Simple Steps To Improve Your Day Trades (part 2)

Success in tape reading should be measured by the number of points profit over points lost. For all practical purposes, therefore, day trades may occur in 10 share lots, were there no objections on the part of our broker and if this quantity were not so absurdly small as to invite careless execution. 50 shares is really the smallest quantity that should be considered, but we mention 10 shares simply to impress upon our readers that in studying tape reading, it’s better keep in mind that you are playing for points, not dollars.

The dollars will come along fast enough if you can make more points net than you lose. The professional billiardist playing for a stake aims to out-point his antagonist. After taking part in day trades for a few months don’t consider the dollars you are ahead or behind, but analyze the record in points. In this way your progress can be studied.

As the initial loss in day trades are likely to be heavy, and as the estimated capital must be a more or less an arbitrary amount, we should say that units of $5,000 would be necessary for each 50 share lot at the beginning of our day trades. This allows for more losses than profits, and leaves a margin with which to proceed.

Some people will secure a footing with less capital; others may he obliged to put up several units of $5,000 each before they begin to show profits; still others will spend a fortune (large or small) on day trades without making it pay, or meeting with any encouragement.

Look over the causes of failure of most businesses and you will find the chief causes to be:

(1) Lack of capital, and
(2) Incompetence.

Lack of capital in Wall Street day trades can usually be traced to overtrading. This proves the saying, "Over-trading is financial suicide." It may mean too large a quantity of stock being traded, or if the trader loses money, he may not reduce the size of his day trades to correspond with the shrinkage in his capital.

To make our point clear: A man starts trading in 50 share lots with $1,000 capital. After a series of losses from his day trades, he finds that he has only $500 remaining. That’s on 10 points on 50 shares, but does he reduce his orders in day trades? No. He risks the $500 on a 50 share trade in a last desperate effort to recoup. The stock loses 10 points and he’s out $500.

After being wiped out from his day trades, he tells his friends how he "could have made money if be had had more capital." Incompetence really deserves first place in the list. Supreme ignorance is the predominant feature of both stock market lamb and seasoned speculator. It is surprising how many people stay in the Street year after year, acquiring nothing more, apparently, than a keen scent for tips and day trades gossip. Ask them a technical question that smacks of method and planning in trading and they are unable to reply.

Such folks remain on the Street for one of two reasons: They have either been "lucky" with their day trades, or their margins are replenished from some source outside of the markets.

The proportion of commercial failures due to Lack of Capital or Incompetence is about 60 per cent. Call the former by its Wall Street cognomen – too many day trades - and the percentage of stock market disasters traceable thereto would be about 90 per cent.