The Trials and Tribulations of a Trainee Trader

[SlowlyButSurely]

Hi Richy,

I haven't replied in a while as I was hoping you would get on and do some trading and answer some questions for yourself which you seem to be doing. A lot of what you learn comes from yourself; talking about what you have done, what you could have done better and what went wrong. The answers often become clear once you get things off your chest and can be answered by yourself on reflection.

I will say though, often you need to really struggle and break before you have a moment of clarity. Once this happens you will better understand your mistakes and why risk management is so important if you are to become a successful trader. From there you will be able to continually build on your trading method. Keep at it on the demo and good luck with your learning!

 

[richy96]

Cheers SBS & Mike
Yes you're right I do fing 'getting things of my chest' by rambling on about it using this Forum is a great way to help me figure things out

I also seem to do my best thinking at 4am if I wake up in the night - am I the only one who sometimes wakes up with a sudden moment of revelation in my brain? This morning I was late, it was 7am I did my best thinking before nodding back off for another couple of hours

OK so moving on, I've been tweaking my trading plan in my mind and today I am gonna get it all down on paper (or at least Wordpad LOL)

Basically this decribes:
What I am looking for in shares to trade
What I do when I find a promising candidate
How I set my entry point, my intended profit (probably using Profit Calls now as this seems to work better for me) and my stop loss
How to respond if a trade is going against me but has not reached my stop loss yet

So I actually have a plan. Yippee! It's based on what I was doing last week but with some refinements. Last week went well enough for a first real attempt

I couldn't have written this plan (or any other trading plan) a month ago because I really didn't know what I was doing - at least now I know enough to define what I think I should be doing - so that's progress.

Now then - if this plan works well for the next three or four weeks then I am gonna set it all down here so others can see what I am doing

If it doesn't work well, then I will try to analyze what is wrong and keep my methods to myself for a while (no point shouting about something that does not work eh?)

How will I define success in my own terms?

Well if I can make over £200 per week with a 90% ish success rate on trades, whilst only risking about 2% of my £5000 capital on any one trade and keeping my total exposure to less than 10% of my capital then I would say the plan works. I'm aiming for around £40 profit per trade.

If it does that I will explain how I am doing it.

In the meantime I'll post back if something exciting occurs

Thanks for the advice and encouragement so far

Rich

 

[SlowlyButSurely]

Well if I can make over £200 per week with a 90% ish success rate on trades, whilst only risking about 2% of my £5000 capital on any one trade and keeping my total exposure to less than 10% of my capital then I would say the plan works. I'm aiming for around £40 profit per trade.

Hi Richy, so by risking 2% of £5,000 you will be risking £100 per trade to make a profit of £40 am I correct?

 

[richy96]

Yeah roughly speaking that is correct

But like anything else threre is some variance

When i say 'risking' I mean my opening positions I take are for about £100 of contracts/shares per trade

The actuals risk I take depends when i close it

However my curernt trading plan depends on me allowing some 'waggle room' for trades so despite much advice I have read on here I am actually prepared to take a greater loss on a trade than I am likely to win - the upside being by allowing myself a little space to manouver I am hitting a 90% plus success rate so far

I have kinda this developed further. learning from last weeks experience - but not put into practice so far - with a couple of ideas how to limit those losses further if they occur yet still allow trades to reach thier potential profits

Another week coming up and I am looking forward to it - it should be interesting

 

[SlowlyButSurely]

Richy how you holding up mate? Still got a 90% success rate or have you hit a few bumps in the road?

Have you managed to refine your strategy further?

 

[richy96]

Hi SBS

Yes it's definitely time for an update

I had 90% hit rate last week (30 trades, 27 good ones)

Total Profits £909.70
Total Losses £229.56
Net Profit £680.14

So that's an average profit of £22.67 per trade.
Note my losses on the three bad trades averaged £76.52, average gain per the 27 good trades was £33.69

So as you can see I am making overall profits but I am having to allow quite a wide stop loss (about 2x my average gain) to make the trades work for me. The positions were open for periods as short a 40mins and as long as 6 day but most were open for several hours, up to about 24 hours

This week I had similar results

I placed 27 trades with 92.6% hit rate (25 good ones, 2 bad ones)

Total Profits £719.63
Total Losses £123.32
Net Profit £596.31

So that's an average profit of £22.09 per trade.
My losses on the two bad trades averaged £61.66, average gain per the 25 good trades was £28.79

Time scales for positions was fairly similar too - as little as 20 mins and as long as 8 days - I closed one trade in profit that was carried over from the previous week

So this weeks results are in the same ballpark as last weeks which I guess may suggest that I am placing trades fairly consistently at least.

