Only if you think they're of any use in the first place.
Hence why most traders/investors lose.
Only if you think they're of any use in the first place.
Hence why most traders/investors lose.
My advice is to fade anyone who spreadbets at £1/2 a point. Although this answer may seem more like an insult to yourself or anyone who spreadbets at that size, the fact remains that 95% if not more on this forum are net losers over a year. My second point is that one often has to do things which are counter intuitive to make money trading, with particular reference to buying on dips and selling on rallies.
gamma
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With a stop loss i would fade 100 traders on here who trade at £1/2 per point, including yourself, and i'd be comfortably ahead.
gamma
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Ok contact me
I am not doing this to show off, I simply get very tired of people coming on here looking down at everyone else.
We all take losses at some point but when people make presumptions about everyone else that is rude and insulting.
Contact me and you can fade all my spreadbet positions.
If you take what i have said as an insult that's your choice, however the more enlightened on here will get what i'm saying.
We agree on this to an extent, however for myself i'd more likely be getting out of positions on extreme sentiment and public euphoria, as opposed to initiating positions as i don't pick tops and bottoms.
gamma
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No offense taken.
I just have a dream that this forum, will one day return to the helpful useful site it once was.
Unfortunately, however well intentioned help and advice is intended on forums, it's often much more harmful than good, as chances are, it's come from someone who isn't long term net profitable.
I have no interest in sugar coating my responses. You've already completely missed what i said in a post prior regarding buying dips and selling rallies, and an alternative.
You got so emotional about me saying i'd fade a hundred £1/2 sb-ers on here and come out ahead(the meaning being take advice on forums at your peril), that you missed my other point.
timsk
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Hi JRP2891 & leonarda,
It strikes me that you both started out by offering what you each believed to be helpful and constructive suggestions to the OP. However, something went awry along the line and we are where we are. I hope you both agree that your difference of opinion regarding each other's views isn't the point of this journal. If so, may I suggest that you each hit the reset button by deleting all off topic posts, starting with post #21 on P3. I will then do likewise and delete this post. This would be a fine gesture from both of you and will help to restore gamma's faith in the site! Now, I wonder which of you will be first?
Tim.
It strikes me that you both started out by offering what you each believed to be helpful and constructive suggestions to the OP. However, something went awry along the line and we are where we are. I hope you both agree that your difference of opinion regarding each other's views isn't the point of this journal. If so, may I suggest that you each hit the reset button by deleting all off topic posts, starting with post #21 on P3. I will then do likewise and delete this post. This would be a fine gesture from both of you and will help to restore gamma's faith in the site! Now, I wonder which of you will be first?
Tim.
Mr. Charts
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Hi JRP2891 & leonarda,
It strikes me that you both started out by offering what you each believed to be helpful and constructive suggestions to the OP. However, something went awry along the line and we are where we are. I hope you both agree that your difference of opinion regarding each other's views isn't the point of this journal. If so, may I suggest that you each hit the reset button by deleting all off topic posts, starting with post #21 on P3. I will then do likewise and delete this post. This would be a fine gesture from both of you and will help to restore gamma's faith in the site! Now, I wonder which of you will be first?
Tim.
Tim,
Please prepare your CV for your next job as Sec Gen of the UN - another thankless task
Best wishes,
Richard
Cable Sal
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Lol, a fight on my thread and I missed it! That's what comes of having a day job.
On the grounds that it's not anybody insulting me, and Tim is stepping in to keep the fighting within some bounds, I actually find it quite instructive. The level of emotion is particularly interesting too.
There's only one thing that anybody has said which I've outright disagreed with, it was the comment from Gamma about the site returning to the useful place that it once was. To a noob like me, it's still a goldmine of information. I've been reading threads and articles going back years, and I've not spotted any change in tone over the time series - I've also noticed a tendency for newbies to love the site and then slowly to get fed up with it. I guess it comes with the territory, you mature your ideas, you start getting fed up when other people can't accept your point of view, especially when you have proof that you are right.
In this game more than one person can be right, as there is more than one answer to any one situation, and more than one path to lead to any one answer. There are only 3 outcomes however: win, lose or breakeven.
At the moment I think I'm a natural TA trader - almost a TA purist. All of my success in the past has come from fundamentals, but the stress and panic has come from the same. I didn't know about TA, so I couldn't use it. I didn't know about following the price action, so I couldn't do it. My luck has been incredible, twice being intimately involved with crashed market sectors. It's no way to make a consistant profit though.
