Risk Capital - Horse Racing Forum - PaceAdvantage.Com

RaceBookJoe · 10-11-2008, 01:18 PM

A question that PKTruckdriver asked in another thread got me to thinking about how much money is needed to get into the "Wall St Game". The most important thing is that this money NEEDS to be "risk money", not money needed for rent,food, bills etc. Now how do you determine the amount to use? First come up with an amount...$1k,$10k, $50K that is your decision. Next sleep on that number overnight, but try to imagine what you would feel like if you lost it all. If you are sick to your stomach...the number is too high, no emotion..number is too low. The loss should sting, but not make you break out in hives. The best traders lose money from time to time, so dont get emotionally attached to the money or any trade. The old saying 'scared money never wins' is the one thing to keep in mind. At a minimum, i would probably recommend $3000 to start out with but thats just me. If you start out with too little money....you can get knocked out with a few early losses. Something else you can do is start out with $1000 , and make real trades...dont waste time paper trading....paper trading doesnt get you involved on the emotional level. Just remember that before you make a trade, know WHY you are making the trade. Is there an event coming up that will make the stock/etf etc rise, does the chart pattern or technical analysis look promising ie moving averages,macd etc. Please add nt other ideas. rbj

ddog · 10-11-2008, 01:32 PM

I don't thik there can be one fits all?

You have to know what you are going to "play" and what your goals are.

You can "play" with 50 bucks and just buy 50 bucks worth of something every month, but you can't trade with that amount.

If you are going to "trade" (options/margin) then I think you need min of 10K and a VERY GOOD idea of what EXACTLY you are trying to catch.
AND , be totally prepared to see that disappear!

Maybe some could post some books or sites that have helped them along the way.

Here's a couple I have gotten some value from in the recent past:

Secrets Of Economic Indicators - Bernard Baumohl
Trading Commodities/Financial Futures(3rd) - George Kleinman

Anything by Taleb, i think he nails the theory of it all.

Anyway, good luck if any dive in.

RaceBookJoe · 10-11-2008, 01:41 PM

I agree that there is no on size fits all, but what does fit all is that it has to be money that you are no emotionally attached to...or that is needed to live on. I will check out the books you mentioned thanks. rbj

PaceAdvantage · 10-12-2008, 01:38 AM

Well, in order to day trade stocks, the rules say you need a MINIMUM of $25,000 in your account, or you WON'T be allowed to day trade. Now, obviously, you are going to need a lot more than $25,000, because $25,000 is the absolute cutoff point.

Equity futures (which I currently trade) are a different story. Depending on the brokerage, it could range from anywhere between $300 and $1100 to trade one contract of the E-mini S&P. One contract of the emini S&P is equivalent to trading 500 shares of SPY (ETF). Thus, you get a lot more bang for the buck with futures, better tax treatment, and a helluva lot less paperwork come April 15. Commissions are usually much better as well. Most places will charge you anywhere between $5 and $10 to buy 500 shares of SPY, while it only costs around $2.40 to buy 1 contract of the E-mini.

Obviously, there's ton more to all of this....and to be honest, there isn't much in the way of any books I would recommend that will teach you how to trade. I just don't think any book can really teach you how to trade. I think the best advice is to paper trade for a very long time (most people won't...I didn't and it cost me) and come up with your own original way of doing things....

Not unlike handicapping....in fact, the two activities share much of the same DNA in my opinion.

RaceBookJoe · 10-12-2008, 12:17 PM

Quote:

Originally Posted by PaceAdvantage

Well, in order to day trade stocks, the rules say you need a MINIMUM of $25,000 in your account, or you WON'T be allowed to day trade. Now, obviously, you are going to need a lot more than $25,000, because $25,000 is the absolute cutoff point.

Equity futures (which I currently trade) are a different story. Depending on the brokerage, it could range from anywhere between $300 and $1100 to trade one contract of the E-mini S&P. One contract of the emini S&P is equivalent to trading 500 shares of SPY (ETF). Thus, you get a lot more bang for the buck with futures, better tax treatment, and a helluva lot less paperwork come April 15. Commissions are usually much better as well. Most places will charge you anywhere between $5 and $10 to buy 500 shares of SPY, while it only costs around $2.40 to buy 1 contract of the E-mini.

Obviously, there's ton more to all of this....and to be honest, there isn't much in the way of any books I would recommend that will teach you how to trade. I just don't think any book can really teach you how to trade. I think the best advice is to paper trade for a very long time (most people won't...I didn't and it cost me) and come up with your own original way of doing things....

Not unlike handicapping....in fact, the two activities share much of the same DNA in my opinion.

I agree with everything you say, except for paper trading. First, when I say risk capital...it is not so much the amount, but TYPE of money. It cannot be scared money. About paper trading...first your trading method should be fully researched before you attempt trading in the first place. If it is fully researched, then you dont need to waste time paper trading. You will learn more from 1 real trade than 100 paper trades. When paper trading, you are not involved emotionally, but in a live trade you will experience how you react...especially important when a trade goes against you. You other points are spot on, and I understand what you are saying about paper trading...i think we are looking at the same thing from a different view. rbj

ddog · 10-12-2008, 02:01 PM

I agree books may not teach you how to trade, but I will tell you for sure that reading what others have to say and doing research into what exactly is behind those "numbers" others are trading on , WILL help you "think" and that is helpful in formulation of YOUR strategy of choice.

One insight you may get as a result of others thoughts can make all the diff.

magwell · 10-12-2008, 02:45 PM

Terminoligy Updated

CEO- Chief Embezzlement Office
CFO- Corporate Fraud Officer
BULL MARKET- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET- a 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING- The art of buying low and selling lower.
P/E RATIO- The percentage of investors wetting their pants as the market keeps crashing.
BROKER- What my broker has made me.
STANDARD & POOR- You life in a nutshell.
STOCK ANALYST- Idiot who just downgraded your stock.
STOCK SPLIT- When you ex-wife and he lawyer split your assets equally between themselves.
FINANCIAL PLANNER- A guy whose phone has been disconnected.
MARKET CORRECTION- The day after you buy stocks.
CASH FLOW- The movement your money makes as it disappears down the toilet.
YAHOO- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.
INSTITUTIONAL INVESTOR- Past year investor who's now locked up in a Nuthouse.
PROFIT- An archaic word no longer in use.

sammy the sage · 10-13-2008, 07:16 AM

P.A....very good thoughts/insight posted!

lamboguy · 10-13-2008, 09:08 AM

suggested reading materials before you begin to trade:

reminicense of a stock operator author jesse livermore

timing the trade author thomas o'brien

PaceAdvantage · 10-13-2008, 06:26 PM

An interesting stat that I see thrown around trading message boards is that 90-95% of traders LOSE money.

Another reason why I think handicapping and trading share much of the same DNA.