Starting Out

[DaveGos]

As a very new member and an absolute novice at trading I would welcome any comments or advise about how I intend to trade.

To start with I'm going to swing trade UK Banking shares, for no other reason than I work in this sector and with it's susceptibility to the up's and downs of the economy there should be some volatility in the share price. Later when I've had time to better learn the trade I will look at other markets and instruments.

I have written a business plan which includes:

OBJECTIVES - A net return on my capital ( £30,000 ) of 7% a month, all of this to be used to build capital. Fortunately, I work from home and am able to trade while my salary pays for my living expenses.

Entry Strategy - Daily calculating Support and Resistance levels dealing only when there is at least a 2.5% spread between the two. That way if only half the potential rise is realised I will still obtain an 0.6% return on capital after costs and stamp duty. Buying on the first pullback once support is breached.

I can see that this will restrict the number of trading opportunities, particularly if support isn't reached, any suggestions?

Loss Strategy - Stop Loss set at 1% below purchase price plus spread, immediately. I may miss some profits because of short term dips, but this is a business and losses and controlling them are at least as important as profits. If price moves up then move the stop with them, lagging 1% until 1% past break-even and 2% thereafter.

Exit Strategy - Sell at first dip past resistance.

I have traded this for the last 5 weeks and have consistently achieved 55% loss or break-even 45% profit, returning a net profit of £500 a week. The profits could have been substantially higher, but then again so could the losses.
My main problem is that the system seems to simple and that there are downsides and pitfalls that I can't see.

David

 

[Skimbleshanks]

Hi DaveGos, and welcome to T2W.

When you say you have traded this for the last 5 weeks, do you mean you have paper traded it, or traded it for real?

If you have only paper traded it, then I know that the biggest downside and pitfall when you actually trade will be emotion. It's very easy to sit and watch a paper trade go against you through a pullback, but totally different when you see your hard-earned pounds and pennies slipping away.

However, if you've traded this for real, then you know all about emotion!

 

[sidinuk]

Sounds like a reasonable strategy to me, don't worry if it sounds too simple. The best business plans are always the simplest, not only in trading but in any business.

I assume that when you say swing trade you intend to hold on to your trades for a few days or even weeks until your targets/stops are met. You mention stamp duty and commission which suggests you are actually going to buy the shares. In my opinion this strategy is ideal for spreadbetting with someone like Deal4Free, who's spreads on shares are similar to the market price.

The benefits of spreadbetting for you would be i) no stamp duty, ii) no commission (although the slightly higher spread may offset this), iii) Trading on margin could turn your £30k into effectively £300k and your £500 p/w profit into £5000 p/w! and iv) No Capital Gains Tax on your winnings.

 

[DaveGos]

They were actual trades, the emotion was tough on the losses, especially when the price then rises into profit. But I figure somewhere down the line if I don't have a strict loss policy I will lose big time. As for instruments like spread betting that may be something for the future but for now I'm sticking to the old walk before you can run routine.