The Basics of Trading

This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; Originally posted by Helenqu I think Options are way too complicated for a beginner. Not only have you got the ...

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Old Mar 17, 2003, 7:48pm   #181
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Quote:
Originally posted by Helenqu
I think Options are way too complicated for a beginner. Not only have you got the chart stuff but you also have the added time factor and all the silly language that goes with it. KISS.
Have you actually spent any time looking at them?

It is only a suggestion that springs immediately to mind given the time constraints that NI has. The languabe is a lot eaier than some of the flowery 'swing' trading set-ups.

Better to leave no avenue un-explored at this point.
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Old Mar 17, 2003, 7:53pm   #182
 
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Yes I have sat through several very good Options presentations and they drive me potty with the silly language, Greeks and all that stuff. I can see that if you had a large amount of capital and are very risk averse then they would probably suit you. They are also expensive to trade compared to Spreadbetting FTSE100 stocks. Why spend your limited money lining a brokers pocket?

I think this is probably a good discussion to have for lots of peoples benefits. I don't know if Peter G is around to comment?
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Old Mar 17, 2003, 8:07pm   #183
 
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Quote:
Originally posted by TBS

The languabe is a lot eaier than some...
Yep, yor shore right 'bout the languabe, I find current langaube none too eaier

But appreciate the dusicussion (!), let me know when consensus is reached.

And yes, I do hope others are and will take part Helen



P.S. Just noticed I am now a member, elevated from junior. Do I get something for this
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Old Mar 17, 2003, 8:09pm   #184
 
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I'll try and get hold of Peter G for his opinion.
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Old Mar 17, 2003, 8:48pm   #185
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Quote:
Originally posted by Helenqu
Yes I have sat through several very good Options presentations and they drive me potty with the silly language, Greeks and all that stuff. I can see that if you had a large amount of capital and are very risk averse then they would probably suit you. They are also expensive to trade compared to Spreadbetting FTSE100 stocks. Why spend your limited money lining a brokers pocket?

I think this is probably a good discussion to have for lots of peoples benefits. I don't know if Peter G is around to comment?
You don't need to know a thing about the greeks, just the chart direction, the price and the time frame - KISS

You also don't need a huge amount of capital, you certainly don't need to be risk averse and they can be traded as spreadbets.

Whether they are better/worse for NI to trade, given his time and capital constraints and abilities, I don't know - that is for him to find out.

they drive me potty with the silly language

Of course, he may prefer the easier language of swing trading:

Adam & Eve & Adam
Adam & Eve tops
Hell's triangle
The Big W
Bunny Slopes
David & Goliath
Bad Hair Day

to mention but a few........
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Old Mar 17, 2003, 9:16pm   #186
 
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Can I just point out a teeny weeny little thing ?

From my point of view I am still learning, i.e. at the educational stage.

Is this discussion not jumping the gun to the time when I should start live trading? Or am I missing the point here? Should I start trading now, with the little knowledge I have, and learn by bitter experience?

What would I need to learn about the basics of trading?
Surely we should discuss the longer term pros and cons once I have established a strategy that I feel I can trade with. Then we can start talking about time and capital constraints as these are NOT as restrictive as my current circumstances. IMVHO

I appreciate the idea of KISS, bt the ensuing strategy/style etc may not suit me. Better I should know the options and the in's and out's of each option. Then I can choose for myself with your guidance as to how to go about making it a success.
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Old Mar 17, 2003, 9:26pm   #187
 
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Hi NI,

OK if you haven't done already read JJ Murphy - Technical Analysis of the Financial Markets
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Old Mar 17, 2003, 9:54pm   #188
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Hi NI,

Apologies for getting side-tracked

Some more questions before you go any further:

1. The Money - If you are to open an account with £1000. How much of that cash are you prepared to lose per trade?

This will give some pointers as to what kind of trading vehicle you can actually use, both in terms of products traded ( Stocks, Futures, Options etc...) and the method in which they can be traded (Spreadbetting, CFD, geared etc...)

2. The Time - You say an hour per day - is that an hour of trading with 1/2 an hour preparation, or is that the total amount of time in any given day that you are prepared to spend - and is it 1 complete hour, or 15 minutes over 4 hours?

Also, at what time of the day does the hour occur - morning, midday or evening?

