Newbie says Hello

[Tun]

Hi There,

Just thought I'd say hello and thanks. Great site. I just stumbled across it via some completely unrelated google search and have spent hours on here in the past few days reading about TA, it's completely new discovery to me.

Seems like a lot of people have gone out of their way to help others so I just thought I'd show my appreciation. Without this site I might've jumped straight into speculating and got badly stung. I'm not saying that I'm Gordon Gekko after reading a few posts, but I can analogise this site to drawing a map. It doesn't tell you where to go but outlines a number of different routes and directions, telling you "you really don't wanna go down there", "he went that way and we've never seen him since" or "i went that way and quite liked what I saw"

The only drawback I've found is that there are a number of posts where people seem to have axes to grind. I suppose that's one of the features of the internet, people who wouldn't open their mouths in a face to face situation (at least not with as much elan) become belligerent behind the keyboard

From a personal point of view I'd like to outline my plan for the future and invite comments too.

My situation is that. I can spend a number of hours on weeknights looking at stocks (more on weekends). I can't (don't want to) check at work. I can afford to lose £1000.

The upshot being that I plan to short term spreadbet on selected FTSE 100 companies. I'd be prepared leaving my money in for anything from a day to a few weeks. The bet's placed would have a Risk/Reward ratio of 2:1 to 3:1 with a stop placed close by if the stock went the opposite way than I was expecting. I'd push this stop up on a daily basis if the stock was going the way I wanted. I wouldn't be risking any more than 2% of my capital at anytime.

Before I do any of the above I'm going to read Murphy's Technical Analysis book. Practise charting, uploading a few examples to these forums and asking for feedback. Go through archive data and see how my predictions actually play out. Paper trade for a while and see how things go, if they don't go well its back to the classroom/drawing board. Then finally take the plunge.

Sound like a plan ?

Cheers

 

[RAMOUTAR]

Hi Tun,

"Sound like a plan?" NO, but it certainly sounds like the beginning of one. I recommend that before you do "anything" else, get your Personal Trading Plan put together.

Start looking at yourself as a "new business" in search of financing. One of the critical stages in a company's development is forming a business plan that is sensible, and can convince (not sell or BS) a VC's investment. Plans are also vital to well established companies (i.e Microsoft). Bill Gates did not get up every morning and run MSFT by the seat of his pants, he had/has a plan (you know you have an effective business plan when the Federal Trade Commission comes after you ). Important components to remember, when forming your "plan":

- Make it realistic. The objectives should not be ostentatious, but challenging and attainable.
- Scalable and flexible. Trading in the markets is not a rigid profession, and so your plan should not be rigid either. As you evolve and adapt, your plan will require revisions. Your conclusion and execution of the those changes will be easier after you have been seasoned and slightly "cooked" by the market.

Thisis a report that I posted on T2W and Elite. Hope it helps...
Elements For Successful Trading: RAMOUTAR REPORT VOL.3
To reiterate the disclaimer:

The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions.

The RAMOUTAR REPORT, Volume 3.

Elements For Successful Trading:

We as traders put our primary focus on the profit, which is the result we seek. Isn’t that why we’re trading? The $64,000 question is how do we make profits consistently? They say repetition is the mother of success, what many fail to realize, is that it’s also the “mother of failure”. Doing the same thing over and over again, the same exact way will almost always produce the same results. A recipe is a combination of components that when followed, produce a result. We all know that when we change any of the ingredients the result will change. Eight years ago, during my transition from a clueless trader, to a consistently profitable trader, I focused on the ingredients and stopped focusing on the end result. A few years back, I had the rare opportunity to see Phil Mickelson warming up for a charity outing, and the press was there. A reporter asked him, “Phil, if there is one word that you could use to attribute to your success as a golfer, what would it be?” Phil replied, “repetition”. That answer further confirmed for me, what is required for trading success. Let’s take Phil’s answer a few steps further with the recipe approach.

Here’s what I attribute to my trading success:

1)A “realistic” Personal Trading Plan that I know intimately, respect and follow: When I evaluate traders and review their plans, I find that not only are plans unrealistic, but the trader will fail an oral exam of their own plan. You must know your plan inside and out. When someone asks you a question, your answer must be “reflexive”, no umms and uhhs. Ask someone to test you on your plan. If you can’t answer the questions immediately, you are doomed to fail.