If I do stick with stocks, where I can see fundamentals being of particular use is telling me which of the many 1000s of stocks to price follow. I can't watch them all, but fundamentals could give me a clue which ones might be most profitable to track. I think (at the moment), that once I've picked my stock to watch, I'm pretty much a TA purist from that point on, with price action being my primary methodology. (Hehehe, it almost sounds like I know what I'm talking about.)
My current system of selecting the 10 stocks to follow, which form the control sample in my experiment, will need some improving once I'm ready to move out of that control sample. Here's the criteria I used:
FTSE 250
I've not heard of them
A short name length
As near to the front of the alphabet as possible
Once I get on to paper trading, believe me, the position in the alphabet won't be playing a part in my stock-watch selection. Neither will the name length. Anybody who has ever placed a £10 each way bet on the Grand National and picked a horse with a funny name knows exactly what I went through choosing those stocks!
Anyway, gotta get back to those little grey squares... I'm seeing some interesting patterns in the way the numbers dance, I'll share what I see a bit later if I don't disprove myself in the meantime.
Meanwhile, I'll leave you with this point of view to calmly debate. Are dogs more intelligent than cats? Discuss...
Sal
p.s. I shall PM you in a moment Tim, I much appreciate the offer and shall happily preview your article on CFDs.
Cable Sal
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Okay, yes, I've found something interesting about risk management and spreadbetting.
The mechanics of spreadbetting with a guaranteed stop mean that the lower the share price, the lower your risk.
e.g. for a £5,000 account size: 30p shares carry a minimum risk of 0.4%, £1 shares carry a minimum risk of 0.95%, £3 shares are 2.6%, £4.50 are 3.8%. Going all the way up to £16 shares, (with only a £1 minimum bet), the minimum risk is 13.9%. (Obviously, you could always choose to increase your risk by betting more money or increasing your stop price gap, and you can reduce it by increasing your account size.)
Now, that's a bit counter-intuitive to me, I'm used to low price shares carrying a greater risk. When I buy shares (that makes me an equity trader, right?), I'm investing a lump sum, say £5,000, which can buy me 500 shares at £10 a pop or 50,000 shares at 10p. Without anything remarkable happening to the company or the market, it's a lot easier to lose money (or make it) with the lower price share than the higher price share. A 0.01p move on a £10 share is negligible, but on a 10p share is significant. The larger volatility means that the increased risk is matched by an increase in potential reward, and the higher number of shares purchased amplifies the effect.
It works the opposite way with spreadbetting :!:
There is a minimum bet, which is £s per 0.01p of movement. I'm sure there's variation in the market, I'm just looking at IG Index at the moment, so I'll stick with the example of a minimum £5 bet per 0.01p of movement for lower priced shares.
£5 x the total change in share price = % x profit/loss
There is nothing taking account of the proportion of the original price - a 0.01p change is equally costly or rewarding for a £10 share as for a 10p share. As the £10 share is more likely than the 10p to a price movement of, say 5p, it makes the £10 share behave as though it was the more volatile. Consequently, a high price share which is range bound and just meandering a little along a flat price will have all kinds of spikes in the SB profit / loss. Conversely, the 10p share can be experiencing step changes in price and hardly register.
There's a killer blow in all of this though. A guaranteed stop has to be set at a minimum price gap, lets use the example 7.5%. 7.5% of a high value share is an awful lot more 0.01p point movements than 7.5% of a lower share, and you're losing a fixed £5 per 0.01p fall. In other words, a 7.5% price fall triggering a stop on a high value share will cost significantly more than a 7.5% price fall on a low value share - even though the minimum bet size is the same (within a range).
It all seems a bit bizarre, and maybe I've got something wrong. I've chosen an 11th stock to track, to test out the formulae in my model, it's been trading below the 30p for some time, so it shows up on my model as a tiny risk. I'm curious what'll happen next.
Square-eyed Sal
The mechanics of spreadbetting with a guaranteed stop mean that the lower the share price, the lower your risk.
e.g. for a £5,000 account size: 30p shares carry a minimum risk of 0.4%, £1 shares carry a minimum risk of 0.95%, £3 shares are 2.6%, £4.50 are 3.8%. Going all the way up to £16 shares, (with only a £1 minimum bet), the minimum risk is 13.9%. (Obviously, you could always choose to increase your risk by betting more money or increasing your stop price gap, and you can reduce it by increasing your account size.)
