Rookie in need of help.

Posted by Marshall Econ Runner on January 25, 2013 (11:11PM)

I'm an 18 year old Economics major and future law student. I got close to 2K in graduation money and instead of it setting in a savings account I decided to play the market. Ive been trading since last May and have made some profits, but I've also taken some fits. 

I like to trade penny stocks because of their ability to climb quickly. But I've also found out the hard way that they can fall too. I like any profit. I've sold stocks with a $30 profit and I've some one for $100. Both constitute as a good day to me.I follow stocks closely and feel that I can really be successful doing this with a little guidance.

That brings me to the purpose of this forum. I'm asking you all for help, or at least some tips. I appreciate all responses, positive and negative, and look forward to hearing from you all. 

Thank you in advance.

Posted by DR MCGILL on January 28, 2013 (10:39PM)

If you like penny stocks you should look into trading options on companies you know about.

Depending on what penny stocks you trade liquidity is normally a concern (tough to buy and sell at the price you want).  But with options there is always liquidity, with the same volatility.

If you don't know options yet it's a pain figuring them out, but you'll be glad you did.  

My advice on options: don't trade them until you thoroughly understand how volatile they are and what an option spread is (at least).

I will say odds are stacked heavily against you if you are a beginning trader going into options, but the earlier you learn about them the better.

I'm not saying you SHOULD start trading options yet, but after reading your post you will definitely find interest in them.

Posted by doougle on January 29, 2013 (09:08AM)

Marshall Econ Runner said: I'm an 18 year old Economics major and future law student. I got close to 2K in graduation money and instead of it setting in a savings account I decided to play the market.

 First, I think that's awesome.  I wish I was smart enough to start investing early in life.

My first tip is; Don't choose stocks based on their price.  Choose them based on their value.  It's better to have 10 shares of a good company, than 1000 shares of a sketchy one.  A 5% move is a 5% move, regardless of the number of shares.

Take your time.  If you decide to invest 2000, you don't have to do it in one day, week or month.  The market moves in large and small cycles.  Choose your entry point.

Trade what you know.  You mentioned that you're following some stocks closely.  Those are the ones you should trade.  As you may have seen, not all stocks act the same.

As the good doctor mentioned above, options are appealing, especially to younger investors.  You absolutely must fully understand what you're doing with options.  They offer as much danger to your account as they do profit potential.   Take your time and learn.  TK has a ton of info under the Education Tab.

Don't focus on how much you can make on a trade, focus on how much you could lose.  There have been conversations in this forum where people say they like 1.00 stocks, because of how easily they could grow to 2.00 or more.  In reality, those stocks could fall to .50 much faster.

Don't give up.  You will have good and bad trades.  Good and bad years.  Stay in the fight.  If you feel like you getting beat up, you can adjust your risk strategy.

Good luck!

Posted by trendsetter37 on January 29, 2013 (04:37PM)

Options are a good choice but plan on studying them and then practicing with them so you can get a good feel on how they operate regarding time decay and such. 

With that being said you could get your feet wet with covered calls and then move to spreads. I'd also study up on technical analysis. That way you will know when to sell or buy if you choose to move to spreads and/or speculate.

Posted by treeHamster on January 29, 2013 (05:00PM)

Learn the greeks and understand what the VIX is. I day trade options and can tell you that it takes a while to get "good" at trading them. First you have to be good at guessing the underlying stock's movements, then you have to be good understanding when to use options to play the movement. You also have to decide on what timetable you are going to be trading because options have an exponential decay model rather than a linear one like in futures. So unlike futures where it decays at like 0.01% a day no matter what day you buy them up, options decay at different rates depending on where they are in their life cycle (time until expiration). I trade options which have less than 5 days until expiration which are entirely different than ones with say 20 days left until expiration.

Practice with a paper account for a while and maybe talk to a really good econ professor or if there is someone at the university you are attending with a graduate background in statistics/econometrics that knows derivatives (even most finance majors don't understand the Black-Scholes model very well).

Options can be alluring (especially weeklies) because of their giant returns that you can find in the charts. For example I got handful of decent trades today that I scalped. Most of my returns were in the 20%/trade range but by the end of the day the options prices for those same positions I had were down 20-30% below what I paid. I walked with 6% for the day but if I had held onto my stuff I'd have been down 30%. So while the gains can look great, you can get burned extremely easily. One mistake can burn up an entire week (or month) worth of profits (it's happened to me).