2) A Daily Trading Plan, which is hinged upon the Personal Trading Plan: the predeterminations of entry, stop, and target and risk reward are derived from a specific method of scanning. The scans and predeterminations are always done the same way. Repetition! After you have reassessed all other components and still feel you’re missing something, you’re method or interpretation of your method may be faulty. At that point, you need to get the right education.

3)A “Trading Stable”: I know every single stock in my “stable” inside and out. This is the group of stocks I scan. I don’t have an interest in any stock outside of my “stable”.

4)Right before I enter the trade (like the pro-golfer addressing the ball), I repeat my mantra: “ I know the entry, I know the stop, I know the target, I accept the risk, and the risk outweighs the reward by “X”. I have nothing to fear. I will act.”

5)"I have acted", I enter my stop (AN AUTOMATED STOP), “load up” or prepare the target, and manage the trade. I neither have fear nor greed. I know that the stock will either be stopped out, or reach my target. Everything in between is noise.

6)Like a horse with blinders, I ignore everything else that does not fit in points 1 through 5.

What is the pro-golfer thinking when they address the ball with the club? “Wow! I’m being watched by millions of people, so I can’t screw this shot up”, or “I hope I make a great shot.” No, most of them are reevaluating their grip, making sure their foot is properly aligned with the ball, etc, etc. What is the result of their swing? When I enter a trade, I am reviewing everything that has brought me to that point. If you don’t know what your stop, target and risk reward is before you open the position…”you’re finished”. That repetition will continue to take money out of your pocket, and give it to those who have a plan.

Reevaluate your recipe, finalize your recipe, respect and follow your recipe, and repeat it over and over again. If you’re willing to give this a try, it may be tough in the beginning, because you will find yourself in a lot less trades, but I can assure you that you that most of your trades will be higher quality.

 

[RAMOUTAR]

excerpt...I can't (don't want to) check at work.

You're on the right track. Under no circumstances should you put your job in danger, until you get through the initial learning curve in trading.

 

[Tun]

Thanks for that. My thinking is actually closer to steps outlined in the Ramoutar Report than I might've indicated in my first post.

The dialectic style of the piece is a little different to what I'm used to over the pond here in the UK, but I believe the underlying advice to be spot on.

It's got me thinking a lot more about planning and goal setting, not letting emotion take over the trade by hanging on to a bad trade in the hope it might turn. I'll no doubt have another read of that nearer the time to reiterate the points, I don't expect it to be easy to be more machine like and less human, but it's the way to go.

My main objective at this present time isn't a financial one, it's to accumulate knowledge and competency of a market and trading. If this initial stage goes well in the future I'll look to making money and speculating with larger amounts in the future. At the moment I'm not too scalable and flexible, but after this initial foray I'll hopefully have gained some knowledge which will allow me to be in future.

Interesting read.

Cheers

 

[RAMOUTAR]

Thanks for that. My thinking is actually closer to steps outlined in the Ramoutar Report than I might've indicated in my first post.

The dialectic style of the piece is a little different to what I'm used to over the pond here in the UK, but I believe the underlying advice to be spot on.

It's got me thinking a lot more about planning and goal setting, not letting emotion take over the trade by hanging on to a bad trade in the hope it might turn. I'll no doubt have another read of that nearer the time to reiterate the points, I don't expect it to be easy to be more machine like and less human, but it's the way to go.

My main objective at this present time isn't a financial one, it's to accumulate knowledge and competency of a market and trading. If this initial stage goes well in the future I'll look to making money and speculating with larger amounts in the future. At the moment I'm not too scalable and flexible, but after this initial foray I'll hopefully have gained some knowledge which will allow me to be in future.

Interesting read.

Cheers

Humility is the first step to success in anything. Good luck!

 

[adrianallen99]

Welcome to T2W,

Before you start spreadbetting, it would be wise to read various posts on the different spreadbetting firms and the way they work (In the eyes of the traders). Your stops will be very important with spreadbetting, too close and you won't give a good (albeit a little early) call a chance to win.

