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Wednesday, November 21, 2007

$500 Challenge Accounts: Whats the Roadmap

In the Art of War, Sun Tzu once wrote:

"Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose."

In all portions of life, one must have a plan that fits in with their larger plan, which in the end, fits in with their general purpose for life. Making money in the markets is just one area that fits into the larger purpose. But that's a topic for another day. Wink The main thing to understand is that if you go at trying to make money in the markets without 'many calculations' - you will suffer defeat. This is even more true if your 'standing army' or account funding, is small.

So what's the "calculations" or plan for the $500 sub accounts that I have in order to make them grow? What are the goals? What are the steps to reach those goals? For now I'll deal with the short-term goals, though I already have the longer term steps in mind.

Short-term Goals (6 to 8 months):

* Regularly add $100 each month, to be split amongst the accounts. This is a must for the reasons that I have mentioned previously in this blog, due to money management and risk analysis calculations.

* Have the Sharebuilder account grow by an average of 4%. Not hard, since they pay me almost that in just interest. Wink This is so that this account can grow sufficiently by it's own for it's next stage of development.

* Not to trade the Futures Options account, until that account is at least looking at $800, and the risk is around $65.00 before commissions. There is a way to do this that I will go into as time goes on.

* After 6 options trades in the Futures account, feed 5% of the profits back into Sharebuilder Account. This is key, and it's something I haven't talked about much yet, but is integral to my overall strategy. You must have your more profitable accounts pay your other accounts. Why?

"The most powerful force in the universe is compound Interest"
- Albert Einstein

One of the things that people enjoy about 401k's, is that if you borrow money from them, you have to pay it back, with interest. You end up paying yourself the interest. I apply this technique to every aspect of my financial life. If I borrow money from my savings account that I wasn't planning on spending? I pay it back at 5% interest later. It stands to reason that you apply this principle when it comes to making money in the markets. Eventually, we'll get to the stage where I will demonstrate how to start having at least three different money making ventures, all paying each other. This is key. But that's a later goal. For right now - After 6 Futures Options trades, feed 5% of the profits back to the Sharebuilder account. Further down the road? We'll take 5% of our Sharebuilder account profits, and feed it back to our futures account. We're not just 'shuffling money' around. Because each of those accounts generate income on their own merit. Therefore - the profit that will be generated is spread about, and used to fund the other accounts.

* * *

This is not a recommendation of how to spend $500.00. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading advisor, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The above experiment will be run for my own education, and education of other traders. The public $500.00 accounts do not reflect all of my investments and trading, and is run the way it is, due to the unique challenges that are presented to the small funded trader.

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