If you're honestly looking to go to law school, then you're probably better off spending your time trying to get internships rather than sit watching a computer for stock prices. If you're going to need that money for law school, then you're better off finding a way to use it to generate income rather than play it in the stock market. Most T1 law schools like to see entrepreneurial activities from their students and the stock market won't get you the returns you want unless you're willing to put abusive amounts of time into it.

Posted by Marshall Econ Runner on January 31, 2013 (12:52PM)


Sorry for the delay in my response, I've been busy with school and fraternity. But I really appreciate your all's responses and eagerly look forward to learning about options. To be honest, I've never heard of options.

I also thoroughly appreciate the support within your responses. Although treeHamster got a little critical about the Law School thing but guess what that makes me want to do? Prove you wrong, so thank you.

I'm thinking that after studying up on the various things you all suggested to me that I'll practice in a TradeKing Forex account and see how it goes.

Once again, thank you, and if anyone else has anymore comments I would be happy to hear them.

Posted by doougle on January 31, 2013 (01:18PM)

Marshall Econ Runner said: Although treeHamster got a little critical about the Law School thing but guess what that makes me want to do? Prove you wrong, so thank you.

 Most of us are working on proving TreeHamster wrong (lol)

Posted by guitarmanken on January 31, 2013 (05:44PM)

      Everyone is telling you to get into options. This is kind of disturbing. No one is telling you how extremely risky they are. Especially for the new guy! Do you want to gamble or do you want to invest? If you want to gamble do options. Most new guys doing options lose there money. If you want slow, steady returns invest. A growing company with a nice dividend will triple even quadruple your money every 10 yrs. Always reinvest the dividend. A 10 yr plan always makes 10 times more sense than a ten day plan. In the short term the market is way to unpredictable.

Posted by TampaJake on January 31, 2013 (05:44PM)


doougle said:

My first tip is; Don't choose stocks based on their price.  Choose them based on their value.  It's better to have 10 shares of a good company, than 1000 shares of a sketchy one.  A 5% move is a 5% move, regardless of the number of shares.
In my opinion this is the best tip you've been given. Here's why:

Stock A: $33.00 x 50 = $1650 + $5 commission = $1655 investment
Stock B: $.33 x 5000 = $1650 + 5 commission = $1655 investment
(note: this does not take into account the $.01 per share surcharge on penny stocks at TK)

Now ask yourself this... which stock is more likely to go to $0? 

Secondly... a lot of novices think that penny stocks often double, triple and go even 10X their value. It does happen but it is such a small majority of those stocks that the risk is usually not worth the gamble. 

Lastly, you should consider that the market has risen to levels that would make finding these 2x, 3x, 5x, 10x stocks even more difficult. It would take another calamity like we saw in 2008-2009 to get the market to levels where some decent companies would be trading at levels that would give you that kind of return in a rebounding market.

Posted by CUEBLACK on January 31, 2013 (10:44PM)

Marshall Econ Runner said: I'm an 18 year old Economics major and future law student. I got close to 2K in graduation money and instead of it setting in a savings account I decided to play the market. Ive been trading since last May and have made some profits, but I've also taken some fits. 

I like to trade penny stocks because of their ability to climb quickly. But I've also found out the hard way that they can fall too. I like any profit. I've sold stocks with a $30 profit and I've some one for $100. Both constitute as a good day to me.I follow stocks closely and feel that I can really be successful doing this with a little guidance.

That brings me to the purpose of this forum. I'm asking you all for help, or at least some tips. I appreciate all responses, positive and negative, and look forward to hearing from you all. 

Thank you in advance.

 I see exactly where your coming from, im in the same situation but im now learning and getting the hang of options. In my eyes options is the way to go once you know how the company runs. 
I have a few thousand to play with so playing the market is the way to go. Im not an economic major but i like to study how the market works and profit at the same time. 

Posted by ico135 on February 06, 2013 (05:20AM)

Gonna beat a dead horse here but doougle nailed a very basic but very important concept to grasp when considering to invest in penny stocks(or any stock actually).

             doougle said:

 A 5% move is a 5% move, regardless of the number of shares.

Now i am not going to sit here and say to avoid penny stocks like the plague because i currently have one in my portfolio. But doougle's advice to not buy a stock because of its price is a point that cant be stressed enough in my opinion.

I also respectively disagree with Tree Hamster about holding off on investing if you are going to go into law school. A few thousand dollars is such a low amount relative to the overall upcoming cost that it is irrelevant. And there is always time to put into it if it is something you enjoy, granted law school will be demanding though, but it will be time well spent. I invested my last 1.5 years of getting  my engineering degree while i was also working near full time and having a kid my Junior year, and i gotta say it was a welcome distraction. Sleep on the other had didn't receive as much attention.

