Request for advice from someone who has never trader

[elliot.baker.eb]

Request for advice from someone who has never traded

I wanted to post my ideas for my trading plan (which is completely untested) and see what peoples thoughts were about it, if anyone has the time or inclination to respond.

For approximately 10 months now, I have been reading about financial trading. I have read several well-reviewed books, several well rated forum threads on t2w etc. and I look at stock charts everyday now. I understand the concepts of risk/reward, trends, technical analysis, fundamentals, price/volume etc. I understand no trading 'system' can be infallible, or can be expected to produce profitable trades every time. I understand the reaction of a stock's price to the news is fairly unpredictable.

At the moment I am in Australia for 1 year, so I cannot spread bet. I will be returning to the UK in about 6 weeks, at which point I want to open a spread bet account and see if I can make a living from it. I had planned to use IG as they seem to me to offer the best platform, though I am unsure (any comments welcome on this)

I will outline my plan/system for day trading, which is basically plagiarized from Mr. Charts system in his on-going thread:

The plan is to trade american NYSE/NASDAQ stocks, whose market opens around 2.30pm UK time.

- First half of the day, read premarket briefs/news, check twitter accounts of Wall St. news websites etc., basically create a list of every stock that is mentioned.

- Check these stocks for a few parameters, price (not more than around $100+ so a small fluctuation might wipe out my meagre starting funds), yet reasonably volatile (+/- 1-3% over a couple of days) so I have potential to make some trades that actually move over a few hours. This will whittle down the list I make at the beginning of the day.

- When the opening bell sounds, watch all these stocks like a hawk, whilst also (assuming I use IG) running Autochartist, which I hope has facilities which make it able to pick up trends which form within a couple of minutes - less than an hour certainly.

- When several candles have all formed in a 'perfect' step formation, always opening below/above the previous candles close depending on down/up trend, I get in at this point betting down/up, with a stop loss basically as close as I can possibly put it.

- My hope is that the trend continues and I take profit, if the trend turns, even slightly, I exit with a small loss. This will minimize losses.

- I will exit winning trades immediately when the trend turns back, i.e. when the current candle goes within the range of the previous candle.

That is basically the whole plan at the moment, I understand it may need revising/scrapping completely as I begin to trial it. I plan to demo trade for 2 weeks, and believe I may already know if I have no chance whatsoever before the demo trading period is over.

I plan to start at the smallest possible bet/point size, with a fund no larger than 500GBP. I understand that at 1GBP/point I will not have the abillity to reduce the risk of each trade to less than 2% of my total capital, which is what most of the books/forums recommend, but I will be quitting long before I have 100 5% losses in a row.

I do not expect/hope to make 100's each day, to begin with if I can be profitable at all that would be the best news in the world, at that point I will gently ramp up my bet sizes/account size until I am bringing in enough to pay the bills etc.

Any constructive criticism or comments are very welcome!

Thank you for reading.

 

[timsk]

. . . I will be returning to the UK in about 6 weeks, at which point I want to open a spread bet account and see if I can make a living from it. I had planned to use IG as they seem to me to offer the best platform, though I am unsure (any comments welcome on this). . .

Hi Elliot,
Day trading and spread betting tend not to make good bedfellows. Some SB firms don't allow it - so check with IG what their policy is on this before opening an account with them. Day trading U.S. stocks is likely to be especially hard because, for the most part, the spreads will be prohibitively wide. As for making a living from it with a starting balance of £500 - I'm afraid an expression involving snowballs and hell springs to mind!

If you've read Mr. Charts' thread all the way through, you'll know that he selects stocks with tight spreads. Occasionally, he may take a trade with a high priced stock with a relatively wide spread, but I suspect you'll find these are momentum plays where he's as confident as he can be that he'll get to break even or better very swiftly and the increased risk is matched by the promise of an increased reward. Spread betting is unlikely to offer the same opportunities I'm afraid.