Also, before you risk your cash, you could try capitalspreads simulator account so you can practice first.

 

[Tun]

<snip> read various posts on the different spreadbetting firms and the way they work (In the eyes of the traders).

Also, before you risk your cash, you could try capitalspreads simulator account so you can practice first.

Yep, I've read a little about Spread Betting firms "running stops" or not activating them at the correct time. It's a definite concern, especially as I won't have the chance to move my stops during the day.

The simulator is interesting, but I've read elsewhere about disrepancies between test systems and live systems. After the live simulator there's a company (finspreads I think) which will allow me to start off with very small stakes for a while. I've not mentioned that I'm only getting a margin account, no credit debit only. Credit in itself is bad enough credit and betting firm plain scares me

It is a minefield. My intention is to find out as much as possible before spending any money. When I have the required evidence I'll make my choice about betting. If I take the plunge and get stung I'm just going to have to live with it. It does appear as if there are numerous ways that the odds are tilted away from the bet placer, but I suppose they have to make their money somehow. At the moment my thinking is that I'm such small fry that it's not worth their while.

 

[chump]

Good morning Tun,
Nice to see someone else in here from the NW.

Most business failures result from
1.Undercapitalisation
2.Incompetence

With the figures you have given you are running the fine line on point 1 and your chances would be improved if you increased this figure before trading. On those SB's using a min £1 a pt you won't be able to trade outside of a 20 point stop unless you zone in on instruments that have little range of movement. So, that typically means intraday and from your post this is exactly what you can't do. Personally I don't think is generally good to trade intrday anyway without prior experience.

Cheers

 

[Trader333]

chump,

Most business failures result from
1.Undercapitalisation
2.Incompetence

I my experience there is a third and it is also of particular relevance to trading and that is "Competitor Activity"

The most successful businesses that I worked for in the past spent a lot of time developing strategies to attack their competitors. The premise being that if they can take out a competitor then it gives them more business and it is very interesting how this is paralleled in trading and how markets are at any given time.

For example: When markets are strongly bullish as they were during the Tech boom and much of the 80s making money was comparatively easy as all you needed to do was have pretty much any trending strategy. This would be akin to a company being in a market where the demand well exceeded supply so that all competitors could do quite nicely because there product capacity was less than they could satisfy.

But when you get a situation where the only way to increase your market share is by taking it off your competitors then the whole dynamic changes. By taking out a competitor you can take their market and their market share comes to you. Those businesses that spent a lot of time on developing strategies for doing this were the ones that were consistently more successful. Many of those that didnt are no longer in business. The analogy in trading could be during market oscillation where the competition for a few points profit is fierce. Those who have prepared better for this and develop strategies to help address it will (in my view) be the long term survivors in trading.

I suppose the point I am making is that it is easy to make money in trending markets but not when they dont. I remember Skim making a good point quite a while ago that was along the lines of as soon as the market has a slight trend a whole load of system sellers suddenly re-appear on the horizon showing backdated profits that would have been made using their trading software or system etc.

As soon as the market stops trending they all go quiet again as their products fail hopelessly to deliver the promised profits of their literature.


Paul

 

[chump]

Paul,
Some good points.Essentially I would catch them under the heading of Incompetence or it's reverse competence.
We are saying the same thing. The more skill, experience you accumulate .The more effort you are willing to make to apply that skill / experience the better you will fare against your competitors.
This could be applied to the examples you gave re strategy and different markets.

Cheers

 

[Tun]

Morning guys,

Nice to wake up to two more very informative replies. Maybe they're not the type of thing that I'd like to read, but that doesn't detract from their validity, in fact I think it probably augments their authenticity.


Chump

I'm going to have to look into the size of my stake some more, hopefully my planned stage of paper trading would have caught the fact that shares that don't move much are going to cause me problems. If I looked at a different market than the FTSE, say the NASDAQ would those shares move more?

I'd be reluctant to up my initial stake, I'm only looking at making money in the long term. Initially money would be a bonus, but increasing understanding of the market is what I'm looking towards. Maybe that understanding will come in the form of a 50% loss which tells me I'm not going to be able to understand it, maybe it'll be a gradual improvement in calling which way a share will go.

