Your thoughts

[Jim Nasium]

Hi,

Been paper trading a few months, just wanted some feedback on how you think I am doing and if this is a viable strategy.

I have attached a spreadsheet of my trades, I don't know how it will come out as I don't have excel and it's exported from Google docs, it should all be formula driven.

I follow FTSE 100 banking and mining stocks witch are all listed on the UK Tickers tab, everyday I sort them by % gain and go through the graphs on ADVFN using end of day data. The methods I use to choose trades are all taken from FTSE Beater's "Basics of Trading Thread', I don't use indicators.

The part I am not sure would be so accurate in the real world is the entry's and exits. I can't trade during work hours so I would put a market order in the night before to enter a position and exit a position either with a limit order when my target is hit or when my stop loss is hit. I use a 1% stop loss. So I don't know how close to the opening price my market order would be executed or how close to mt stop/limit order I would get when closing the trade, for the purpose of paper trading I assuming it would be spot on, possibly naively so.

I read Trading in The Zone by Mark Douglas, and the most important thing I took away from it was when he said it's a numbers game, basically you are like a card counter who has a slight edge over the house, you know you are going to lose some but in the long run you will have more wins than losses because of your edge which will produce a profit. My edge being technical analysis.

I guess what I am doing here is swing trading. I know it's early days and this is the most basic of strategies, but there are times where I get frustrated, because I ideally I would like to be making 20% per month paper trading (which I am not doing, and I know this is the wrong attitude to have especially so early on) and there are times where opportunities are pretty scarce. I start thinking about jumping on trades that don't really fit my criteria, I start thinking about adding another sector to my UK tickers spreadsheet, maybe energy and insurance, but maybe that would be spreading myself a little thin. I read a post somewhere by TBS saying it's a good idea, and actually Alexander Eldar also said this, to get to know a few stocks really well rather than following a 100.

Also I like following certain sectors because they seems to move together which means you can use a move by the whole sector to confirm your trade.

So there you have it, hope I havn't left anything out. Any thoughts/suggestions/criticisms are very welcome.

Before you start, I realise my paper trade profit bears no reflection on what will happen when I move on to real money.

Edit: http://spreadsheets.google.com/ccc?key=pVwMVMCGuj1xM8YfxlDn7Ow&hl=en_GB Don't know why I didn't think of this in the first pace.

 

[Jim Nasium]

Forgot the most important part.

I am planning to start with £3,000 using IB as a broker, so according to my calculations:

Stamp tax = .5%
Buy = £6
Sell = £6

((12 / 3000)*100) + .5% = 0.9%

So I take off 1% from every trade for charges, i.e. my break even point is 1%.

Sound realistic?

 

[Splitlink]

I am nervous of starters going straight into broker trading. For a few hundred you could start with an SB co. and see how experimental trading goes. With your last sentence you, more or less, agree with me. Why risk 10 quid per point on experimental trading, when you can get it as low as 50p?

I find my SB co very fast on fills but I have found that there is a very strong chance of a reversal in the afternoon which can affect a trade opened in the morning, so you need to have a realistic stop loss on it.

Anyway, good trading

Split

 

[grantx]

Jim,

A number of points if I may.

First, get a copy of Excel. You don’t need the latest – Excel 97 is fine which you could probably pick up for a few quid.

Redesign/simplify your worksheet – it’s difficult to read. For example, you have the “Entry” price but no “Exit” (or closing price column). Presumably, the Last would imply this, ie if target or stop reached this would be reflected in the Last price. But it's simpler to see an Exit (or Close) rather than trying to interpret this (which is also time-consuming).

Import the IB data into Excel and you can analyse it to death.

Your entries and exits seem reasonable – this is a very liquid market so it’s unlikely you’ll see massive spreads.

The charges (commissions) seem OK.

The mining and banking sectors –in the UK (FTSE) and internationally - have been extremely volatile this year. Therefore, returns (profits and losses) may be regarded as exceptional. This volatility is also the opportunity and could continue for another year or two . However, this also implies greater risk.

Risk can be reduced (that’s the theory) by diversifying into other sectors; if your method works for mining and banks, it could work for others.

However, the problem with diversification is that it may force constraints. Indeed, concentrating solely on sectors may not be optimal. Why differentiate on a sector basis (you’re not running a massive fund)? A sector may be under-performing but this doesn’t mean all the constituents will be; some may be strong while others are weak. Try to identify potential candidates on an individual, not a sectoral, basis. This should also address your “scarcity” concerns.

20% a month? If you could do his consistently you’ll be in the top echelon. I think targets represent wishful thinking, regardless of the strength of underlying rationale; you should take what you can. Consider taking profits on parts of your position at 12.5%, 25%, 50% and 75%. This will ensure you will have something if your target is not fully met. This approach does lose out where your target is met but this is apparent only in hindsight. And there will always be opportunities to re-enter.