I'm still not able really to explain the method exactly as I am still working some of it out and need to run it at least another week or two but I feel fairly encouraged so far. I am running against the grain of the advice 'keep your losses small and your profits large' as I found previously I was getting stopped out too much on trades that eventually would have come good, without too much drawdown in the interim period.

I do have a few open positions still running which I imagine will carry over to next week now. I feel quite happy to hold positions over a week or more as long as they don't run too far away from me and the charts suggest the opening price is in a range that those shares often cross.

Rich

 

[SlowlyButSurely]

Hi Richy,

Well I am impressed by your success rate if it is as true as you say. If you can keep it consistent then I suppose allowing losses to run larger than profits 'might' be ok.

Personally this is something I couldn't advise and I have to wonder, how far offside has your largest losing trade ever gone? I know you have lost an average of $72 per losing trade which is more than double your winners, but did it go offside -$150 before retracing a little?

I ask because there may be a day when you hope a trade comes back to a previous level but it just runs away from you blowing out your profits or worse. Do you have safeguards against this?

 

[richy96]

Hi Richy,

Well I am impressed by your success rate if it is as true as you say. If you can keep it consistent then I suppose allowing losses to run larger than profits 'might' be ok.

Personally this is something I couldn't advise and I have to wonder, how far offside has your largest losing trade ever gone? I know you have lost an average of $72 per losing trade which is more than double your winners, but did it go offside -$150 before retracing a little?

I ask because there may be a day when you hope a trade comes back to a previous level but it just runs away from you blowing out your profits or worse. Do you have safeguards against this?

Hi SBS
Yes the result I posted are accurate in any meaningful sense - read on to see what I mean - otherwise there would not be much point to all this

After the first week and that big loss that knocked out a lot of my hard earned profits, i devised a different way of trading.

I've now attached a chart that hopefully explains the method I have been using and answers the question you asked about how far trades go offside

This one is for Nat Gas which i have been trading quite a lot because it tends to oscillate between a fairly readable support and resistance level for a while, then suddenly shift a long way up or down before returning to a steady oscillating pattern again.

On the attached example I had been placing trades between lines A and B on the chart. With a position size of 4500 contracts my initial margin was around £80 and the potential profit was around 4500 x 0.03 = $135 (or £80). However I am generally not that good at getting in and out of positions so I tend to end up with around £50 at best. I generally go long (but not always)

OK so this pattern repeats for a while giving the opportunity for a few trades but eventually the gas price breaks out downwards (against me)

Rather than setting a stop loss I either set an alert for when the price gets around the blue line (C) or I will set an Sell Order depending if I am at my PC or not. Having traded using this method ofr a few weeks I am tending to prefer just setting an order at this price

So what happens is the Sell order does not close my original long position, it opens a second position in the opposite direction to my original one, for the same number of contracts - so if I had a long position running against me I would open a short of the same size.

I believe this is called hedging?

Anyway once this has happened, the price can go pretty much where it likes and I can only lose about £80 (plus the spread on the short position) because my short position makes up the losses on the long one, or vice versa if the trend reverses. From now on for all intents and purposes I consider these two positons as a combined position, and the actual profit or loss as the difference between the two

So in the example chart, at point D (green line) I would have a short position with about $180 profit and the original long position which now has a loss of around $300, but combining the two positions I am still around $120 (£80) down, no matter where the price fluctuates.