Now, that's a bit counter-intuitive to me, I'm used to low price shares carrying a greater risk. When I buy shares (that makes me an equity trader, right?), I'm investing a lump sum, say £5,000, which can buy me 500 shares at £10 a pop or 50,000 shares at 10p. Without anything remarkable happening to the company or the market, it's a lot easier to lose money (or make it) with the lower price share than the higher price share. A 0.01p move on a £10 share is negligible, but on a 10p share is significant. The larger volatility means that the increased risk is matched by an increase in potential reward, and the higher number of shares purchased amplifies the effect.
It works the opposite way with spreadbetting :!:
There is a minimum bet, which is £s per 0.01p of movement. I'm sure there's variation in the market, I'm just looking at IG Index at the moment, so I'll stick with the example of a minimum £5 bet per 0.01p of movement for lower priced shares.
£5 x the total change in share price = % x profit/loss
There is nothing taking account of the proportion of the original price - a 0.01p change is equally costly or rewarding for a £10 share as for a 10p share. As the £10 share is more likely than the 10p to a price movement of, say 5p, it makes the £10 share behave as though it was the more volatile. Consequently, a high price share which is range bound and just meandering a little along a flat price will have all kinds of spikes in the SB profit / loss. Conversely, the 10p share can be experiencing step changes in price and hardly register.
There's a killer blow in all of this though. A guaranteed stop has to be set at a minimum price gap, lets use the example 7.5%. 7.5% of a high value share is an awful lot more 0.01p point movements than 7.5% of a lower share, and you're losing a fixed £5 per 0.01p fall. In other words, a 7.5% price fall triggering a stop on a high value share will cost significantly more than a 7.5% price fall on a low value share - even though the minimum bet size is the same (within a range).
It all seems a bit bizarre, and maybe I've got something wrong. I've chosen an 11th stock to track, to test out the formulae in my model, it's been trading below the 30p for some time, so it shows up on my model as a tiny risk. I'm curious what'll happen next.
Square-eyed Sal
timsk
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Hi Sal,
You make good points although I didn't understand your opening set of stat's showing the lower the price, the lower the risk! Never mind, you nonetheless highlight a key difference between trading via spread betting as opposed to trading actual shares or CFDs. It's also my understanding that, for the reasons you outline, SB isn't technically a true derivative product - unlike CFD - which is.
The other critical factor when considering penny shares is the spread. A spread of £0.02p on a £1.00 share is 2%, whereas, a spread of £0.02p on a £0.20 share is 10%. Trading penny shares costs a fortune! Unfortunately, the bad news with penny shares doesn't stop there. Suppose you bought 25,000 shares at £0.20p with your £5,000 capital and the price doubles to £0.40p.On paper, you've doubled your money. Yippee! Now try selling your entire holding of 25,000 at £0.40. Likely as not, you'll struggle and become very acquainted with a couple of trading demons: poor fills and slippage. Penny shares are especially prone to this because there's a tendency for them to be very 'illiquid'. In reality, although the shares have a nominal value of £0.40p and you might be able to sell a few hundred or so at that price, there won't be enough buyers willing to pay that much for your entire holding. People willing to buy the sort of quantities that you hold may only be prepared to pay £0.35p, £0.30p or perhaps even less.
A side effect of poor liquidity is that it renders charts and TA pretty much useless because, at the heart of TA, it informs the trader about market sentiment. For that to work well, you need a lot of players and to know that you can buy and sell at the size you want (i.e. number of shares) and at any price you want. This is rarely possible with penny shares. A chart that tells you the price of a stock is £0.40p isn't much use if you can't actually trade at that price. For these reasons, if you're going to trade equities, I would suggest you opt for very liquid instruments - over £1.00 for UK stocks and, say $5.00 for US stocks and pay close attention to the size of the spread at all times. All just my opinion, of course!
Tim.
You make good points although I didn't understand your opening set of stat's showing the lower the price, the lower the risk! Never mind, you nonetheless highlight a key difference between trading via spread betting as opposed to trading actual shares or CFDs. It's also my understanding that, for the reasons you outline, SB isn't technically a true derivative product - unlike CFD - which is.