Similarly, the target may actually undermine potential return – it could go higher. But doesn’t this contradict my view re targets as wishful thinking? No, the point is the market (price) will tell or show you the limit/potential. You don’t (can’t) tell the market.

I would suggest you get hold of a copy of Investments by William F Sharpe. This is about valuation of stocks and (other instruments), portfolio theory, CAPM, etc. Some of the maths may seem difficult but there are enough worked examples which simplify. Excellent book. Go for a cheap, used early edition (I have the fourth). See here (I’d avoid the US sellers):

Amazon.co.uk: Investments - Sharpe: Books


Grant.

 

[Jim Nasium]

I am nervous of starters going straight into broker trading. For a few hundred you could start with an SB co. and see how experimental trading goes. With your last sentence you, more or less, agree with me. Why risk 10 quid per point on experimental trading, when you can get it as low as 50p?

I find my SB co very fast on fills but I have found that there is a very strong chance of a reversal in the afternoon which can affect a trade opened in the morning, so you need to have a realistic stop loss on it.

Anyway, good trading

Split

Thanks for the response. I have thought about spreadbetting, it does seem more suited for beginners such as myself, but decided against it.Probably because I used to work for a spreadbetting firm, I think that put me off, not that I found any of their business practices too immoral, maybe I should reconsider. Thanks again.

 

[Jim Nasium]

Jim,

A number of points if I may.

First, get a copy of Excel. You don’t need the latest – Excel 97 is fine which you could probably pick up for a few quid.

Well, I use a mac, and while, I have the option of buying the mac version which is very expensive or numbers which is the mac spreadsheet package. I find google docs does the job just as well, they even have functions which give you delayed data on stocks, and you can access your spreadsheet from anywhere in the world. I don't see myself using pivot tables or vba for my personal use anytime soon. Although what you said about importing data from IB has got me thinking, but then who know what Google docs will be doing in six months, it's moving pretty fast.

Redesign/simplify your worksheet – it’s difficult to read. For example, you have the “Entry” price but no “Exit” (or closing price column). Presumably, the Last would imply this, ie if target or stop reached this would be reflected in the Last price. But it's simpler to see an Exit (or Close) rather than trying to interpret this (which is also time-consuming).

I thought about this, I thought having exit would just be duplication, the last price is the last price, the last price of that position, but ja, maybe I will change it. Obviously I spend a lot of time looking at this spreadsheet so it doesn't confuse, but I take your comments on board.

Import the IB data into Excel and you can analyse it to death.

Awesome

Your entries and exits seem reasonable – this is a very liquid market so it’s unlikely you’ll see massive spreads.

Great

The charges (commissions) seem OK.

Good

The mining and banking sectors –in the UK (FTSE) and internationally - have been extremely volatile this year. Therefore, returns (profits and losses) may be regarded as exceptional. This volatility is also the opportunity and could continue for another year or two . However, this also implies greater risk.

Yes, I did suspect this, that's why I am asking you guys. I always look back a few years on a chart and think to myself if this was three years ago would this stock be behaving like this, would I bee seeing as many opportunities. It seemed a little easy, again why I am asking you guys. The way I see volatility, again I may be naive, but it can only be good, at any time I only stand to lose (assuming my stop gets executed in a timely manner) 1% + charges, where the upside is anywhere up to the last high where I have set my target.

Risk can be reduced (that’s the theory) by diversifying into other sectors; if your method works for mining and banks, it could work for others.

OK, maybe I will try picking a few from each sector that I like. I did experiment with that for a while, but I just found either easier following one or two sectors, as I said they seem to move together and the same news affects them all, which I thought was an advantage. OK, diversification it is.

However, the problem with diversification is that it may force constraints. Indeed, concentrating solely on sectors may not be optimal. Why differentiate on a sector basis (you’re not running a massive fund)? A sector may be under-performing but this doesn’t mean all the constituents will be; some may be strong while others are weak. Try to identify potential candidates on an individual, not a sectoral, basis. This should also address your “scarcity” concerns.

Got you. I guess maybe reviewing all the constituents of the FSTE 100 on a monthly basis to see who is moving. No I not running a massive fund.

20% a month? If you could do his consistently you’ll be in the top echelon.

Good, I like a challenge ; )

What would you say is realisic? 10%? 5%? 0%?

I think targets represent wishful thinking, regardless of the strength of underlying rationale; you should take what you can. Consider taking profits on parts of your position at 12.5%, 25%, 50% and 75%. This will ensure you will have something if your target is not fully met. This approach does lose out where your target is met but this is apparent only in hindsight. And there will always be opportunities to re-enter.

