These are obvious, but they are really, really essential not to forget them. Put them on a post-it note on your computer.
[1] PLAN YOUR TRADES
[2] TRADE YOUR PLAN
[3] STICK TO THE OBVIOUS
[4] MANAGE YOUR RISK
We all know about Bernie Madoff, and this is a tragedy. But it is something we can all learn from it.
DON’T PUT ALL YOUR EGGS IN ONE BASKET.
Haven’t said that since I was a kid. But it is true, no matter how good a trade or deal looks, do not put your whole net worth in to it.
When I first started trading options, I took and AAPL earnings play. I was soooo sure the numbers were going to come in high, I loaded up on ‘cheap’ options with only a couple of weeks of expiration left. Right before earnings, I bought a bunch of calls and started dreaming of a classic 1986 Porsche 911. I really did not know that much about implied volatility, which is an understatement.
AAPL reported and beat the street. They guided lower for the next quarter and the stock went no place. I thought, sure, I won’t be buying that Porsche now, but I will just sell out and lose the commissions. Since the stock had not moved and it was only a one day, I thought I should get close to the same price.
I didn’t get close to the same price. I took it in the shorts.
The implied volatility dropped and I lost a big chunk of my account. It was a valuable lesson and I did make all the money back, but it hurt.
THEY SUCK.
That is the what, now let me tell you the why. Interactive Brokers, commonly known as IB, is a huge brokerage house with very cheap commissions and you can trade practically anything anywhere in the world.
Want to trade asian futures ? No problem. Want to trade European option contracts ? No Problem. Want to Canadian stocks ? No problem with IB from one account, and pretty good commissions.
That is the good part.
THEY ARE GREAT AT NOTHING.
They let you trade everything, but they are great at nothing. Say for example, you day trade futures. Would IB be right for you ? Probably not. Take a look at firms such as AMP trading. Better margin rates and brokers that actually pick up the phone.
Want options? Try firms like AOS. Once again, comprable rates, and they have knowedagable people who answer the phone.
WHEN THE GOING GETS TOUGH, YOU GET SCREWED
IB is a big impersonal firm. They have soo many people and they are always trying to cut costs, it ends up hurting.
If you have a margin violation, or something goes wrong. They have the most brain dead liquidation software I have ever heard about.
Untold number of horror stories on IB about their auto liquidation. Do a seach on Elitetrader.com and prepare to be horrified.
WE DON’T SEE NO STINKIN CUSTOMER SERVICE
IB has the same ‘customer service’ used in a Gulag. If you have a question, you are better writing a letter to them, set it on fire, and pray to the gods. It would be more effective.
BOTTOM LINE
If you are just moving up from a ‘pure retail’ broker like Scott Trade , and you want to try a lot of things, IB will be OK.
If you know what you want to trade, and how you want to trade it. Run away from IB like the plague. The cheap commissions will be eaten up by the loss in one trade when something goes wrong.
You get the idea.
The good thing about Wall Street is that you get a Christmas break. Wheather you want one or not. The market dies around Christmas and not that much fun trading.
WHO IS TRADING
I was watching the S&P E-Mini trading Christmas eve, and it was scarily slow. The last few minutes had a lot of closing trades, but I think trading was by two groups.
[1] Computers. They don’t care about Christmas anyway. A data feed is a data feed.
[2] People who can’t make it home for the holidays. This also includes those foreigners who have not figured out that Christmas is a big deal to the Americans.
Come to think of it, they are pretty much the same group anyway.
WHAT NOT TO DO OVER XMAS
Well. Don’t trade. Markets are much ‘thinner’, than usual an makes a lot of funky moves. By ‘thinner’, I mean the volume is less than usual.
Apple Computer , which usually does somewhere in the 30M ~ 40M range only did about a fourth of that on Christmas eve.
When the markets are thin like this, it is best just to take a break. Spend time with the in-laws and watch the kids fight over toys.
Hello, Santa ? Where is my rally ?