The other critical factor when considering penny shares is the spread. A spread of £0.02p on a £1.00 share is 2%, whereas, a spread of £0.02p on a £0.20 share is 10%. Trading penny shares costs a fortune! Unfortunately, the bad news with penny shares doesn't stop there. Suppose you bought 25,000 shares at £0.20p with your £5,000 capital and the price doubles to £0.40p.On paper, you've doubled your money. Yippee! Now try selling your entire holding of 25,000 at £0.40. Likely as not, you'll struggle and become very acquainted with a couple of trading demons: poor fills and slippage. Penny shares are especially prone to this because there's a tendency for them to be very 'illiquid'. In reality, although the shares have a nominal value of £0.40p and you might be able to sell a few hundred or so at that price, there won't be enough buyers willing to pay that much for your entire holding. People willing to buy the sort of quantities that you hold may only be prepared to pay £0.35p, £0.30p or perhaps even less.
A side effect of poor liquidity is that it renders charts and TA pretty much useless because, at the heart of TA, it informs the trader about market sentiment. For that to work well, you need a lot of players and to know that you can buy and sell at the size you want (i.e. number of shares) and at any price you want. This is rarely possible with penny shares. A chart that tells you the price of a stock is £0.40p isn't much use if you can't actually trade at that price. For these reasons, if you're going to trade equities, I would suggest you opt for very liquid instruments - over £1.00 for UK stocks and, say $5.00 for US stocks and pay close attention to the size of the spread at all times. All just my opinion, of course!
Tim.
0007
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Sal,
You raise some interesting points in #36 re risk etc. I agree with Timsk on illiquid shares - the finest TA in the world is useless if you can't trade it easily. I consider volatility to be one of my most important parameters. For my style of trading I Iike "3-bears porridge volatility" (not too much, not to little but just right). I use 14 day ATR to quantify this and found that <50 is too small to make my trading worthwhile over a short period of up to 1 week whereas >200 can be a little too much for a man of my gentle disposition!
This effectively cuts out a lot of FTSE stocks where the interminable wait for something to happen doesn't suit me. So I use the Nasdaq which has volatility to suit almost every pocket. However, I did find FTSE lower-volatility useful in the learning phase (which of course I'm still in) where I could take things at a slower pace - after all, you don't start driving on a Ferrari do you?
I agree with you on liquid stocks - that's a given for me, my next filter is volatility and then I start looking for instruments that are about to change trend.
I like your maths-based approach - I go through similar myself - it's helpful in gaining an understanding of what's going on. My only problem with it was that i found for me it can become an end in itself and you get bogged down in interesting stuff at the expense of simplicity. I think the answwer is to do it and attempt to draw some simple but important conclusions in order to fashion one's trading strategy - in fact, just what you appear to be doing.
Looking forward to the next instalment.
You raise some interesting points in #36 re risk etc. I agree with Timsk on illiquid shares - the finest TA in the world is useless if you can't trade it easily. I consider volatility to be one of my most important parameters. For my style of trading I Iike "3-bears porridge volatility" (not too much, not to little but just right). I use 14 day ATR to quantify this and found that <50 is too small to make my trading worthwhile over a short period of up to 1 week whereas >200 can be a little too much for a man of my gentle disposition!
This effectively cuts out a lot of FTSE stocks where the interminable wait for something to happen doesn't suit me. So I use the Nasdaq which has volatility to suit almost every pocket. However, I did find FTSE lower-volatility useful in the learning phase (which of course I'm still in) where I could take things at a slower pace - after all, you don't start driving on a Ferrari do you?
I agree with you on liquid stocks - that's a given for me, my next filter is volatility and then I start looking for instruments that are about to change trend.
I like your maths-based approach - I go through similar myself - it's helpful in gaining an understanding of what's going on. My only problem with it was that i found for me it can become an end in itself and you get bogged down in interesting stuff at the expense of simplicity. I think the answwer is to do it and attempt to draw some simple but important conclusions in order to fashion one's trading strategy - in fact, just what you appear to be doing.
Looking forward to the next instalment.
Cable Sal
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Warning: this post contains language that may be offensive to more delicate readers. Apologies to Tim for the repeat mention of the day job, I only use it for its usefulness in this context.
A very insightful post, thank you very much 0007. I've highlighted two particular points.
1. "3-bears porridge", what a brilliant analogy. I think I can apply that as a policy across much of what I'm aiming to develop, with the occasional appropriate adjustment to the 3-bears chairs (not too big, not too little, just right for me). A big change in my attitude towards trading as a result of reading T2W is to understand that there's a huge range of right responses to any one situation, and my goal is to develop a trading plan that finds answers that are right for me - both profitable and comfortable - 3 bears style.
