My son Stephen Jr is writing in Main Street beats Wall Street as a contributing writer. His section is in the top menu bar called “Options 101.” In “Options 101” he writes under the name The Grasshopper and he addresses grasshopper issues. Here’s his latest article.
Ive had several people that I know start to show interest in the stock market. Most of my friends know that I like to keep busy, so a common question that I am asked is, “So, what are you up to now?” or “Doing anything on the side?” Whether it was cutting hair, bartending, making T-shirts, real estate, looking for a bar or even buying a pizzeria, the wheels were always turning. I’ve always said that I’d rather have my hands full than empty. But when I tell people that I am now trading stock options, that answer is usually met with derision, as if I said I was training to be an astronaut. Just recently, someone asked me what I was up to now. I told him, once again, trading. He replied with disbelief, “You’re still doin’ that?”
What I wanted to answer was, ‘Yes, I’m still doin’ that. I will always be doin’ that. Every day of every week for the rest of my life, I’ll be doing that.’ But instead, I just said, “Yep”.
Don’t let people make you question yourself. Some friends you talk to about football, some you talk to about politics, some you talk to about scotch and some you talk to about the market.
Sometimes you have to get over many hurdles just to get to the starting line. Like I said earlier, the first step is making the decision that you want to start down this road…after that, is commitment.
So, I hope you’ve been studying since my last post. We left off with the importance of paper trading and understanding all sections of Mainstbeatswallst, especially Educational. I actually didn’t post in a while, hoping readers would have used this time to learn. Two friends of mine want to start trading and I gave them the same advice a few weeks ago…read the website, study and open a paper trading account. One of them just told me he’s been buying options, losing a few hundred here and there and the other one said he bought two stocks on a “tip”, which are both down. The old idiom comes to mind, that you can lead a horse to water…
First, I can see how buying options is enticing; you’re buying the option to buy a stock at a fraction of the cost of the actual stock. If it goes your way, great. If it doesn’t, o well, I only spent a few hundred on premium. But in the long run, buying options can cost you a lot of money. This strategy is for experienced traders who feel very strongly that a stock is going up. Usually option buyers are in the position for a while; buying weekly options has a very low success rate. Second, buying a stock on a “tip” is a bad idea. Yes, it can pay off and I understand the excitement of possibly making money with no effort. But I get much more excited with the idea of educating myself to the point of making confident decisions and generating consistent income.
Whether you buy books and courses on trading or lose money making amateur trades, you will pay for your education. Bill Gates was right when he said success is a lousy teacher. So if you are compelled to jump into trading, please learn from your mistakes. But it would behoove you to take it slow, keep studying and paper trade in the beginning.
Here are some of the books I recommend to read:
THE CANDLESTICK COURSE, by Steve Nison. Learning candlestick charts and patterns is the meat and potatoes of trading. You must know how to read the open, close, high and low of a stock by looking at a candlestick. This book will introduce you to technical analysis, trend lines, support and resistance – all very important concepts.
GETTING STARTED IN OPTIONS Illustrated Edition, by Michael C. Scott. I skimmed through this book at the Barnes and Noble in Union Square (an excellent book store, if you’re in the area). There are a lot of illustrations and the author does a good job explaining how to start trading options.
The 22 RULES of investing, by Jon ‘DRJ’ & Pete Najarian. This book is more advanced but found it helpful at the intermediate level. They really break down the concept of options and introduce spreads.
As you’re studying, follow the Coach’s trades and try to fully comprehend each one. If you are currently paper trading, try making similar trades with 100 shares when he is trading 1000. But understand that his risk tolerance is much higher than the beginner’s.
Steve Jr
The Grasshopper