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Tuesday, January 1, 2008

The Low-Funded Challenge Accounts: January 2008

Todays Challenge Account Sharebuilder Balance: $130.77
Todays Challenge Account optionsXpress Balance: $554.74

Long one March 08 Sugar #11 10.00 Put at .08 ($89.60) in optionsXpress Account

I was filled on that March 08 Sugar Put yesterday, as you can see, at .08.

These sub-accounts were created by me back in October 2007 as a main feature of this blog. Their purpose, as well as the purpose of many of the articles in this blog, is to assist the low-funded trader understand what principles he needs to consider when entering the market. That as long as one enters this business with the proper principles, education and emotional discipline in hand, anyone can 'make it' in this business. These are actual sub-accounts that I own, and I will look to for growth. I will announce actual trades and investments that I perform in them, and the reasons for my decisions as a means to educate others.

In the beginning of this experiment, I placed $130.00 with Sharebuilder as a long-term investment account, and I placed $370.00 in the account for trading Futures options. I thus termed this the "$500 Challenge". Since we now have $685.51 as a cumulative total in these accounts, not $500, I will term this the "Low-Funded Challenge" instead of the "$500 Challenge". At times I will refer to them simply as the "Challenge" accounts.

I also had three rules for the "Challenge" accounts. At the beginning of each month, I review and consider where we stand, and how those three rules impact the current months decisions.

Rules for the Challenge Account:

1) The initial investment is $500.00, to be split amongst the accounts. We did that back in October of 2007. $130 went to Sharebuilder for longer term investments, and $370 went to the Xpresstrade brokerage for futures options purchases. Xpresstrade was later bought out by "optionsXpress", therefore this is now the optionsXpress account.

2) Each month, I can contribute $100.00, that can be split amongst the accounts however I choose. In other words, I can send $30.00 to Sharebuilder, $70.00 to optionsXpress; or $100.00 to optionsXpress, and nothing to Sharebuilder, etc. Last month I contributed the entire $100.00 to optionsXpress, thus raising our balance to $570.00 in this account. We received a dividend payment in our Sharebuilder account, thus raising our total there to $130.77.

Now we have arrived in a new month; January. I am going to contribute the entire $100.00 to the optionsXpress account again. I'm currently long one March Sugar 10 Put, but my risk is under $100.00. I will be transfering $100.00 to that account on 1/23/2008. Which means it probably won't clear until about 1/28/2008, or so. Therefore, I face a situation that although I can lose about $70.00 (Considering I would sell the option back to the market if the market completely turned against me), the account equity would remain about the same due to this deposit. Therefore, I face a situation with the optionsXpress account, thanks to Rule #2, of a) Risk $70 and end up with about the same account equity balance if the trade turns sour. Therefore, the risk is low b) Making approximately another two hundred dollars from the trade. Not a bad situation.

The Sharebuilder account remains idle at the current time. Given the state of the economy and market, this isn't a bad thing at all. The commissions would eat me alive for what little shares I could purchase in the Sharebuilder account. We discussed last month that for every $45.00 stock we buy, we want at least 15 shares, or $680.00. The Sharebuilder account will earn approximately 4.18% interest on the money that's in there 7 day yield, and there are no fees for either account.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. In January, we're using Futures Options. But only one trade for now, to preserve our account equity. Open-mouthed

If it is one thing that I've learned, is that the next time I perform this experiment, I will start out with a higher amount than $500. Probably $1300.00. Open-mouthed


Return on Investment to date: $0.00
Total Trades and Investments: 1
Largest Inter-trade Drawdown: $15.00 (Current commissions is all)
Consecutive Losing Trades (Drawdown): 0
Average Drawdown: $15.00
Accuracy Rate: N/A
Average Reward: $0.00
Risk Reward Ratio: N/A


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This is not an investment or trading recommendation. 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 or investment advisor, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders

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