What I try to do then is either:

A. Get out 'on the bounce' if it was a very large sudden price drop. I have noticed after this the price tends to climb steadily for a while, so I close the short position as soon as prices start to go up (around line D on my example), and hope to make enough by the time prices finish rising (line E) to cover the £80 loss when my long position dropped from line B to line C plus make some more

B. If it was not such a sudden drop but a steady decline I wait a while until prices fall back into steadily oscillating pattern between suppot and resistance levels again and then try to close the short at the bottom of the range and the long at the top

Sometimes i don't make enough ground to cover that loss incured between lines B and C and that's why I have some losses around £60-£70, or some very small profits.

If things move against me again after closing the short position and before I can close the long one, then I either take the loss or more often I simply open another short a bit further down and wait again until conditions are favourable


In the above example I actually missed the first bounce (between lines D & E) as it happened well into the evening/night

I actually got out of position between line X (closed short) and line Y (closed long) after another very sharp drop - with nearly £60 profit (difference between profit on the short position when closed at line X and loss on the long position when closed at line Y - despite being a very long way away from where i originally opened the long position The trade took around 2 days to complete. Sometimes I find it takes even longer for favourable conditions to re-emerge.

So having explained all that, hopefully with some clarity, is your question of how far positions run against me actually relevant?

I could report a short with a profit of £500 (or £5000) and the corresponding long with a loss of of £460 (or £4960) but for the purpose of my tradesheet I find it far more meaningful to 'combine' these juxtaposed positions of equal size - and report a profit of £40

OK so that is how I am actually trading

Ys I could just close a losing long and open a winning short and make a lot more money, but that would require me knowing which way prices are going to move once they break out of the support/resistance levels I like to trade. This method has given me a very high success rate with steady profits which still considerably exceed my intended profit of £200 a week so that's comfortable enough for me to minimise risks rather than chase big profits

Sometimes of course I don't have to do any of this as the trade actually works for me within the support and resistance levels in the first place, and other times if I am lucky it will break out in my favour.

Any thoughts?

Rich

 

[richy96]

And just when things were going really rather well something went horribly wrong in a totally predictable manner

Well at least predictable if I had understood the expiry dates on commodity CFDs

I had noticed when trading share CFDs it said expiry date: none and on Nat Gas it said expiry date: 25/05/14

But I didn't give it much thought as that date didn't seem to change (like a Nat Gas CFD was valid for 10 days or something) so I kinda thought they just rolled over on that date or something of that ilk

At the same time I was trying out some new variations on the trading plan I described above

I was looking to see if placing rather bigger postions (say 12500 contracts instead of 4500) it would allow me to make more money while trading between fairly clear support/resistance levels - which obviously it would do - without really exposing me to any significant risk as once a position moved against me to a certain degree I would just limit the loss by opening an opposite position of the same size. So I was experimenting to see how this worked out

So I traded a 12500 contract short, and the market moved agaisnt me so at a loss of about £220 I opened a 12500 long to 'box in' the loss at £220 on the first one and wait for some more favourable conditions. The price then went and sat fairly static between my two positions for a while (it sometimes does that)

I had another 'pair' of positions open as well when trading closed on Friday :whistling

Well I wouldn't have worried too much about that as probably on Monday or Tuesday I would find a nice regular support/resistance pattern established for a while, and make some nice profits.

Then I noticed on Saturday evening some of my positions had closed.

That's odd I thought - markets are closed.

But of course the 'should have been obvious' had bit me on the bum! My open positions had expired at 18:00 on 24/05/14. Even the ones I had opened the day before.... and I incurred a £514.01 loss for my lack of understanding, and having larger than usual positions open as an experiment.

Did a bit of reading - could have done it anytime before if i had even bothered to think about it - the CFDs on commodities (on Plus500 at least) are based on Futures and expire once a month. I didn't notice that last month as I was on holiday last week of April and had no open positions, The expiry date is now showing 25th June.

Lesson learnt - understand what the bloody expiry date actually means!! Stupid me



I've also tried a variation on the above outlined trading plan - whereby if a trade moved against me, at a certain loss I would open a larger (say twice as big) position against hte first one. The idea was once I got to the bottom of a large change (if it was a short) then I could close that, and may not have to bounce back much to get an overall profit (or maybe make a larger overall profit)

This seemed a reasonable strategy but quickly became a bit of a mess for me TBH because for example when opening the second position the chart would sometimes reverse pretty much straight away and I would then end up having to open another large position to hedge the second one and eventually end up with positions all over the place!

