Spreadbetting the FTSE100 - Made Simple (Not Mentally)

[vchohan]

Hi Guys,

After 2 and a half years of trading here and there and going through about 3 - 5 strategies, from swing to spreadbetting to the minute chart, blown 3 or 4 small accounts of about £100 - £200 each, I have come to a stage where I feel I have come up with a strategy that suits me as a person. The strategy is a simple MA Crossover strategy that I call SIQO by vchohan. SIQO = Slow In, Quick Out.

I have come up with a risk management that risks 0.5% of a capital on every trade and I only have one trade on at any time on the FTSE100. I'm hoping to return 10% in a month and if anything, more if I can! I have no more than 7 trades in a day sometimes I have no trades in a day.

I've been also trying to manage my psychology - 3 full losses = check to see if all trades were valid, is so continue, if not, I stop and evaluate my self and my trades and why they were not valid trades. If I have 3 wins in a row above 15points I stop trading for the day. If I win 40points in one trade with no losses in the day I stop trading for the day. If for the day I have made 50points or more I stop trading for the day.

Capital = £5000
Risk = 0.5% at any one time
Stop Loss = 5points
Total Risk = £25 at any one time
I play £5 per point

I use only a 5min chart of the FTSE100

I've taken a two week holiday from work starting today to see if I can do well at this. I'm hoping for a 5% return in the next two weeks if anything.

I'm also keeping a diary of my thoughts. I tested my strategy over the last 2 - 3 months and it shows good return paper trading. Did a test on a random two weeks in May 2010 which showed good return.

The test now is to see if I can really do it! Here goes nothing!

Vikash

 

[vchohan]

Just made my first trade of the day and it was a losing trade of 5points.

How am I feeling? Well I feel I've taken a lose it's a natural part of trading and it's not something to worry about as if its a part of my inability to trade. Trading is a Game of Probabilities. With my strategy the probabilities are in my favor. It's the first trade of many in the next two weeks. Today may even be a loss day or even tomorrow too but with the probabilities in my favor, over time I will become consistently profitable.

 

[brettus]

Goodluck. Your stops seem pretty close considering you have to pay spread too. Spread makes a bigger difference on trades with small stops and limits as opposed to running it further, but stick to your strategy. To lose £25 of £5000 capital is no big loss, just dont look straight away to make it back, wait for your strategy to tell you. Tell yourself if you're down to £4900 by the end of the day and you have stuck to strategy, its no big loss, because that one trade will make it back and more.

 

[shadowninja]

Good luck but why waste £5/pt testing?? Waste 10p/pt or demo trade. I suppose it's good fun, eh?

 

[vchohan]

Thanks for the replies and advice. Brettus the spread is 1point so I don't really see it being too much of a problem however if by the end of the week I can find reasonable cause that I hadn't taken the spread into consideration of my strategy I will increase my stop loss to 6points. My strategy is to keep a tight 5point trailing stop loss to the 0.1point so I'm looking to lock in profits asap and exit strategy is to get stopped out.

shadowninja I want to get a real feel of the effects of trading on my mindset that's why I've gone with £5 per point it's small in term of risk on capital and with my strategy would take me 66.6 working days to lose it all or 200 wrong trades in a row. I don't think 10p per point would give great effects on my psychology and it's the level I want to train my psychology at. I considered £10 per point up until two weeks ago where I realized I'm still a rookie and need to reduce my risk.

My strategy now, if successful after two weeks is to remain at 0.5% risk of capital at any one time all the time whether I have £5000 or £50000. I'm still being patient, trying to forget the loss as it was a valid trade according to my strategy and waiting for the next trade to come to me.

I keep on telling myself, trading is a game of probabilities.

 

[vchohan]

My strategy also consists of the part of the day where I pretty much stay out of the market and that's the lunch hours roughly around 11.00, 11.30 - 12.30, 13.00. FTSE100 usually goes into a channel with not much volatility or movements. With an MA crossover strategy I think it's important to stay out a these times otherwise I'd get stopped out a lot and also signals poor execution.

 

[vchohan]

So I made my second trade which was a loss of 0.5points. Small loss to take but now I have to try and be patient and try not to doubt myself that I can't do this because I know I can. I managed the trade well and entered the trade according to my strategy and was followed excellently. Now I just have to wait for the next trade if there is one today. I don't think I could've managed that trade any better or executed better. "Trading is a Game of Probabilities" it will take time but "I will become consistently profitable overtime".

EDIT: I just have to wait for the small wins and with my risk management small losses will occur on the way and as I don't restrict taking in the profits when they run the big win will come once in a while.

 

[leonarda]

So I made my second trade which was a loss of 0.5points. Small loss to take but now I have to try and be patient and try not to doubt myself that I can't do this because I know I can. I managed the trade well and entered the trade according to my strategy and was followed excellently. Now I just have to wait for the next trade if there is one today. I don't think I could've managed that trade any better or executed better. "Trading is a Game of Probabilities" it will take time but "I will become consistently profitable overtime".

EDIT: I just have to wait for the small wins and with my risk management small losses will occur on the way and as I don't restrict taking in the profits when they run the big win will come once in a while.

