Search This Blog

Friday, February 1, 2008

The Low Funded Challenge Accounts: February 2008

Challenge Accounts:

Sharebuilder Balance: $131.14

optionsXpress Balance: $583.49
ING Orange Savings Balance: $2.06

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 trying to get started in the markets. That as long as one enters this business with the proper principles, strategy, education and emotional discipline in hand, you 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 $716.69 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 later added a small ING Savings account that has $2.06 in it.

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. So let's do that for February.

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. We had one trade for a loss of $86.51, but with our contribution last month, our balance surpassed our previous balance of $570.00, to the current $583.49. We received a dividend payment in our Sharebuilder account of $0.37, therefore, our balance there is currently $131.14.

Now we have arrived in a new month; February. I am going to contribute the entire $100.00 to the optionsXpress account again. If an opportunity arises to my methodolgy for a trade where the risk is under the $100 that will be coming in for this month, then I will do so. But at the current time, I don't have anything. The reason I am sending so much towards the optionsXpress account, is that this accounts planned growth rate is higher than the Sharebuilder account. Therefore, it receives more capital to work with. The $100.00 will be sent to optionsXpress on February 4th, which means it probably won't clear until about 2/9/2008, or so; bringing our account balance to $683.49

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. How much is the market down right now? 7.5%? But we're at least bringing in 3% on that money right now. Mind you, we only have $131.14. And to be honest, with Bernake's recent move, we're not even keeping up with the inflation rate at the moment. However, the commissions would eat me alive for what little shares I could purchase in the Sharebuilder account. We discussed some time ago that for every $45.00 stock we buy, we want at least 15 shares, or $680.00. The Sharebuilder account will earn approximately 3.18% interest on the money that's in there 7 day yield, and there are no fees for either account. Which means we are earning under inflation, but that account isn't planned to be using the money market yield to grow. I honestly think next month we'll start adding capital to that account to eventually invest with.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. In February, we are on the lookout for any Futures options trade where the risk is under $90.00 or so. But only one trade for now, to preserve our account equity. Open-mouthed The risk / reward ratio should be at least 1:2. However, there's no guarantee we'll run into such a trade. I'm looking at some Soybean, Meal, and Oil longs for my regular accounts. Or possibly an OJ short this month for my regular accounts. But if the risk is higher than $90.00 for any such trade? Then the low funded account can't take that sort of risk. Remember our first video? It all starts with risk analysis, as it relates to the size of the account.

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

Februarys Balances after contribution:

Sharebuilder Balance: $131.14

optionsXpress Balance: $683.49
ING Orange Savings Balance: $2.06

* * *

Sharebuilder Balance: $131.14
optionsXpress Balance: $583.49
ING Orange Savings Balance: $2.06

Total Trades and Investments: 1
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 1
Average Drawdown: $86.51
Accuracy Rate: N/A
Average Reward: $0.00
Risk Reward Ratio: N/A

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.

Search Investing and Trading Articles and Products