Fortunately I eventually got out of all this with a set of profits, but I quickly gave up on that idea!

However I have now had another thought about this (it was a 4am one as well - and they are often the best ).

Referring back to the chart on the above post - I am going to test a method of (for example) opening a short at point C to counteract further losses on the original long opened at B which ran against me as previously described above.....

And seeing as I am likely at this point to be on a break out downwards for a while longer, I'm gonna try opening a second short to try and get some additional profits from the run down the slope as well as from my original 'pair'.

I also thought I could open a different size postion for this one (say 4400 instead of 4500) that way if things go wrong and I end up with a few position 'pairs' at least I know at a glance which one belongs to which

I haven't tried this yet though, i'ts something for next week Will it work? Idon't know yet.

Rich

 

[SlowlyButSurely]

Yes a tough lesson learnt. Futures generally expire anywhere from once a month to once per quarter depending on the market so knowing your expiry dates for Nat Gas will be vital. You can get these on the websites from your broker.

I see where you are finding logic in your approach, but if I can be blunt for a moment, it is extremely flawed. I say this for the following reason:

By hedging in your position, you are exposing yourself to a larger loss as you now pay the spread twice. It may not sound like much but it could easily be the difference between being a profitable trader and a unprofitable one! The spread is 0.004, twice paid that is now 0.008. You are looking at a 0.03 profit target meaning your spreads alone is roughly 27% of you profit! Adding this to the fact that your losing trades are larger than your winning trades is a recipe for disaster.

I have seen people try this strategy before and fail over and over. In the long term it is not viable.

Why not try the following, adapting your strategy to play bounces off of support/resistance areas? This way you only enter the trade once and can clearly define your potential profit and potential losses.
Example: Take zones A+B you drew. If you had simply sold when it reached A (with a stop a few ticks above the level) you would have had 3 successful scalps and 1 unsuccessful one where your stop would have been hit. Likewise if you had bought at B you would have had another 3 winners and 2 losers depending on your stop distance.

This is a simplified version of my approach but at least going into a trade you know your stop and can manage your profits from there. Take what you wish from this advice but think about your tactic and whether it will truly work in the long term as is.

 

[richy96]

Y
Why not try the following, adapting your strategy to play bounces off of support/resistance areas? This way you only enter the trade once and can clearly define your potential profit and potential losses.
Example: Take zones A+B you drew. If you had simply sold when it reached A (with a stop a few ticks above the level) you would have had 3 successful scalps and 1 unsuccessful one where your stop would have been hit. Likewise if you had bought at B you would have had another 3 winners and 2 losers depending on your stop distance.

Hi SBS
Thanks for reading my ramblings and replying to them

What I do try to do is trade like you say - between points A and B. If that works for two or three (or more) good trades then yes I totally agree it is a good thing

What I described after that was my current way of dealing with things if positions head towards point C on the chart instead

Rather than taking the loss I 'hedge' the position then wait until things settle down into another regular pattern (like x to Y) then try and get a profit out of that bad trade

So far I have found that better than taking the loss at point C, - invariable I either make a profit, albeit a very small one sometimes, or at the worse a smaller loss than I would have done if I 'stop lossed' at point C

However I appreciate your comments and would be interested to know why in the long run that is not a good strategy, to save the time consuming effort of having to find out myself

As I see it I am trading as you suggest when it works, but I am dealing with the impending (and inevitable sooner or later) stop loss situation differently

Rich

 

[SlowlyButSurely]

Ok,

Let's say you are losing $100. You hedge in the loss and once it 'settles' down you close out the winner and hope the losing position retraces back into your favour. It doesn't though, it goes another $20 against you so now you lock it in again this time $120 offside. It retraces a bit so now what do you do, your hedge is losing $20 and your original loss is back to $100.

Do you take the $20 hit and hope it comes off? What if it goes higher still?
Do you take the $100 loss and hope the market continues on it's path making you profit on your hedge? Are you such a guru that this is no problem for you, it's generally pretty easy to guess the direction?