Posted by joeschmoe089 on February 07, 2013 (09:49PM)

im a 19 year old and in the same boat basically. Over the last few months Ive been reading every book on options i can and read the options playbook this site offers. Instead of using covered calls as an entry i learned to do options with LEAPS. By buying these deep enough in the money, they trade very similar to stocks and can give you leveraged returns but also leveraged losses since the risk and reward both act the same. Since you follow some stocks very closely i think you could be pretty succesfull with these if you read up on them. Ive had some nice 20%s over my last 2 months applying what ive learned along with the normal losers. You can find all sorts of info on these online

Posted by spshapiro on February 08, 2013 (08:22AM)

It is probably a safe guess that you have become enamored with LEAPs because you see that first you have the smaller outlay of capital that options require over stocks, and second, you think you can beat the time decay factor by the longer time frame. If my conjecture is correct than you are missing these points. One, there is still time decay with LEAPs, it is just that it shows up as a lot slower in the beginning due to the length of time left until expiration. However, as the expiration nears, the rate of decay is the same as a normal option. Also you are paying a ‘fair’ bit more above intrinsic value for the extra time over a shorter duration option. This really only makes sense when you think the underlying company may need a good bit of time to institute a turnaround (maybe like Yahoo), not when you think they will get a pop from an upcoming earnings report.

Moreover, you are neglecting the fact that you have a long way to go, and you are just starting out. Options are not stocks, they don’t pay you a dividend to wait. They require that you be right on direction and time; while stocks only require that you are right on the direction. There is a reason why newbies are advised to start with selling covered calls. You might think you are the brightest star in the firmament, but you would do better to focus on having a comfortable lifestyle down the road, than having a Rolls at 23.    

Posted by doougle on February 08, 2013 (08:26AM)

joeschmoe089 said: Ive had some nice 20%s over my last 2 months applying what ive learned along with the normal losers.

 Joe, it sounds like you're on the right track.  One cautionary note:  The market has been going up in a straight line for a few months.  Keep your guard up.  The real test comes when the market pulls back.

The CBOE offers a ton of free educational material, including countless videos by TK's own Brian Overby.  It's free, but you may have to sign up.

http://oiwebcasts.cboe.com/UI/Content/Home.aspx

Good luck.  Keep learning!

Posted by BBeylo on February 11, 2013 (09:41PM)

Glad I found this forum topic ... I myself am a young investor (17 years old), and I have been dabbling around in the investment world ... However, the biggest question I have is how much money do I need to start investing? I've heard anywhere from $100 to $500? Any thoughts and comments would be much appreciated ... 

God Bless, 
Brandon 

Posted by bigdog on February 12, 2013 (10:21AM)

Welcome to TradeKing, Marshall Econ Runner – and welcome to the markets. You’ve got a good group helping you here, so by all means keep asking questions and trying to learn as much as you can. A few areas of our site you shouldn’t miss include:

TradeKing’s Education Center lets you customize your learning experience, so you can dive right into content that speaks to your needs. Learn by security type, by experience level, or by your current market outlook. It’s a great resource full of articles, videos, webinars, and much more – whatever suits your learning style and schedule.

TradeKing’s YouTube channel is full of concise, smart educational videos designed to help you ramp up your understanding of options trading specifically. I find it’s super-easy to fit a 5 or 10 minute video into your daily schedule and learn something valuable and new. Check it out!

TradeKing’s Options Playbook is an award-winning trader’s educational book we’ve turned into a website, and a solid bookmark. The Rookie’s Corner distills lots of useful information about options trading suitable for beginners, if you’re planning on going that route.


At TradeKing we believe in constantly investing in your own trading education, keeping trading costs low and easy-to-understand, and learning from your trading mistakes. The Trader Network offers an excellent forum to rehash your trades, good or bad, and better understand the dynamics involved so you can refine your approach.

Good luck!

Be good,
Don Montanaro
CEO, TradeKing

Posted by Vega 4 Victory on February 13, 2013 (01:46AM)

I agree with many of the points made by the commentators on the topic. I too am also a "young" investor and strongly believe in the idea that these younger years are the time where you should consider opening yourself to risk in order to achieve relatively high gains.

With that said, I don't think you should do so willy nilly and just throw your money around without sense or taking into account the possible negative consequences of your actions. 

