For illustration purposes, lets assume I have just invited you over for dinner. Assuming you accepted the invitation, one of the first questions your would ask is “How do I get there? “ The same applies to beginner investors. Every investor was at one time a beginner investor. The investors who reach the finish line with a nest egg had a plan to get there.

Lets get back to dinner. I live in Florida. You live in California. That would not provide enough information for your arrival. You have a starting place and a destination, but what about the plan to get to dinner? You would need to know specifics. The same applies to investing. You would prepare for the journey, chart a course and arrive safely in Florida as you would with your investment goals.
The same principle applies to beginner stock market investing. Lets assume you have $10,000.00 to invest right now. So how do you prepare?

Understand How The Stock Market Works

Individual investors should start right here. What makes a stock price move? Hint: it is not individual investors. Institutional investors, such as mutual funds, and banks, move stock prices up and down. Simple supply and demand I the order of the day. Institutions make a living buying and selling stocks. Following along with how institutions trade is a good place to start. Understand your 1000 shares of XYZ are not going to move the stock price.

Defining Yourself as An Investor

My personal stop loss point is 6%. Why is that? Because I do not like the way it feels losing 10% or even 7%. This is a hard and fast rule for me. I remember following a stock once down to a 20% loss thinking all the while it would come back. It did not. The point is I know myself, and I know my rules. They are non-negotiable factors for me with investing in the stock market.

Where Are You Now As an Investor?

Every journey begins with a starting point. Every journey has a destination point. Everything you do in between will either define your success or document your failure. Set your goals; practice your strategy with paper trading stocks. Set aside capital for short term investing. Plan to include long-term investments. Open a money market account for safely keeping your cash. If you want to trade options, first learn how to trade options . Determine your plan and then work your plan. Dinner is at 6

Becky seemingly everyone wants to makes a living day trading. Can you tell us in reality, how hard is that to accomplish?

That is a hard question to answer. I would say that most people could not make a living day trading. You need to have a good understanding of the markets, their trends and how the markets and individual stocks react to news. You need to know what things to take into consideration (PE, float, volume, chart) before trading a stock.  It takes confidence in your research. You need to have the time to watch the financial news and your stock trades.

You need to know what your risk tolerance is and how you would handle the volatile moves in stock prices. It’s something that comes by trial and error it is something that is learned and it is not learned without risk of monetary loss. But if it is a passion and you have the time to read and learn and the money to risk, yes that type person can make a living day trading.

I did not go to college, have never studied finance or economics, I am a homemaker and a mother that makes money by day trading stocks online. I have been involved in the markets, trading stocks for the past 10 years not necessarily day trading. I had never shorted a stock until this past year. When a market is in a downtrend it is very hard to make money being long.

My thanks go out to theStreet.com and Jim Cramer for sponsoring the Beat the Street contest last year. I did well in the first game (42nd place) and then won their second game, it gave me the confidence to open a margin account and start day trading and shorting stocks.

How much money does a person need to start day trading?

You can open an account with two thousand dollars at Ameritrade (which I use) or
E-Trade. There are other online brokerages Scot trade only requires five hundred dollars to open an account. Keep in mind this type of account you would only be able to buy and sell. To be able to short stocks you would need to apply for a margin account, which requires quite a bit more money. At Ameritrade minimum to open a margin account is twenty-five thousand dollars. You would need to check with each brokerage house to get their requirements for a margin account.

How much time do you spend researching stocks to trade?

I spend approximately two to three hours after the market closes checking earnings reports. In this market I’m looking for missed EPS, Revenue, downside guidance for the next quarter or coming year. I take notes on everything so the next morning I remember what sector the company is in, what they do, how bad the miss was. Next I go research the stock for the PE, float, volume and look at the chart trend. I make notes on that, I read the news releases. If I have more than a few possibilities I narrow my choices to just two or three. In the morning I watch the volume and the amount of the gap down in pre-market and I watch the futures so I have an idea of what the market is going to do when it opens. I also have CNBC on all day.

Do you have a pre-determined exit strategy when you buy a stock?

If I buy or short a stock for a day trade and it moves enough that I make 150.00 to 300.00 I’m out. If it goes against me if it gets to a 20% loss I am out. If it goes against me and does not hit 20% I will watch the daily chart and volume, it will make a high or peak on the chart and go back down if it comes back up and breaks that peak I’m out.

Does your portfolio have long term investments?

Yes, I have long term investments. I think you should have a separate account for those investments. That way it’s easier to track how well you are doing with the day trading. If you have long term investments you have been losing money the past 10 months or so.

What is the number one number mistake a new day trader makes?

I can’t speak for other day traders, but a big mistake I made was to under estimate my risk tolerance and being greedy, holding out for just a little more. For example I shorted 5000 shares of XYZ at 5.88 per share the price goes to 5.80 (that’s a 380.00 profit after commissions), do I cover no I’m hoping for more, the price starts going up it passes the 5.88 I shorted at and I’m losing 50.00 every penny it moves I cover at 5.92 (a loss of 220.00 including commissions) and then it starts moving back down and had I held it I would have had a large profit. I have learned not to make such large trades and when I have a profit, take it.