 

[richy96]

I take your point, I am certainly not a guru and can't predict the way the market is going to move, beyond the likelyhood of it staying between support/resistance levels when such a pattern emerges. Which is why I tend to prefer to trade shares/commodities going 'sideways' because I have a reasonable expectation of what they are going to do.


In the situation you describe in your reply, the answer is I would (and do) take the loss as things are getting messy. It's also part of the reason my average losses (when they happen) tend to be bigger than my average gains

Reason being if I keep trying to get a profit (or smaller loss) and then re-hedge the bad position over again, eventually I end up with two positions too far apart to produce a high likelyhood of a positve outcome.

So it doesn't work everytime but in my admittedly limited experience so far it works more often than it doesn't, even though I may end up with a rather small profit which drags my averages down (which is the other reason my average losses tend to be bigger than my average gains)

What seems to make it work is my 90%ish success rate on trades

You did say previously that a 90%+ success rate was fairly impressive, well it is by using this hedging method on trades that do not initially work out that I am actually acheiving the 90%

The other 10% are the times it does not work for very much the reasons you explain in your reply.

Which is why I don't get a 100% success rate. Now that would be impressive!.... and rather unlikely!!

I will be quite frank with you though, I have not done any objective study on whether I could produce the same sort of profits, or better, by accepting more losing trades (not trying to hedge them) but placing a tighter stop loss positions on them instead.

It should be possible to study this though - I'm thinking maybe place the same trades on my two paper accounts - and use the hedging technique on one and closing bad positions on tighter stop losses with the other.

Having said that I'm not convinced such a study would be totally objective, as in reality I may actually trade differently (taking new positions on breakout trends for example) if I was not trying to hedge trades that had gone wrong

hmmmmm I need to ponder that

Rich

 

[richy96]

OK it's time for my weekly update

This last week started off rather badly as I explained a few posts up, when two Nat Gas positions expired on me which meant I started off with a loss of £514.01 on Saturday

Also I didn't trade on Monday as it was a bank holiday - so this only left me four trading days

However once markets opened I traded very much as have been doing over the last few weeks, sticking to the methods I have been using

I completed 30 trades over the four days, including the two expired positions and had two further bad trades totalling a loss of £137.07 (average loss £68.54) - plus the £501 loss from two expired positions which I consider rather exceptional and a lesson I have well learnt!!

From the 26 good trades I made a total gain of £840.08 (average £32.31)
Total Losses including the expired positions I consider 'exceptional' was £651.08
Net weekly Profit £189

Putting the expired positions to one side, the average losses and profits are very much consistent with the other weeks I have traded, and I believe this shows I am implementing my method, which I described earlier, in a consistent manner.

I trust I can take some comfort from that.

The net result of all this trading was a 86,67% success rate and a net profit at the end of the week of £189.00 which is a touch short of my £200 target but given the disasterous start to the week plus the loss of a trading day on Monday I feel, to be totally honest, quite proud of that result

I have traded one month now on my 'play' account making silly profits, and a further month using paper money but trading within the constraints of a £5000 account which would now stand at an equity of £6582.20 after four weeks of trading. That is around twice my target profit.

OK so looking forwards.... well I am going to try two things

Firstly I have noticed that one of the shares I trade is currently at what looks to be a strong support level - I have watched it bounce of $56 a number of times over the last few days. Looking at the weekly chart (attached) This seems to be pretty much the longer term support level, It did breifly get up to $60 last year between October and November

So on Friday evening I set up a short poition here at $55.50. (Red Line)

I have set a profit call at $47 (Green Line) which you can see has been crossed three times this year and prices were below this for a few weeks at the end of April and start of May

I'm hoping this trade will play out for me over the next few weeks or month. I will do my best not to mess with this position. If it runs against me to over $60 I would lose about £500 so I have a stop loss there but in actuality I would probably close earlier and re-open the short higher up

If it reaches the green line I make around £1500 so a three to one gain/loss over what looks to me to be a 50/50 or better chance of success. I also think there is a good chance of making a healthy profit even if it does not fall all the way down.

So that's a long term trade set up on an instrument i have already traded quite a lot. That is not to say I will not have some short term posistions open as well in hte interim. What's that called = the 'Umbrealla' approach? I read that somewhere

The second thing I want to try - and feel ready too - is a live trading account. So what I am going to do is set up a modest £300 live account.