Part of the reason I'm looking into this is that a few months ago I put a small amount of money into an "low risk" ISA and that’s down by about 10% already (drop in stockmarket and fees) so I'm looking for alternatives. It's possible I'll end up sticking some in a high interest bank account and spreading the rest around long term (years) share purchases in established firms with good fundamentals (LloydsTSB, Centrica etc). But I'm young, can afford to take risks so I want to investigate all my options, I'm prepared to take a knock or two (I guess anybody can say that before the event though).

Your last point creates a catch-22. You can't trade unless you have experience, and you can't get experience until you trade. I suppose the only way out of it is if you trade (or have traded) in your job. If that what you're saying I can understand that, I have been struggling to distinguish speculating on the stock market and going to the bookies and I never use the bookies

It makes me smile that you should call yourself Chump when you post says exactly the opposite.


Paul

I'm also a sceptical about "Technical Analysis" too, even more so about other systems. I don't intend to buy into any particular system (apart from the book on TA). It may turn out that I Iearn as much as I can at the moment and then apply it when the next trend/boom comes along. It's interesting that system sellers come and go like that, it's only something I'd get too see if I was around for a period of time so it's useful to be told about. Is the view people are coming round to take on TA ? I mean people in general, I guess people in the know have always had that viewpoint.

Lately I've read about risk/reward and money management, it's a formalisation of common sense but it's new to me and is applicable to pretty much wherever I decide to invest in the future. So even though a lot of what I read may be useless, not all of it will be. I'm not a believer in "Stock Market Beating Systems 100% Guaranteed", but I suppose I had hoped to accumulate the experience to shift the odds slightly in my direction.

I've just got to gather as much info as I can. Realise that there are a lot of idiots losing money and try and make sure I'm not one of them I tend to regret the things I don't do more than the things I do.


Thanks again for your input

 

[chump]

Tun,
I posted too quickly earlier and did not make my point clearly hence no surprise you misunderstood me.

If you have a £1000 to trade and you establish 2% per trade to be your rule for entering a trade then what you are saying is I am willing to lose up to £20 on this trade. Now if you take a trade with most SB's they establish a minimum bet size at £1 a point. From this you can see you could only enter a trade if if it allowed you to establish a 20 point initial stop. From this you then have to look for trades that will meet this requirement.
The problem you may have is one of timing. You may have to be very good at pinpointing turning points and or you are going to have to take trades intraday where the range of movement anticipated meets your rule.
This is a bit general,because there's at least one SB I think who can take a bet size at 50p a point which will help you and indeed there may also be UK stocks which may have a range of movement that meets your rule.

Don't equate more capital with more risk in terms of your ability to survive the learning curve.

Cheers

 

[TheBramble]

The most successful businesses that I worked for in the past spent a lot of time developing strategies to attack their competitors. The premise being that if they can take out a competitor then it gives them more business and it is very interesting how this is paralleled in trading and how markets are at any given time.

Paul, how would this analogy relate to our trading endeavours?

Our competition is not really other traders it it? Successful traders need unsuccessful traders in order to maintain their profits. So aren't they are more akin to customers than competitors?

Is it the successful minority of traders that are each other's competitiors?

 

[barjon]

bramble

maybe traders feed off investors rather than other traders?

 

[Trader333]

Tony,

It relates in the way that if you are better than your competitors you will take money where they either lose it or dont make money. I dont see other traders as customers they are my competitors and I have to do something better than they do or I will be funding their accounts and not have them fund mine.

Do you really think that any trader will take the opposite side of my trade if they knew they would lose ? And when markets dont trend becoming good at doing this requires a lot more skill (in my view). It is not exactly the same but the simlarities are there.


Paul

 

[Tun]

Tun,
I posted too quickly earlier and did not make my point clearly hence no surprise you misunderstood me.

The misunderstanding probably comes down to me being new to all this, but cheers for being polite about it

If you have a £1000 to trade and you establish 2% per trade to be your rule for entering a trade then what you are saying is I am willing to lose up to £20 on this trade. Now if you take a trade with most SB's they establish a minimum bet size at £1 a point.