I suggest you open a demo account and you'll soon discover everything I'm saying for yourself. Unless you're a man of independent means, I also recommend that you get a 'regular' job and try your hand at trading in your spare time. You can trade the last 2 hours of the U.S. session between 7.00 - 9.00pm. I'm not saying that day trading U.S. equities via a spread betting account isn't doable - but it will be extremely tricky and, certainly, there's no way you can make a liveable wage from a starting balance of £500. If you're really good, and I mean really good, you might make some decent beer money from a £5k account. However, if you can fund an account with this much, you'll be better off trading CFDs than spread betting, as the prices quoted should mirror those of the underlying instrument. In theory, you'll have to pay Capital Gains tax, but only on profits above £11k. So, tax isn't going to be an issue for a long time to come!

Lastly, here are a few FAQs that might be of interest if you've not seen them already:
Realistically, How much Money can I Expect to Make?
How Long Does it Take to Make a Stable Income from Trading?
How Much Money Does a Trader Need To Start Trading?
What are the Pros and Cons of Spread Betting Vs CFDs?
Apologies if my comments don't fulfil your request for constructive criticism but, they are meant well, and if they cause you to re-think your plan (which you need to do, IMO), then they will have served their purpose.
Tim.

 

[elliot.baker.eb]

Hi Timsk

Thank you for spending the time to reply to me, I really appreciate the advice. Up until now everything has been in my head/from books so it has been hard for me to gauge the likelihood of my plan working. I see where you are coming from and have just looked on IG and seen the spreads of a few US stocks are as much as 30points, I was under the impression it was more like 5-8 points. I can see how large spreads like that would foil my plan.

Would it be more sensible for me to attempt to trade over longer periods of time then do you think? Get a day job, make a bet or two a week, maybe with guaranteed stops, expecting each bet to last on the order of several days? Many stocks move 100's of points over a week so I feel this would make it easier to make a profit with the wide spreads that I just mentioned.

When you say

"Day trading U.S. stocks is likely to be especially hard because, for the most part, the spreads will be prohibitively wide."

Do you mean the spread on U.S. stocks (especially) is prohibitively wide

or

Do you mean the spread on all stocks (i.e., UK, US, rest of world...) is too wide to day trade via spread betting?

Thank you again. I am already in the process of completely re-assessing my plan, aka I'm going to look for a day job!

 

[timsk]

Hi Elliot,

Thank you for spending the time to reply to me, I really appreciate the advice. Up until now everything has been in my head/from books so it has been hard for me to gauge the likelihood of my plan working. I see where you are coming from and have just looked on IG and seen the spreads of a few US stocks are as much as 30points, I was under the impression it was more like 5-8 points. I can see how large spreads like that would foil my plan.

Regarding the likelihood of your plan working, you have to test it to find out. This needs to be done on a large enough sample to be statistically significant. Putting a number on that is tricky and you'll get different answers from everyone you ask. For day trading purposes, I'd recommend well in excess of 200 trades.

Would it be more sensible for me to attempt to trade over longer periods of time then do you think? Get a day job, make a bet or two a week, maybe with guaranteed stops, expecting each bet to last on the order of several days? Many stocks move 100's of points over a week so I feel this would make it easier to make a profit with the wide spreads that I just mentioned.

Without knowing your circumstances, it would be inappropriate for me to give definitive answers about what you should or shouldn't do. That said, the consensus view of experienced traders would be to focus on regular, stable employment first, and trading second. Going from a standing start to making money consistently from trading is likely to take a very long time. Be prepared to think in terms of many years rather than months. Naturally, some people hit the ground running and do well from the get go, but they are few and far between and, usually, they have some relevant experience of some sort which gives them a head start.

As for swing trading over longer periods, this may be a better option for you - especially if you're spread betting. Your issue will be your account size. By their very nature, swing traders tend to have wider stops and bigger profit targets (than day traders). On a small account, wider stops become an issue because it may make it difficult to keep your losses at or below 2% - which is the benchmark recommended by most traders. I may be wrong, but I suspect the minimum bet size with IG is £1.00 per point? On a £500 account, you're stop will be 10 points away from your entry. If the spread is 5 points, that's a massive 50% of your stop allowance swallowed up the instant you enter the trade. Basically, you'll get stopped out more often than not. If I'm right about IG, in your shoes, I think I'd look for a broker that allows much smaller bet sizes (i.e. £0.10p per point) which will give you a lot more room for manoeuvre.

When you say

"Day trading U.S. stocks is likely to be especially hard because, for the most part, the spreads will be prohibitively wide."