That is pretty much 'fun money' to me, a weekend away in Blackpool would cost at least that, so it's probably worth it to me for for the entertainment value alone, plus if course the educational value

So feel free to say I am not ready to go live. If I lose it all than hopefully I at least get £300 worth of fun out of it.

So here goes..... account open and ready to trade

Of course I will be back in a week to post on the results

Wish me good luck guys
Rich

 

[SlowlyButSurely]

Good luck Richy, opening a live account with a small amount of capital is a good next step. As long as you can afford to lose this money comfortably and you see it as paying for a valuable lesson then it's a great approach and mindset. Once the money is real the emotional factors increase tenfold.

 

[Forexmospherian]

Good Luck Richy - Stay focused - keep to your rules and don't let the pressure send you off course

Regards

F

 

[richy96]

OK well a week has gone by since I opened my live account

I put £300 in and hey ho off we go

What I did find is from the off I was trading in a different manner to which I have been trading my paper account - in as much as I was setting more rigid stop loss positions.

And to be quite honest the change in the way I have been trading did not do me any favours!

Now I have had a good think about this, it is was not so much for the reason of not losing 'real' money it was more for the reason of only having a small account to trade with, and wanting to protect it. I am thinking probably I was wanting to over-protect it! Is such as thing possible? I don't know but anyway here is what happened

I opened a few positions on the Monday and Tuesday. I have been trading very small positions of just 5 shares, where I would normally trade 80 shares positions on my paper account. This is in line with the paper account being 16-20 times larger than my real one.

I had a bit of an issue with Nat Gas as I could only trade minimum positions of 500 contracts, where by my own calculation I should have been trading 250-300 contract positions

Anyway I had a bit of an up-and-down start to real trading

Roughly speaking on Monday I made about £7
Tuesday I lost it again when I let a position stop out on me.
Wednesday I had a really horrible day, lost £26 on one bad position (stop lossed it) and made only £1 on another one, and hte other two positions I had open were not going in my favour

To be honest Wednesday I was feeling really quite depressed about the whole thing. Not about the money (it's peanuts really) but because I was feeling I really didn't want to do this, or more to the point I was not capable of doing it.


So what did I do? Well I sat down Weds evening and went through my trades - 12 so far including two bad ones. I had a good look at the bad ones and realised i had stopped out at the worse possible point really. I was long on Nat gas (the -£7 one), and short on Wheat (the -£26 one).

Now these should both be good positions.

Reports of higher than normal temperatures for the next few weeks in the USA means lots of folks turning on the Air con, therefore more gas consumptions required to generate electricity. Also the US gas reserves are still unseasonably low after the severe weather in February - and there are some doubts that sufficient reserves will be built up for the winter. So all in all Nat Gas prices should rise

Wheat and grains are in abundant supply due to weather conditions and all news reports say the prices should keep on falliing

So I knew I was in likely good positions and looking at the charts, the markets only ran against me for that one day, before returning in my favour. If I had been a bit more liberal with the stop loss positions, or had a bit more faith in all the news I was reading, I would have made good profits on both later that day, or the next morning.

Another thing I realised is that I was trading 'not to lose' rather than trading to win. In other words I was grabbing at small profits

So with all this in mind, I went back to trading, and went back to the methods i had been using on my paper account - I turned it around and things started working for me

I only made 6 more trades over Thurs/Fri but here are the results for the week.

Bear in mind my target profit off my £300 account is £12 a week.

Total Trades = 20
Success Rate = 90%
Total Profit = £59.41 (average profit = £3.31)
Total Loss £33.26 (average loss = £16.36)
Net Profit for the week = £26.15

So you can see, my average profit was low, but my average from the last six trades once i had settled back to my tried and tested method (or should I say the method that has worked for me) was much better at £6.54

My losses on the two positions were high and this was due to the way I was stopping them out rather than hedging them or holding out a bit because the news reports were favourable to me - which is what I would have done on my paper account.

Despite a few hiccups I still managed a net profit of £26.15 which is more than double my target profit

What can I glean from my first experience with a live account?

