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Monday, September 1, 2008

The Low Funded Challenge Accounts: September 2008

Challenge Accounts:

Investing Account Balance: $317.05 (RBB Dividend Payment will be added)
Stock / Futures Trading Balance: $954.13
Online Savings Balance: $47.39 (Interest Payment added)

Personal Trading and Investing Thoughts: We are in what I think is the weakest, most lackluster relief rally I've ever seen. This thing has no heart. And now we arrive in September, seasonally a very lackluster month; typically. There's no telling. If we break to a lower low, then I'll be looking for short opportunities. I'll also hold off on any investment purchases.

With the election coming up? Things can get a little interesting in the markets. It always pays to stay alert when elections are in the air.

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

Back in October of 2007, I created sub-accounts from my main brokerages; as a main feature to 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 or her account 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 $47.39. Due to the initial investment, I once termed this the "$500 Challenge". Since we now have much more in these accounts, in these accounts at the end of July, 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 $10.00 to our ING Direct Savings account, $25.00 to the optionsXpress trading account, and $65.00 to our Sharebuilder Investing account.

The main reason we split up the money the way we did? Was to start building up the investing account, for the post-October weakness that the market usually has; so that we can purchase another DRIP / Dividend Purchase in the Challenge Investing Account. We have 7 shares of Bank of America (BAC) in the Investing account already, with the DRIP turned on. In September, we'll receive our dividend payment DRIP'd into more shares. But the key for the investing account? Is to get diversified. Especially as November approaches. We spent about $225 on our Bank of America (BAC) Purchase. So any future purchases? Must be around $225 to correctly size my position.

We had a small loss in the Trading Account; but we were able to keep the loss smaller ($27.50 before comissions), and preserve our account equity from our previous win.

Now we have arrived in a new month; September, 2008. I'm taking the thoughts of Atomichockey and Ran to heart, and going to focus on building up the Investing Account. Therefore, I'm sending the entire $100.00 to the Investing Account this month. This will raise the cash balance in that account to $199.07. It will clear on 9/2/08. We'll need another $35 before we purchase another DRIP / Dividend stock however; we need to correctly position the size of the next stock purchase.

Now, to growth strategy. If you note my project strategy video (located here), for a long time, we were looking to get past the first step in this phase of the project, which was for the trading account to have an equity greater than $900.00. We have a balance of $954.13 at the end of August. So although we had a loss? We have still retained progress, and remain above the first step. There's a danger of drawdown here, and the next step will be to get the trading account balance to $1,100.00. But remember, the goal right now isn't to primarily trade that account. It's to get the account equity balance bumped up.

I want to say that again. The goal right now, isn't to primarily trade that account. It's to get the account equity balance bumped up.

So, with that in mind? The trading account / project is still within it's 'tiny' phase. Too tiny. So I'm going to cool it with the 'one or two trades here and there' for the time being. I'll just let that trading account sit tight for the next month.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. In September? Since we're not contributing whatsoever to the Trading Account? I think I'll cool it with the trading in that account. I honestly want that account at $5,000 before I begin actively, day to day - trading that account.

We'll get there.

(Here's the video recap)

September Balances after Deposit from Rule #2 (before trades)

Investing Account Balance: $417.05 (This will fluctuate with the BAC stock)
Stock / Futures Trading Balance: $954.13
Online Savings Balance: $47.39 (Not counting tonights Interest)

* * *

Current Challenge Project Account Balances and
Money Management Numbers:

Investing Account Balance:
Stock / Futures Trading Balance: $954.13
Online Savings Balance: $47.39

Total Trades: 6
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $56.63
Average Loss: $74.27
Accuracy Rate: 33%
Average Reward: $175.34
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Up + $53.84

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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