Do you mean the spread on U.S. stocks (especially) is prohibitively wide

or

Do you mean the spread on all stocks (i.e., UK, US, rest of world...) is too wide to day trade via spread betting?

Ha, good question! The answer is primarily the first one - but many members will tell you the second one also applies. Because spread betting companies make most of their money from the spread, this is normally wider than it is on the underlying instrument. Most firms offer pretty tight spreads on very popular markets and instruments and, as a rule of thumb, day traders who use spread betting companies are likely to stick to those markets / instruments. (E.g. the main equity indices, some major currency pairings and a handful of U.K. equities and, possibly, one or two U.S. equities.)
Tim.

 

[elliot.baker.eb]

Thanks again, I'm glad for the advice you have given me.

I feel somewhat relieved, because for months I have been worrying whether or not I could 'make it' as a day trader spread betting.

I would rather go home with the knowledge I should get a job and have trading as a bonus/hobby than go home expecting never to have to enter an office again!

I will peruse the spread betting firms to find one which offers 10p/point and start slowly in my spare time.

If you are ever in need of an apprentice, let me know!

Hopefully we will talk again.

Thank you.

 

[jotekfinance]

Good luck to you... let us know how it goes!

 

[MrBrilliant]

My hope is that the trend continues and I take profit, if the trend turns, even slightly, I exit with a small loss. This will minimize losses.

- I will exit winning trades immediately when the trend turns back, i.e. when the current candle goes within the range of the previous candle.

The flaw I see in this plan is that the vast majority of trades you monitor in this way will be closed to "a small loss"; so many that the small losses will add up to more than your profits. But don't take my word for it, you have to try these things yourself.

I was in your shoes about a year ago, and I don't think you can just start trading and making money. I lost thousands before I found something that worked for me. What I did was I got a boring job, and I read news and kept stock charts running on a spare monitor all day. Eventually I learned how to make a bit of profit.

Now my trading winnings are paying for my master's degree

Be aware that due to the negative atmosphere generally found on the internet, most people on this or any other forum will tell you that you will fail. Don't let that upset you.

 

[Solas0077]

Backtest before you trade.

 

[Stargunner]

I started with a £500 with IG after my 'intial drawdown'. I made money trading FTSE350 stocks based upon Alexander Elder's approach to trading trends. I held positions for about 1-5 days. I had tight stops that didn't risk more than £10, and didn't take a trade where my price target was less than £20 profit. It worked, I was fine with £1 per point. Now I'm a better trader, I obviously trade bigger, but £500 is a fine place to start with liquid stocks that are split appropriately (i.e. not silly US stocks like Google or Berkshire Hathaway).

 

[elliot.baker.eb]

Hi Stargunner

Thanks for responding to my posts.

When you refer to liquid stocks, do you mean the benefit is that their price moves in small increments, so I can watch a trend steadily go 'my way', and even with tight stops be less likely to get stopped out? What other attributes do FTSE350 stocks have that make them good for this kind of entry-level system?

And when you say silly US stocks, do you mean that those particular stocks prices are so high that at £1/point any stop loss I could 'afford' would be far to close to the current price considering the actual value of the price fluctuations, in 'points'?

One of my current ideas that I am hoping to be able to make some spread bets on is that I really believe GoPro (NASDAQ:GPRO) is going to drop in price massively over the next few months, or when the next recession comes. As with my S&P500 post, I'd hope to get in on a trend lasting from weeks - months with that, although the price drop may be quite violent. We will see.

 

[Solas0077]

I started with a £500 with IG after my 'intial drawdown'. I made money trading FTSE350 stocks based upon Alexander Elder's approach to trading trends. I held positions for about 1-5 days. I had tight stops that didn't risk more than £10, and didn't take a trade where my price target was less than £20 profit. It worked, I was fine with £1 per point. Now I'm a better trader, I obviously trade bigger, but £500 is a fine place to start with liquid stocks that are split appropriately (i.e. not silly US stocks like Google or Berkshire Hathaway).

Google is the king of stocks. I wonder why you call it silly.

 

[gerryg]

Big circumspect plan, diverse features, great sources to pull out fundamental news. The only thing what rises most interest: do you really think that can adhere to every point described? Do your systemacy and orderliness will "cover" all these aspects?