Now for the last question I would like you to ask yourself a question that people would like to see answered. In other words if you were a new prospective day trader what would you want to know?  Stock picks not included.

Be sure to use limit orders not market orders!! When a stock is moving fast, you used a limit order, and it does not get filled, it is not usually a good idea to chase the stock. There is always tomorrow and a lot more stocks.

I would want someone to tell me to practice first, paper trade stocks. Find a stock that you want to trade, do all of the research. See if it moves like you thought it would. Write down the opening price, your price would be somewhere close to that. Decide to sell or cover, write the price down. See how well you do. I would say to practice for at least two to three months before risking your money. It is not an easy thing to do, and paper trading is way less stressful than when your real money is at risk!

To all of you out there that would like to try your hand at day trading, you need to keep some things in mind. The market has been in a downtrend since December. We have been in a Bear market for the past couple of months. A bear market is when a market index (Dow, S&P 500, Nasdaq) is down over 20%.Right now the indexes are all down between 30% to 50%. In a down market, most stocks are going to go down. There will be individual stocks or sectors that pop on news, but then they will follow the market back down, for example GOOG, ISRG, POT (some of Wall Streets darlings) these companies beat their earnings expectations in the last couple of weeks, but are selling off because the market is trending down. Because of the reasons I stated above I have not been going long with my day trades, I look for stocks to short that have released bad news after the close.

Some things that I look at when I locate a possible short is the float. The float is the number of shares available for the retail investor to trade. The smaller the float the more unpredictable, and wild the swings. I usually do not short a stock that has less than a 15 million share float. I check the volume, I like 75,000 minimums, more is better. I look at the PE (price to earning ratio) the higher the pe the more expensive the stock the better chance it will come down a lot, on bad news. Also check how much of the float is shorted the higher the percentage there is a good chance that a big drop in price they will start covering and the price will start going back up.

If you do not have the time to sit at your computer and watch a stock that your thinking about day trading do not do it! For example last night XYZ reported earnings after market close. Their EPS was .25 vs .26 analyst estimate, their revenue was 130 million vs 142.8 analyst estimate they also issued a downside full year forecast, 562.1 million vs 582.1 analyst estimate.(This is the kind of news that I personally look for). Their float is 64.49 million, average daily volume is 1,059.310 shares traded, and the short ratio is 18.10%. This morning you could have shorted shares of XYZ at 4.90 at the open and within 15 minutes covered your short and made hundreds of dollars, depending on how many shares you shorted.. The share price fell to 3.70 a share within 15 minutes before recovering some. It is best to take your profits while you have them. When the price is falling fast or going up fast and you have a profit take it, don’t wait hoping for a little more. Over reaction is something that happens on good news and bad news, and the price usually adjusts.

It could be that the market has made a bottom and is going to start to rally again, we have had our best week in a very long time, but it was in the worst month that the markets have had in years. Next week will be interesting, with the election on Tuesday you might want to wait and see who gets elected and how the markets react. The job numbers are also being released on Friday, which could affect market direction.

To anyone that is just starting to day trade I would suggest that you paper trading stocks and see how you do before risking your money. This is not an easy thing to do consistently. There are also games that you can enter on the Internet and you can practice your strategy and possibly win prizes and money in the process. Wallstreetsurvivor.com has Online Paper Trading weekly and monthly games going and CNBC is starting a contest November 10.

However you trade short or long, may all of your trades be profitable!

Just like we have said, day trading takes lots of research and experience. We hope to have Becky Smith back as a guest columnist. If you would like to read more from her leave a comment and we will forward them to her. Becky is developing her own website, The Stock Trading Housewife, thanks Becky

There are many online brokerages that have a system on place to paper trade stocks. You start with a hypothetical sum of “money” and place buy and sell orders according to your strategy for a given security or stock, You place your buy orders as you normally would except you are not risking real money, this the term paper trading. Sell orders work similarly.

Paper trading allows you time to research companies and essentially trains you to pick stocks according to your criteria.. For example, buying XYZ at $12.00 per share. Determine why that is a good entry level. Why is this stock poised for a move? Are good earnings due? One of the hardest things you will do as a stock trader or investor is planning an exit strategy. Why is that? In a word greed . There is nothing mire exhilarating than purchasing a stock and watching it make a run of 20% over the course of a day. Contrarily there is nothing more frustrating than watching a stock head south and you cannot figure out why. This is why before you buy a stock it is advisable to have an exit strategy. Paper trading can help you to prepare yourself to make these decisions.

Now for a word of caution. Paper trading does not expose a very important component of trading with real money. Were it not for emotional decisions, everyone might be able to make successful stock trades. However we are humans and we tend to make emotional decisions. The stress level is just not present when paper trading stocks. Beware of building a fable confident attitude when you transfer your money to a real trading account.

Still the positives far outweigh the negative as paper trading stocks allows you to get familiar with the processes to become a successful stock trader.