Well I obviously went a little astray to start with, but then sat myself down and analysed what I was doing, after which I understood that I had drifted from my trading plan for reasons I could understand (the fear of not being good enough to trade successfully) and then had the willpower (for want of a better word) to put myself back on track and trade the way I had been doing on paper

So that's the first week

I feel confident enough to take on the next week, no idea how it will pan out of course, but I know I will trade from the outset in the way I have been doing before I went live and that should give me a good chance of suceess

I also have something else I want to test to see if it gives realiable profits - it seems too simplistic but only one way to find out I guess.

Rich

 

[toknees]

Enjoyed reading this thread - it is filled with excitement, and a genuine desire to succeed through effort, which IMO is a big reason why most traders fail. They think it'll be easy money, and it's not.

Taking the step to a small amount of real money is the right move. The lessons you will learn will be more painful, but they will be better learnt. It's also important to see how real potential profit affects your trading. It's much easier to ride a paper profit than it is to have cold hard cash staring at you and not pull the plug.

The thing that concerns me most is your risk management, risk/reward and your (possibly over-optimistic) aims.

Well if I can make over £200 per week with a 90% ish success rate on trades, whilst only risking about 2% of my £5000 capital on any one trade and keeping my total exposure to less than 10% of my capital then I would say the plan works. I'm aiming for around £40 profit per trade.

What you're expecting is to make over 100% on your investment in a year, which, although possible, is extremely unlikely. If it were possible with consistency, the world would be a very different place! The danger of such an expectation is that it will lead you to 'try and catch up' when you feel like you're not achieving it; before you know it, you'll be 'tweaking' your risk parameters. Before you know it, you'll be sitting on a loss and hoping it comes back. It's when this sort of thing starts that even the most disciplined traders start to do foolish things to try and get back on track that ultimately lead to huge failure.

The best advice I could give is to focus entirely on the risk. This is difficult, since the entire reason for the endeavour is the reward - the possibility of doing it for real money, real income. Giving yourself a target of a 90% success rate is a strategy that I'm not convinced you can hope to achieve with any level of consistency, and I would urge you to look at ensuring your numbers still bring in a profit with a lower success rate. Also, what is common to your trades that is allowing you to achieve that? Chances are that the underlying instrument has been in a trend of sorts, and that your trades have broadly been along the trend. What if this trend stops? How soon would you know, and how would it affect your trading? If the trend suddenly went into reverse, your 90% hit rate, could suddenly flip to 10%.

I'd say even the best traders will settle on around a 60-70% hit rate, and that's with years of experience.

Look at your risk - a fairly sensible amount per trade considering the available capital, but £100 risk to gain £40? That's not going to cut it unless you can manage that 90% hit rate.

I would look at reducing your hit rate expectations, and focus more on your risk/reward parameters. Personally, I wouldn't entertain the idea of any trade unless the risk/reward was at least 1:1. Most of my trades are entered because I believe they can achieve 3:1. This is important, because it means my hit rate can be as low as 30% and I can still make money. See if you can work out what makes your trades turn from a £40 trade to a £300 trade, and then just go for those ones. Be picky... this will come with time - it's your own money, so why would you risk it on anything other than the best possible setups?

Best of luck - stick it out and keep trying to improve and you'll do well. If you can last a year and be breaking even, you're on to something!

 

[richy96]

Thanks for your insight Toknees

OK this week I didn't do so well - but then also I did

I only completed 18 trades - I have four positions still in place (which I think is about the same as the end of last week) but out of those four, only one is still in place from the week before, the others I carried over from last week, got out with a profit (albeit it rather small) on two of them and gave up with a small loss on another (like about £3). The one a carried forwards again is a short on Ctrip and it currently ownes me £5.37 but shares have been dropping in value over the last couple of days so maybe I will see a profit on that one next week. It's only for 5 shares so it isn't troubling me and I even get a few pence overnight fees payed to me as it is short, it did go astray as much as £10 or so during the week though.