I'm fine with all this

From this you can see you could only enter a trade if if it allowed you to establish a 20 point initial stop. From this you then have to look for trades that will meet this requirement. The problem you may have is one of timing. You may have to be very good at pinpointing turning points and or you are going to have to take trades intraday where the range of movement anticipated meets your rule.
This is a bit general,because there's at least one SB I think who can take a bet size at 50p a point which will help you and indeed there may also be UK stocks which may have a range of movement that meets your rule.

I think I get you, I'll try and use an example to clear it up

Say for example a share is trading at 408.5 so the spreadbetting company offers 406.4/410.4(These figures are approx 0.4% to 0.5% but I've massaged them for the sake of this example). So that means if I think the stock is going to go up and I buy at 410.4 with a stop 20 points below (as of my rules) this puts the stop at 408.4. Then all it takes is a 1 point or 0.1p shift in the wrong direction and I'm out.

However if I picked a share around 103.5 the figures the spreadbet company offer would be 103.0/104.0. If I thought they were going to go up my stop would be at 102. Which gives me a lot more room for things to got the wrong way, even though I'd be taking exactly the same loss.

Is this what you're trying to show me ?

This leaves me with a number of options
- Limit myself to certain shares
- Find a company that offers bets of less than £1 a point
- Start with more capital

If I've got this right it looks like I need to find somewhere that offers bets of less than £1 a point.

Working through those examples (if I have them right) it doesn't look like an attractive proposition at all. I've got a heck of a lot more investigating to do before I get into this, but from the above two examples the odds are horribly stacked. I think it's time for a spreadsheet and a dust off of the old VB skills !

Don't equate more capital with more risk in terms of your ability to survive the learning curve.

I find this even harder to get than the above bit Does it mean, if you start with more money it doesn't necessarily increase the odds of (or the magnitude) of a failure ?

 

[chump]

Tun,
Take this example : you want to buy XYZ stock at quote 10.20 ...your initial stop loss would be 10.00 or closer. However, if that stock has a range of movement of say 0.60 a day then if you are not to get your stop taken out you must be able to do one of two things
1.find the turning point where the range is about to move in your direction with a degree of accuracy inside your stop range
and or
2.chop that range of movement into smaller chunks by monitoring the movement on a shorter time frame inside the day which I understand you cannot do.

With regard to my other comment that you did not understand. Think of it this way. With a £1000 and a 2% rule if you take 4 or 5 hits your ability to trade and maintain that rule becomes increasingly harder conceivably to the point where you won't be able to trade outside of the smallest timeframes.
Consider if that £1000 were £5000 is that the same problem if you take 4 or 5 hits?

I think funding may be one the reasons why day trading seems to be the first port of call for new traders.

Cheers

 

[ithomas21]

Tun,

I originally faced this same dilemma with spread-betting. My system involves risking about 0.5% of my capital per trade and at £1 per point this would mean the stops were too tight for my plan.

As a result, I set up a CFD account. Because you can trade with as little as 1 CFD you can set the size of your position to much smaller values.

Best of luck.

 

[Tun]

Chump.

I'm beginning to see now how my original thoughts for this are way off. I'm going back to the drawing board.

A 20 point stop on a stock that has 60 point daily movement plain won't work. I need to be able to place stops that are only going to be taken if the price makes a definite move in the opposite direction.

Whether I come back and decide to start with £5000 or just use £1000 on a 20pence per point or even £2500 on 50p a point remains to be seen. I don't know anything yet so 20pence per point looks most likely at the moment, then increase the capital if I become more confident.

Yep I can see the difference taking 5 hits on £5000 than £1000, proportionally you've got a lot more play with with £4500 than £900. I'd need to run some examples to make this clearer in my head.

Unless I can monitor the trades during the day I might just have to leave it.

Cheers for taking the time to highlight these things.


ithomas21
Hi,

I've heard of CFD's before but I haven't looked into them much, from what I've read else where they needed more capital to start in than spreadbets,somebody recommended trying spreadbetting before CFD's. After what you've said I'll look into them in more detail.

Thanks

 

[chump]

Tun,
I don't know what your original thoughts were and I am certainly not trying to put you off. I am just drawing your attention to the importance of capital and how it drives so much of what is possible for you.


Cheers and good luck