The beginning investor often has questions. We have asked Becky Smith back for a few questions about day trading. As you will see day trading skills take time to develop. Becky, we appreciate your candor and your down to earth approach. Now lets move on to the questions.
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!