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How To Get Started Trading with as little as $500 dollars
Written by Blake Levison
Of all the questions beginners ask about the stock market, "How do I get started" has to be the biggest one. From the outside looking in, it must feel as though it is an impossible dream, only to be achieved by those with an immense amount of money and resources. Although it is important that you only invest money that is truly expendable, you can get started with as little as $500. Below we are going to discuss the steps to take to make your trade market dreams come true.
As previously mentioned it is of the upmost importance that you only invest that which you have to spare. Never "relocate" funds, for example using your mortgage funds to invest in hopes it will pay off in the end. This will help make sure that when you inevitably do lose money, it won't financially devastate you. If you don't currently have enough expendable money to invest, don't fret. You can take this as the perfect opportunity to learn as much about your new business as you can.
In all reality, that is exactly what investing in stocks is, a business. And as such you should take it very seriously. Viewing it as a job will be frustrating because there is no steady paycheck to rely on. This can make budgeting difficult, or bordering on impossible. If you view it as a hobby, you will be less likely to put in the time and effort needed to succeed in this exciting field. Instead, view yourself as a small business owner. Invest time and energy into research and developing an airtight business strategy and you will be amazed at the difference.
Part of being a successful trader is having a sound strategy, and part of that is creating a trade plan. A trade plan is a list of rules that cover the traders entry, exit, and money management criteria for purchases. Make sure you stick with your plan. Going "off road" and accepting new trades outside of your plan may seem like a great idea at the time, but is a poor strategy in the long run. Even if it occasionally works out, it will eventually come back to bite you. Sometimes your trade plan might not work, but that is OK. Even the most seasoned of traders have experienced this. If and when this happens, simply bail out and create a whole, new plan.
A good strategy would be to backtest your plan before putting it into action. This will help minimize the risk of losing your money. There is a plethora of technology available today that can assist you. Charting platforms make it easy for traders to view and analyze the markets. Using data from the past can help prevent mistakes that could cost you your investment. Don't be afraid to take advantage of the available technology, because whoever is sitting on the other side of the trade certainly is.
Day trading is buying and selling financial instruments within the same trading day, so all positions are closed before the end of the trading day. Day traders exit their positions before the trade market closes. This is to avoid unmanageable risks and negative price gaps between the close of one day and the price at the next days open.
In the US, day traders typically use margin leverage. Regulation T allows an initial max leverage of 2:1, however most brokers will allow 4:1 leverage as long as the leverage is back to 2:1 or less by the end of the trade day. Margin interest is usually only charged on overnight balances, so the trader may be able to avoid paying interest fees for the margin benefit. The trader would, however, be running the risk of a margin call.
One of the stock market regulations is called the PTD rule. PTD stands for Pattern Day Trading. The PTD rule states that a trader cannot make 4 or more margined stock day trades within a 5 day period if they have less than $25000 in equity in their trading accounts. Any trader that makes 4 or more trades within a 5 day period is immediately flagged as a Pattern Day Trader. This does not go away. From the moment a trader is flagged they are required to have the 25k, or bring their balance back up to 25k. If the trader fails to do so, then margin is restricted to zero. This will remove the ability to day trade on margin. You can day trade as much as you like without using margin, however shorting does require a margin account.
If you are trading stocks, futures, or vorex, experts recommend trading for at least the first hour after the official open. This is typically from 9:30-10:30 AM EST. If you are trading futures, or ETF's the premarket can also provide some of the best trades. If the market is good and active you could even trade until about 11:30 AM EST, that is when it will slow down for the lunch hour. You can continue trading between 2:00 PM EST and 4:00 PM EST. The last hour is actually the second most volatile hour of the day, hence it is a popular time of day for most traders. Traders who are just starting out often have the "less is more" mentality when it comes to trading. That is often incorrect. Certain times, such as the "lunch hour" have very little pay off that really isn't worth the emotional energy, or capital spent.
Avoid getting overly excited about your trade day. I know it sounds ridiculous, but if the adrenaline has been pumping there is a large chance you could make a mistake. You may accidentally risk too much capitol if you allow your emotions to cloud your judgement. Start each day by preparing for different market conditions. Focus your energy on finding trade setups, carrying out, and then managing those trades according to your strategy.
Make it a point to document your profits/losses at the end of your trade day. Record the hours traded, number of trades, number and total of all losing and winning trades, and your net profit. Each week review the previous weeks data. This will help you identify mistakes, and what you need to improve on. Take note of your strengths and weaknesses so you can learn from them.
To conclude, starting small is a great way to fine tune your trade plan. If you can build good habits on a small account the same good habits translate to when you risk substantial amounts of money. Have fun trading, and do it the right way.
About Author: Blake Levison
Blake Levison is a full-time technical stock trader. Blake's favorite style of trading is a combination of share trading, scalping, and swing trading. Blake is a very big on selling covered calls and is obsessed with stock trading!
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