2. Yes, it's very much true that the maths can become absorbing and distracting, I have exactly the same issues with my day job. I've learned to control it by setting a generous deadline to achieve a basic output, and keeping myself on track to deliver against that. Within that frame, I can delve a little deeper, meander down strange paths, etc, knowing that I can't go too far for too long before I've got to get on with delivering the basic output.
On the topic of maths and modelling, I've not really mentioned much about my methodology. As I'm an engineer by trade, my training in maths has gone quite deep, all aimed at building predictive models of massively complex states. One of my favourite concepts is that of second order partial differentiation. It's a crazy bit of calculus that shouldn't work, but does. If you don't know what that means, don't worry, you don't need to; if you do know what that means the chances are you carry too many pens in your top pocket and your trousers are too short.
Anything that has a second order partial differential in it has lots of moving variables, and the variables are not moving in proportion to each other. To get the answers that you want you hold one variable still while you twiddle with the other, then hold that variable still while you twiddle with the first. So today I'm holding many things still that I could twiddle with while I just concentrate on figuring out a profit-exit formula, once I've done that I'll hold profit-exit still while I twiddle with stop loss formula. After that I think I'll hold both my exit point formulae still while I look at entry points or something.
Eventually I'll have a bland set of formulae that could be easily tweaked to apply to any type of trade, on any platform, with any instrument, just by holding the relevant unaffected variables still and twiddling with the affected ones.
I was asked outside of these forums how can I test the profitability of my exit formulae when I'm entering into trades with a fair degree of randomness. My answer was that this technique is used to design aeroplane wing shapes. If it didn't work, planes couldn't fly, planes do fly, so it does work - and consistently so. It just doesn't make sense until you've twiddled all of the key variables.
Lol, sound the nerd alarm, my inner geek just got out of its cage...
Sal
A very insightful post, thank you very much 0007. I've highlighted two particular points.
1. "3-bears porridge", what a brilliant analogy. I think I can apply that as a policy across much of what I'm aiming to develop, with the occasional appropriate adjustment to the 3-bears chairs (not too big, not too little, just right for me). A big change in my attitude towards trading as a result of reading T2W is to understand that there's a huge range of right responses to any one situation, and my goal is to develop a trading plan that finds answers that are right for me - both profitable and comfortable - 3 bears style.
2. Yes, it's very much true that the maths can become absorbing and distracting, I have exactly the same issues with my day job. I've learned to control it by setting a generous deadline to achieve a basic output, and keeping myself on track to deliver against that. Within that frame, I can delve a little deeper, meander down strange paths, etc, knowing that I can't go too far for too long before I've got to get on with delivering the basic output.
On the topic of maths and modelling, I've not really mentioned much about my methodology. As I'm an engineer by trade, my training in maths has gone quite deep, all aimed at building predictive models of massively complex states. One of my favourite concepts is that of second order partial differentiation. It's a crazy bit of calculus that shouldn't work, but does. If you don't know what that means, don't worry, you don't need to; if you do know what that means the chances are you carry too many pens in your top pocket and your trousers are too short.
Anything that has a second order partial differential in it has lots of moving variables, and the variables are not moving in proportion to each other. To get the answers that you want you hold one variable still while you twiddle with the other, then hold that variable still while you twiddle with the first. So today I'm holding many things still that I could twiddle with while I just concentrate on figuring out a profit-exit formula, once I've done that I'll hold profit-exit still while I twiddle with stop loss formula. After that I think I'll hold both my exit point formulae still while I look at entry points or something.
Eventually I'll have a bland set of formulae that could be easily tweaked to apply to any type of trade, on any platform, with any instrument, just by holding the relevant unaffected variables still and twiddling with the affected ones.
I was asked outside of these forums how can I test the profitability of my exit formulae when I'm entering into trades with a fair degree of randomness. My answer was that this technique is used to design aeroplane wing shapes. If it didn't work, planes couldn't fly, planes do fly, so it does work - and consistently so. It just doesn't make sense until you've twiddled all of the key variables.
Lol, sound the nerd alarm, my inner geek just got out of its cage...
Sal
Does your above modelling and formulae testing etc, assume the markets are rational and efficient?
P.S - Interesting read.
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