I see the advantage in doing this, may be tough with my job, I barely get time to eat a sandwhich at my desk let alone follow prices, but I will keep it in mind. Unless of course I am able to adjust my stop after market close, is such a thing possible?

Similarly, the target may actually undermine potential return – it could go higher. But doesn’t this contradict my view re targets as wishful thinking? No, the point is the market (price) will tell or show you the limit/potential. You don’t (can’t) tell the market.

I guess the idea with the targets is again because of work constraints, to have my position automatically closed at the target because I won't be able close my positions manually. It would be great to just follow the price up up and away, but the risk is the price hits my target, reverses and by the time I am any the wiser it's hit my stop. I was thinking about trading US stocks that way I would be home in time (hopefully) to check on any positions before the market close, but they don't seem to behave the same as FTSE stocks.

I would suggest you get hold of a copy of Investments by William F Sharpe. This is about valuation of stocks and (other instruments), portfolio theory, CAPM, etc. Some of the maths may seem difficult but there are enough worked examples which simplify. Excellent book. Go for a cheap, used early edition (I have the fourth). See here (I’d avoid the US sellers):

Amazon.co.uk: Investments - Sharpe: Books

Great, thanks, I will take a look. I really appreciate your input Grant, this has been very helpful for me. And thanks for taking the time to look at my confusing spreadsheet.

 

[Jim Nasium]

http://spreadsheets.google.com/ccc?key=pVwMVMCGuj1xM8YfxlDn7Ow&hl=en_GB

Seriously, Google docs.....it's the way forward.

 

[MrGecko]

Jim,

Grant makes some excellent points. In particular, I concur that you should consider looking at other sectors. By trading stocks in one or two sectors only, you are infact increasing your risk over what could be obtained by looking at other sectors;

Every stock you pick is subject to three types of risk; the market risk as a whole (which there is no getting around), Industry specific risk (which IMO you are heavy), and stock specific risk (again, no getting around). By looking at, say, the 5 biggest stocks in every sector, you diversify away some of the industry specific risk. You can still look at the sector as a whole, to see whether the move in a stock is mirrored over the industry or specific to your stock selection, but you will not be as exposed to sector risk as you are.

For example, if you are holding positions in three banking stocks, you are exposed to the market (inevitable), stock specific risk (e.g. M&A rumors, earning reports etc... every stock has these risks), but you will suffer heavily across all positions if there is a lower than expected mortgage application figure (as an example). Had you held one banking stock, one mining stock, and a defense stock, to a certain extent these risks can be mitigated.

You needn't change the number of stocks you examine (and so get to know them well), but you can reduce the level of Sector risk you are exposed to. To give an example of what could happen, look at the impact the Bear Stearns fiasco had on stocks within the same sector (say Lehman Brothers). What should have been a stock specific risk contained to BSC had devestating effects on LEH - to be overexposed in brokerage stocks on this day would have either made your year or sent you bust. By limiting yourself to positions in one or two sectors only you are currently susceptible to the same scenario. Great if you get it right (or are lucky), but devestating if you are not.

A little more "meat on these bones" can be added if you look at the correlations between a stock, the market, and it's industry (it's a little overboard to look at stock specific correlations at this stage); "Beta" and "Sector Beta" (although not a technical term) are something worth looking into (try yahoo finance?).

For some reason I couldn't open your s'sheet: I do recommend picking up a copy of excel. If your are in the least quantitative, it should pay dividends through the level of analysis you can perform on your stocks and their relationships, if not for intellectual masturbation.

 

[Jim Nasium]

Great, thanks for the response. So to summarise: Putting all your eggs in one basket = bad.

Right now, basing my paper/google docs trading on the amount of real capital I will be willing/able to commit, I doubt I will be holding more than one position at a time at the early stages as this would mean more charges and my 1% break even is killing me as it is. I understand that this approach is also putting all my eggs in one basket but for the moment I don't see this as a problem as I have accepted the 1% + charges risk to very position I take. Make sense? I guess the time factor will come into it, like if you are holding multiple positions and one is a loser you havn't wasted your time when your capital could have been put to good work elsewhere as you have two winning trades as well.

Not to say to say I don't see where you are coming from (and realise you have years of experience on me) and this is something I will bear in mind for when i have enough capital to have multiple positions and am pulling 20% with the rest of the top echolon ; ).

I do think diversification is worth a try, even if I do it just because sectors other than mining and banks might be seeing more action at any point. I think the sticking to two sectors is laziness on my part really.

Ja I am an excel spreadsheet operator by trade, I know what it is capable of, maybe I am being a bit cheap. Google docs is good though.

If you are still interested I posted a link to the spreadsheet above. Thanks again for the reponse I really appreciate it.

