Some Rules for Speculating

Aside from all the usual cliches, here are a few basic guidelines that have helped me. Speculating differs from a classic definition of investing in that speculating is much more aggressive and normally involves trading issues that provide high-leverage and volatility; because of this use only capital that can be risked. Start small, especially if you are still learning the basics. Since the goal is generally to make money on quick round trips, focus on technical data as opposed to longer term fundamental data, rumors, “tips”, economic expectations, etc. Use a discount on-line broker where the commissions are low enough for them NOT to play a role in how you trade. If you plan on day-trading or swing-trading you will need real time, streaming quotes and real time charting w/ technical analysis tools. Many on-line brokers provide these basic services for free or for a small monthly fee. You may also wish to pursue additional charting and analysis software. Stick to trading markets with large liquidity (participation) and enough volatility (movement); remember that in order to make money it has to come from somewhere and there is little benefit in being in thinly traded markets with high spreads, low ranges, and few players to provide the liquidity you need to enter and exit.

Develop a handful of strategies, know them well and stick to it. You can try “paper-trading” or back-testing your strategies before actually risking real money, but do not underestimate how different trading will be when you put your real dollars in the market. Be quick to take your profits or losses when your strategy says to; do not turn what was supposed to be a quick position day trade into a week long fumble because you cannot deal with taking a quick loss or are holding a winner hoping for even more profit out of greed. Keep an accurate trade journal/log that also calculates your average P&L per a trade, total P&L, and allows you to isolate where your strengths and weaknesses may be. Embrace what is working for you and do not try to force things that do not work for you. Patience has always been far more profitable than over-trading for me. Do NOT think about the money, just focus on the trade and the market data at hand. Be independent and try to learn something from every trade, win or lose.