders buy and sell on expectation, sometimes based on rumor, frequently based on fact. They establish positions before the general public is aware of the news, and, once the news has become public knowledge, they take advantage of the surge or the drop in prices to exit positions.

Therefore, if you wish to use the news to your advantage, you must be a contrarian. This is especially true from the day-trading perspective. Although there is nothing wrong with following intraday trends, freВэquently intraday trends react strongly to news developments. If you are following your trading system or method, you will most often be on the correct side of the market when such news develops. Take advantage of price surges or declines to exit your position. This require self-control and the ability to see the news as your opportunity to get out, not as you opportunity to hold on for even more profit!