Good luck with this. I think index day trading is very hard. Here's my slightly weird way of looking at it:
- A single Stock's price movement intraday can be fairly random.
- An Index that consists of a total summation of 100 Stocks movement is going to be even more random!!!

I think with your very tight stop you could be looking at a fairly high loss rate, so make sure you run those winners....

Good luck!

 

[shadowninja]

Well, if you're convinced your system is profitable on live trades then all you do really have to work on is your psychology...

 

[vchohan]

Thanks for the luck leonarda. I understand your point of view but I see it in the view that there is not enough movement in single stocks for me to make the points nor does the single stocks suit well enough to my strategy. Plus I would have to find a method to decide which stocks I would use. I just find that the FTSE100 is more liquid so when looking in terms of the spreadbetting firms they have no problem filling my trades (so I think).

I let my winners run as long as they run trailing with a tight 5point stop loss. If I've entered the market and I'm 20points in then I've covered 3 full losses or many small losses. I think the key with my strategy is execution. I just need to keep my psychology in check and learn to trade with no emotions. My strategy already has eliminated most of them (or some of them rather) I need to focus on execution.

I think I'm on the right track but two weeks will only tell.

 

[vchohan]

Well, if you're convinced your system is profitable on live trades then all you do really have to work on is your psychology...

Shadowninja, how long have you been trading and how are you doing with the psychology side of things? Have you improved a lot over time?

 

[shadowninja]

Daytrading for maybe 3 years now? I forget. Psychology isn't a problem. It's been about 2 years since I let the devil take me... I just recognise my emotions and take a more relaxed attitude to it. I know what I'm looking for in the market and unless I see it, I don't trade.

 

[vchohan]

Just took on another trade which took another loss of 5 points. Just checked it over and entry was correct and followed my strategy. Just got to try and move on and wait for the next trade. Let's hope it's a profitable one!

Just looked if it were the stop loss that's tight for this particular trade but it's not the strategy just a loss that is the natural part of trading. The stop loss saved me losing another 5 - 7 points resulting in a 10 - 12point loss.

 

[vchohan]

Daytrading for maybe 3 years now? I forget. Psychology isn't a problem. It's been about 2 years since I let the devil take me... I just recognise my emotions and take a more relaxed attitude to it. I know what I'm looking for in the market and unless I see it, I don't trade.

What market do you day trade? Do you spread bet it?

I also know what I'm looking for in the market most of the time. The obvious ones cry out to me to be taken some losses and some wins but sometimes I can't see it so clearly but am training my eye to distinguish between an instant answer to either take the trade or not and done move on.

 

[bevok]

Hi

Best of luck with your testing. As shadowninja said you'll get benefit from learning to stick to a strategy consistently, and TBH learning that is much harder than finding a profitable strategy.

What kind of backtesting have you done on this strategy? What was your %winners, average profit (after spread) and expectancy? Don't want to skew your thoughts really but commonly a profit target approach works better on these short timeframes. Also try making both your target and stop market adaptive in some way. The volatility changes significantly in most markets and you need to take that into account.

I must admit a 5 point stop seems tiny, 20% of it is the spread and a countermove of that size would be run of the mill.

 

[shadowninja]

What market do you day trade? Do you spread bet it?

I also know what I'm looking for in the market most of the time. The obvious ones cry out to me to be taken some losses and some wins but sometimes I can't see it so clearly but am training my eye to distinguish between an instant answer to either take the trade or not and done move on.

Mainly EURUSD and AUDUSD but sometimes Gold.

I think experience will help you to recognise the decent trades and those which are marginal but in the end, you need to take the trade with no attachment to the outcome. If you've tested your system, then overall, it should come good.

My only "warning" is that 200 trades may not be enough to fine-tune your system so that not only are you taking more winning trades but your account is growing. It is possible to have lots of winners but a shrinking account as is it possible to have a lot of profit in pips but a shrinking account in monetary value.

 

[tomorton]

vchohan - A 5 point trade by SB or any other means (even spread-free) is effectively a trade on noise - normal volatility in the quiet period of a quiet day would make success with such a parameter random.

 

[vchohan]

Well I've been testing it since the 25.03.10. First month showed a 27.86% Return on capital, Second month showed 63.18% Return on capital. This was based on a 1% Risk of capital. My aim is to try and produce 5% return in two weeks based on a 0.5% Risk of capital. I don't know my percentage winners, I haven't calculated this. I will quickly calculate it based on the two week practice test I did for two weeks in May 2010. Okay so based on the two week test I did the return was 14.58% based on 0.5% risk with 16 Win trades and 10 Losing trades. The losing trades are not full 5point losses they can be anything down to losing 0.3points.

 

[bevok]

Based on .5% risk those returns are fantastic. Hope it holds up in forward 'testing' (well with real money, application!)

 

[vchohan]

Testing this strategy with the 5point trailing stop has shown me that it does work which has led me to believe in it. I think the only way I will believe that a 5point stop loss is too tight is probably by having many losing trades of which the trade goes in the opposite direction by say 10points. (10points being a ball park figure).

I guess only time will tell right?