 

[MrGecko]

Holding one position at a time isn't necessarily putting all your eggs in one basket; my point was that by making multiple trades in the same sector is a little like making the same trade in bigger size - having three trades, at 1% each in the same sector, is akin to a 2.5% risk on the sector as a whole - rather have three trades at 0.3% risk to prevent yourself from getting hurt.

If your a whizz with excel, then yes you are being tight With an analytical mind, you should somewhat enjoy all the quant and sums!

One last point re: profit targets. Of course it is impossible to say what the liklihood of you making XX% per month is, every trader has a different stategy. I will say, though, that you should remember to factor in how much you will screw it up. Not a personal attack by any means - but of the profits that are attainable (if we all pick the bottom and the tops...), only a small proportion of these will be highlighted by your analysis. And of these few opportunities that present themselves, the monkey on the end of the computer (i.e. us) can only get in the way.

Sounds like you've got your head screwed on, good luck!

 

[fayalac]

The best point you got is your management.
Dont try to be an expert on many stocks, specialize in a few.
I only trade forex, and just one pair, i know there are lots of chances in other pairs, but since i`m not really familiarized with them, i prefer not to risk myself.
To get a 1% daily is good enough, but consider as long as you get familiarized with the stocks you trade, and the system you use, you could improve. In my case since i`ve got deeply familiarized with a single pair in a single market i have improved my profit (2 to 3% daily when the market allows these to be realized), and minimized my risk.
I also do swing trading with wonderfull results.

 

[Jim Nasium]

Holding one position at a time isn't necessarily putting all your eggs in one basket; my point was that by making multiple trades in the same sector is a little like making the same trade in bigger size - having three trades, at 1% each in the same sector, is akin to a 2.5% risk on the sector as a whole - rather have three trades at 0.3% risk to prevent yourself from getting hurt.

OK, I hadn't thought about it like that, I get you.

If your a whizz with excel, then yes you are being tight With an analytical mind, you should somewhat enjoy all the quant and sums!.

I have just been between PC's lately, been using Linux, then Mac OS don't even actually have own computer right now, but when I do I will get Excel. I got used to thinking of myself as a technological nomad.

One last point re: profit targets. Of course it is impossible to say what the liklihood of you making XX% per month is, every trader has a different stategy. I will say, though, that you should remember to factor in how much you will screw it up. Not a personal attack by any means - but of the profits that are attainable (if we all pick the bottom and the tops...), only a small proportion of these will be highlighted by your analysis. And of these few opportunities that present themselves, the monkey on the end of the computer (i.e. us) can only get in the way.

You mean like a risk reward ratio? I had a formula to do that but I didn't like it, now I just do it on a calculator, if that's what you mean.

Sounds like you've got your head screwed on, good luck!

Thanks = )

 

[Jim Nasium]

The best point you got is your management.
Dont try to be an expert on many stocks, specialize in a few.
I only trade forex, and just one pair, i know there are lots of chances in other pairs, but since i`m not really familiarized with them, i prefer not to risk myself.
To get a 1% daily is good enough, but consider as long as you get familiarized with the stocks you trade, and the system you use, you could improve. In my case since i`ve got deeply familiarized with a single pair in a single market i have improved my profit (2 to 3% daily when the market allows these to be realized), and minimized my risk.
I also do swing trading with wonderfull results.

Thanks for the reply, ja I reckon familiarity with a few stocks is the way forward. Maybe the top five from four sectors. Man, I have really become attached some of the guys, they are like best friends, it's going to be hard to say goodbye.

 

[Splitlink]

I know what you mean about selecting one or two stocks---it's far too much work. My problem is which ones to select. I can scan all the index which means that, sometimes, I wonder whether I have the right ones, or not.

The ones with the biggest average daily range are the best, of course, but the lowest margin requirement is a factor, too, because you can trade more for the amount available in the account, so a combination of those two factors are what I am trying to select. The most volatile and expensive ones are the energy stocks and mines, just now. They, normally, require 10% margin on the price. The others are 5%. But the 5% shares can have a good daily range, too, although they are half the price of the most expensive ones which means a much lower margin requirement.

 

[Jim Nasium]

So if you are looking for stocks with biggest daily average range are you day trading?

Do you use trading software to scan?

 

[pseudo straddle]

OPEN OFFICE it's free

but when I do I will get Excel.

If you are tight like me, then OPEN OFFICE for free, might be the way to go!

:cheers:

 

[Jim Nasium]

I used to use it on my Linux box, it's good.

I'm not tight...I just like to travel light = )

 

[Splitlink]

So if you are looking for stocks with biggest daily average range are you day trading?

Do you use trading software to scan?

Not necessarily. Some, I keep for several days but I'll close the same day, occasionally, if there is a good profit that I think is likely to reverse. I'm fairly flexible that way.

I use Sharescope to scan UK stocks. Do not trade foreign ones.