Basics of Trading: Part 1

We've just published a new T2W article called "Basics of Trading: Part 1" by Mark Williams.

Quick Summary: Long-standing member and site moderator Mark Williams (FTSE Beater) runs through the the main areas you will need to master to succeed at trading.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.

I've read this thread numerous times, and it's great to have the basic principles distilled into a succinct article like this which reminds us of the ground rules when we haven't got time to re-read the in-depth text books. It really helps you to see the wood through the trees. I'm looking forward to parts 2 and 3.

Thanks Mark, this is extremely helpful.

Legalbeagle

Hi LegalBeagle

Thank you for your kind comments. They are much appreciated

FtSE Beater , as always great stuff for newbies.

All good stuff.
There is a fundamental question for the newbie which doesn't seem to feature in articles like this - what is the minimum amount of capital one needs to actually get into trading effectively? Once an allowance is made for trading costs (say £10 buying plus 2.5% stamp duty and then £10 selling) and you take account of the spread so you sell for less than you paid, you have to get over 5% growth just to stand still. If you then place your stops to limit your risk to 1% of capital and want to spread your capital over 3 stocks you are not going to be able to start with less than £10k. Or am I reading it wrongly?
Perhaps some well informed person could draw up a chart that explains this?

Hi Ale

I understand what you are asking, and I think the answer is to spreadbet. Your talking about trading and holding the actual shares, which could easily drain 5% of your account before you have even started. If you are trading UK stocks (the top 100 anyway) via spreadbetting, the only thing you will pay for is the spread which is a much more efficient way of getting into the market.

I hope this helps, but please feel free to ask me to explain it more clearly.

Hi FTSE Beater.
Being new to this game I'm still trying to understand the differences in trading modes. Is the article more relevant to spreadbetting? Can you recommend a good article/book etc for the uninitiated.
Is there an answer to my basic question ie what would be the minimum capital to start trading stocks effectively using the 'rules' of the article?

Hi Ale

Being a newbie too and i think in the same boat i'll give you my views thus far! (and prob be a complete t...)

I've been dealing with ig index who from what i can gather have the biggest spreads for eg i think about 10 to 13 pts on their indices so if you've got a small pot eg a £1 point its not worth thinking about. If your doing end of day as well like me and thinking of holding a postition for a few days then theres the added cost. Not much good again if your on a small pot. Don't know what the spreads are for uk stocks but then again theres not much volatility.(am i rite ftse?)
Then theres the stop limit thats hit on a daily bases. (back testing results!)
Summary- So far i think my formula is 2 years expierience x £5000 plus funds.

Millsy