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Sunday, June 1, 2008

The Low Funded Challenge Accounts: June 2008

Challenge Accounts:

Investing Account Balance: $247.64 ($0.37 Dividend Deposit processing)

Stock / Futures Trading Balance: $735.61
Online Savings Balance: $27.22 ($0.07 Interest Payment processing)


A video summary is to be found at the end of this entry.

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, or if starting up again because his account has been wiped out. 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 at my brokerages that I own, and I will look to for growth. I will announce actual trades and investments that I perform in them, and the money management rationals and 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 later added a small ING Savings account that has been built up to a balance of $27.22. But due to the initial investment, I once termed this the "$500 Challenge". Since we now have a cumulative total of $1,010.47 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. So let's do that for June.

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. This account is the 'trading' account, for stocks, ETF's, and futures options. Therefore, rule #1 is always complete.

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, we deposited $5.00 to our ING Direct Savings account, $90.00 to the optionsXpress trading account, and $5.00 to our Sharebuilder Investing account. We had one losing trade of $74 or so, which took us back down to the negative on the trading gains / losses, by about $60.00 (After four trades, not too shabby with a 25% accuracy rate. Money management has saved us during this drawdown period)

Now we have arrived in a new month; June, 2008. This month we're going to do the same thing. $5.00 to our ING Direct Savings account, $90.00 to the optionsXpress trading account, and $5.00 to our Sharebuilder Investing account. I don't really plan on trading this money too much this month, if at all. These deposits will all be made on the 5th of the month.

If you note my project strategy video (located here), we're still waiting to get past the first step. The first step in this phase of the project is for the trading account to reach past $900.00. With a deposit in June of $90.00 to the optionsXpress account, we'll have a balance of $825.61. That means with July's deposit, we'll be past step one. This goes back to what I've said about overtrading. After that, the next step will be to get the account to $1,100.00. But remember, the goal right now isn't to primarily trade these accounts. It's to get the account equity balance bumped up. The account / project is still within it's 'tiny' phase. I will send this $90.00 to the trading account balance on the 5th of June, 2008, and it usually takes 3 or 4 days to post.

I will be sending $5.00 to the ING account on June 5, 2008 as well. This account usually takes a few days to clear. I will be sending $5.00 to the Sharebuilder account on June 5, 2008, and Sharebuilder is usually extremely quick about posting funds.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. In June, I'm going to keep the Challenge Project idle. Then on July 1st, I'll have another deposit according to rule #2, and we can look to start trading this account a little more.

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



June Balances after contribution (before trades)

Investing Account Balance: $252.64
Stock / Futures Trading Balance: $825.61
Online Savings Balance: $32.22

* * *

Current Balances:

Investing Account Balance: $247.64 ($0.37 Dividend Deposit processing)
Stock / Futures Trading Balance: $735.61
Online Savings Balance: $27.22 ($0.07 Interest Payment processing)


Total Trades: 4
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $65.50
Average Loss: $79.84
Accuracy Rate: 25%
Average Reward: $179.75
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Down - ($59.68)

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 adviser, 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 who should make their own decisions based off their own research, and tolerance for risk.

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