OK so how did my live trading pan out on the second week

Well 18 trades total, three bad ones
Success rate 83.3%
Total loss £22.11, average loss £7.37
Total profit £58.14, average profit £3.88
Net weekly profit = £36.03

So yes I still have average loss a bit over double average profit (a lot better than last week though) but a lower success rate. However that was sufficient to give me three times my target weekly profit which I am very happy with

Regards something I ended my last post with - I wanted to try something new that seemed so obvious it must be too simple to work

I was correct

Basically i had this bright idea of going short on positions for shares a day before the ex dividend day. Oh I made some nice profits, only to be cancelled out when my account was adjusted for the dividend plus a bit! Nice try eh but I guessed it could not be that simple lol. Now I know it isn't.


Regards this point you raise about making 100% on an investment in a year. I figured with a £300 account (which is now over £360) that if I could make £12 a week then in a year I would actually have £900 so that is a 200% return

That does sound difficult yet making £12 a week sounds (and so far appears to be) quite realistically achievable. Well until something comes along and bites me on the bum that is.

So I can't quite rationalise this in my own head:

Why should it be expecting a £600 return on a £300 account in one year be such a difficult/unrealistic achievement yet making £12 a week from a £300 account seems, I won't say 'easy', but it doesn't feel too hard to do even as an enthusiastic beginner.

So this is like a paradox to me as both statements amount to the same thing.

That sounds like a worthwhile discussion if someone would like to comment

Perhaps it's just realistic to get that sort of return for a short while until the unexpected occurs?

I managed more than £12 just on Monday this week, though I didn't do quite so well for the rest of the week. The mid part of the week was ropey and that is when I got some losses. Friday was good though with £23 of profit

I did think on Monday though, I had made more than this weeks target profit already so I was quite picky about what positions I placed - which explains me only placing half as many trades as last week


Rich

 

[toknees]

Why should it be expecting a £600 return on a £300 account in one year be such a difficult achievement yet making £12 a week from a £300 account seems, I won't say 'easy', but it doesn't feel too hard to do even as an enthusiastic beginner. So this is like a paradox to me as both statements amount to the same thing.

Rich

Hi Rich

If you can consistently achieve the sorts of results you are posting, then yes, you could produce the returns you are looking for.

The trouble is, I'm not convinced that you can. These are a few of the things in play in the broader market at the moment.
1) We are in a pretty strong bull market right now, equities are at all time highs and continuing to climb.
2) Volatility is at all time lows.
3) Oil is going up, causing energy stocks to rise.
Now these general market conditions are leading to a market that's fairly stable, and big up/down moves (ie volatility) are subdued.

The issue you're facing is that you currently have no way of determining whether your trading is successful right now because of market conditions, and whether the same process will be successful in different market conditions (particularly if volatility picks up).

The best thing you can do to try and overcome this is some backtesting. Look at some charts from say 2010, 2009 (and if you're ambitious 2008) and apply your trading methodology to see how you would fare. The problem is that you won't be able to apply any fundamental methodology, it'll be purely technical.

The other thing you need to consider is how much are you actually risking? Presumably you are using CFDs or spread betting to gain leverage. Are you paying for guaranteed stops? If so, then you know how much you are risking. If not, then one overnight price move against you (or even a big intraday move) could not only wipe out your account, but also put you into debt. Take this action on Friday for example...



Opentable jumped in price 45% after PriceLine decided it wanted to buy it out. Imagine if you'd been short. What might have been a $100 trade for a few cents up and down move would end up costing thousands. These sorts of things are rare, but they do happen and you need to make sure you won't be wiped out when they come along. Obviously if you're trading account is £300 and you lose £300, no big deal, but what if you lose £1500. Ouch. Now scale it up to a £30000 account that loses £150000. You need to make sure you know what the worst case scenario is. And you definitely need to nail this down before you scale up. There are a thousand tales of woe from spread betters who had been doing ok on trading index futures contracts, but who found themselves on the wrong side of the market when the banks collapsed. Your broker will come after you for the shortfall and you'll be re-mortgaging your knees to cover it!

None of this is meant to dissuade you from your successes, and believe it or not, half of that is for me. I've had 4 weeks of great trading and a gentle reminder that there will likely be 4 weeks straight of **** trading at some point that I'll need to survive is always helpful!!