On the topic of penny stocks... I made a significant cash infusion into a penny stock as my very first trade (DKAM). I learned quickly about the volatility of these stocks and the more than likely downside outcome of trading such low priced stocks. A lot of these companies are either just starting out and rarely even knocking at the door of a profitable quarter or they've been around for a long time and are stuck in a state of "purgatory" with their low prices because they have not taken the necessary actions to dig themselves out of the hole they've put themselves in.

After my quick lesson learned about penny stocks, I started educating myself about options trading. Here too, I quickly learned a few lessons about the volatility and risk associated with playing the options game. What I found with options though, was that no matter how much risk I open myself up to and the potential losses I stand to see, there is almost always an an equal or greater upside potential if I put the time in and do the research. 

I have been learning and researching option trading on and off for about year now and after taking some gains and taking some losses, I've finally learned to give these financial instruments the respect they deserve. Just earlier today, spshapiro taught me something about the affect options have on an underlying price that I'd never even considered. With the lesson I learned today, I have an entirely new found understanding and respect for the way that options work and how they can be traded. 

To say that trading options can be mastered or that one can be an "expert" in trading options (or any financial instrument) I think is rediculous. There's only so much that you have control over, you just have to make sure that you can do all the things within your power to counteract and prepare for all of the factors that lie beyond your control. 

I personally believe that if you're looking to take your 2000 and turn into enough money to pay for your law school tuition, the opportunity is there and it is more than possible. You just have to be dedicated to protecting your money and taking the necessary steps to protect yourself in against those that know more about it than you do and have the resources to "overpower" under certain market conditions.

Be smart. Put in the time to educate yourself. Respect the game. If you can take anything from my comment here and my experiences, take these last three statements that I've left you with. Otherwise, you feel the same pain as I have. I can promise you that much...

Posted by Phantom Rin on March 26, 2013 (01:15PM)


BBeylo said: Glad I found this forum topic ... I myself am a young investor (17 years old), and I have been dabbling around in the investment world ... However, the biggest question I have is how much money do I need to start investing? I've heard anywhere from $100 to $500? Any thoughts and comments would be much appreciated ... 

God Bless, 
Brandon 

 You don't need thousands to start but 500 to 1000 is a good low place to start because you want to be able to buy a reasonable amount of shares you choose to invest in.  Myself being a novice at online trading used an old 401k that i built up to 1500 with being aggressive on it and after losing that job and not being able to change my investments i lost 70% of it...moved it to TK and based on what i learned started trading...gained back almost half my investement.  My best advice would be to look for companies in different sectors, and look for prices between $8-$50 that would let you get a few shares a multiple companies and diversify.  Anything else you need, let me know...and make sure you do your research, and mistakes happened but make sure you shield yourself against large losses..Good Luck.

Posted by RC7WA0Q8CQ on March 26, 2013 (03:25PM)

Phantom Rin said:

 You don't need thousands to start but 500 to 1000 is a good low place to start because you want to be able to buy a reasonable amount of shares you choose to invest in.  Myself being a novice at online trading used an old 401k that i built up to 1500 with being aggressive on it and after losing that job and not being able to change my investments i lost 70% of it...moved it to TK and based on what i learned started trading...gained back almost half my investement.  My best advice would be to look for companies in different sectors, and look for prices between $8-$50 that would let you get a few shares a multiple companies and diversify.  Anything else you need, let me know...and make sure you do your research, and mistakes happened but make sure you shield yourself against large losses..Good Luck.

 You don't even need that if you buy the stock directly from the company. I started out with MGEE back before the ticker changed to that. And, I started with literally 1 share that was given to me by an uncle. Granted, 1 share usually requires you to know somebody that gives it to you, but you can often times get started for as little as $300 if you buy directly through the corporation. And they will often times permit you to buy fractional shares, so you can put in $50 rather than having to round to the nearest full share.

The big risk with having such a small amount of money is that it's impossible to diversify, so you really have to be sure that what you're putting your money into is sound.

But OTOH, with less than $1k at play, it's not going to take too long to make that much again if you lose it all.

EDIT: And it's really best to ignore the day to day operations of the markets. You should be buying with an eye to hold for at least a year, if not longer than that. And most of what the pundits say is just complete BS. Invest in a solid company with good growth prospects and things should turn out well.

Posted by Mikeillenberger on March 27, 2013 (05:17PM)

Do you want to trade with me? or you can at least watch me trade. I am a swing trader with 10 year experience. I see myself in you, I started trading when I was 22 and my mentor took me under his wing that's why I am a profitable trader now.

Id like to return the favor. Let me know :)

Mike

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