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Friday, October 31, 2008

The Low Funded Challenge Account Project: November 2008

Todays Challenge Account Balances:

Investing Account Balance: $354.17 (RBB Dividend Payment will be added)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63 (Interest Payment added)

The original video explanation of the Challenge Project is to be found here.

A video summary of my decisions for this month 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, and in November of 2007, I began the Challenge Project. 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. 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. 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.

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 $52.63. Due to the initial investment, I once termed this the "$500 Challenge". Since we now have much more in these accounts than $500 at the end of September, I will term this the "Low-Funded Challenge Project" instead of the "$500 Challenge". At times I will refer to them simply as the "Challenge Project" accounts.

I also had three rules for the "Challenge Project" 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 November.

Rules for the Challenge Account:

1) The initial investment is $500.00, to be split amongst the accounts. After creating the accounts in October of 2007, we had our initial deposited transferred in November 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 the entire $100 to the Sharebuilder Investing account.

The main reason we deposited the money in that manner? Was to start building up the investing accounts available cash to take advantage of the post-October weakness that the market usually has; so that we could purchase another DRIP / Dividend stock in the Challenge Investing Account. We have already purchased 7 shares of Bank of America (BAC) in the Investing account already, with the DRIP turned on. We spent about $225 on our Bank of America (BAC) Purchase. Since the DRIP was on, we have received a dividend that accumulated 0.1303 more shares in September. This gives us a total of 7.1303 BAC shares. We then purchased 4 shares of Coca-Cola (KO), and we spent about $223 on that purchase; again, with the DRIP turned on. The remainder in this account is cash. So any future purchases? Must be around $229 to correctly size my position.

For the present time, due to market conditions? I am not investing, nor am I trading at the moment. I will need a few factors come to pass before I begin investing or trading again. I'll discuss those factors tomorrow. That works out well. Why?

Well, look again to the growth strategy we've had all along. 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. Thus, we were looking for the trading account to have an equity greater than $900.00. We've accomplished this, as we now have a balance of $964.62 at the end of October. The next goal is to get the account past $1,100.00. But what have I said all along?

That the goal right is not to actively 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 this works out well.

We have arrived in a new month; November, 2008. I had a lot of decisions to make. The market conditions that are ongoing are unlike anything most traders or investors alive have ever encountered.

For November, 2008, I decided to send $40.00 to the ING Account, $60.00 to the Investment Account, and nothing to the Trading Account.

3) I'll be using regular investment and trade vehicles. Bonds. Stocks. ETF's. Futures Options. I want to wait and bump up the equity, so I probably (probably) will not trade anything in the Challenge Trading account in November. There isn't enough to purchase another stock in the Investing account for November. So it's going to be a 'quiet' month.

We'll get there.

(Here's the video recap. If you're seeing this from Email subscription? Click on the Title Link in the Email to View the Video ...)

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

Investing Account Balance: $420.00 (This will fluctuate with the BAC and KO stock)
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $92.63 (Not counting today's Interest Deposit)

* * *

Current Challenge Project Account Balances and
Money Management Numbers:

Investing Account Balance: $354.17
Stock / Futures Trading Balance: $964.62
Online Savings Balance: $52.63

Total Trades: 7
Largest Inter-trade Drawdown: $86.51
Consecutive Losing Trades (Drawdown): 2
Average Drawdown: $55.18
Average Loss: $74.27
Accuracy Rate: 28.57%
Average Reward: $175.34
Risk : Reward Ratio: 1 : 2.1
Trading Money Gain / (Loss): Up + $7.33

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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