This will give some direction as to what set of markets you can trade (UK or US) - which in turn will affect what kind of account you can open.

i.e. there is no point opening a UK Futures account if you can't fund it, the products are too 'rich' for you, the risk is way more than you can stand, and you can't trade it anyway because you don't get anywhere near a screen until 1800 in the evening.

I'm sure you get the drift.
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Old Mar 17, 2003, 11:23pm   #189
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A Soldier’s Strategy

FTSEBeater – thanks for the table on timings. This naturally leads me to ponder how to select stocks that exhibit Postion/Swing rather than EOD characteristics. But this perhaps jumping ahead a stage…

Hullo NastyItch. Excellent post and if I knew how to vote for it then I would !

(and of course anyone else who wishes to join in)

Okay then. (However, in the time it has taken me to write this tonight, TBS has replied but, FWIW, I’m still going to post).

I have also been sorting through the posts on the IPT board (TMF) and would also recommend it. I have read some thought provoking posts on the psychological aspects of trading by, or involving, TBS over on Bullet Points too. What follows is not as knowledgeable as some postings on IPT but hopefully it will help (me) move forward.

1. What do you want to get out of this? - I know you have a target of replacing the day job, but in purely physical terms, how much hard cash do you have to make per year?

- I want to determine if I can ascertain a standard of TA knowledge and psychological well being level to facilitate making a living. As with NI: pre tax £150, after tax £100, a day would be targets.
- A life that I feel I am more in control of. Am tired of being at the whim of others and the daily grind that leaves me exhausted before I step through the front door at night. There must be another way. I have a genuine interest.
- Timing. I had initially thought that I’d see if I had the aptitude for successful trading by 31 Dec 2003 but 2-4 years…is this allowing for a day job too?

Why have I chosen specific markets
Well, at this stage I haven’t. The rudimentary steps I have taken thus far have been EOD paper trades on UK stocks, mainly because of familiarity. I have no strong preference for this, though, and indeed this is part of Trading Stumbling Block #1 – What to trade I realise this is linked to time available and my temperament etc, but until I find out more, I will stick to UK shares.

How much time do you have to spend on this?
First thing in the mornings (get in early before officially start work), lunchtimes and a couple of hours in the evenings (if I have enough energy – three ankle biters to help put to bed first). Currently tying to get into a routine to paper trade ‘what I see’ in the charts i.e. trends, support and resistance. I always think I’ll have a bit of extra time at the weekend but it rarely works out this way unless I’m selfish.

How much money are you prepared to lose learning?
Well, my understanding is that I’ll lose more trades than I’ll win but through FTSE Beater’s lead on risk/reward, I hope to actually make money. Let us say that initially that my losing trades will still wipe out any gains then I’ll concur with NastyItch and say a £1,000. I intend, from my learning thus far, that 20% will be directed towards TBS.

If I have lost this amount of money through dealing at 1p/point (for 8 weeks and then 50-100p/point thereafter) then perhaps this is not for me. Or rather I am not for it.

What is your level of risk tolerance?
I have two answers to this one
(a) High. Initially. Then. Low.

Or, ‘it depends’ on my capital. Which isn’t huge. Whilst I am working at the day job, I am prepared to be a bit more chancy. I envisage locking away ‘section gains’ i.e. make £1,000, pop it away in a ‘pot’ and begin again with original capital; make £1,500, put this away…

(b) isn’t the answer to this ‘Understand money management’ i.e. the general consensus is to bet no more than 1% of your capital. I recently read an article that you needed a capital base of £200,000. Now, I’ve some savings tucked away but …

This large capital base/just risk 1% of capital per trade is my Trading Stumbling Block #2.

Can you monitor prices during the day?
I can check from time to time but have to be careful here. I’d envisage employing stop losses because (a) from all the reading I have done/am doing, this is single most important rule – cut your losses, and (b) takes the emotion out of the trade.

As with NI, I am not sure of a trading style – given time constraints, I guess (from FTSE Beater’s table above) then position or EOD. Would techniques learnt from such trading be applicable to trading for a living strategies? I imagine this will develop as I progress.

Do you want to trade and fit it in round a job?
Ditto NI : Initially yes.
The ultimate aim is to replace the day job. I cringe as I write this, as, Trading Stumbling Block #3 rears its head : “90-95% of traders lose money”. Some days I think, given this statistic, what makes me think I can be in the winning 5-10%..?
Yep, interested to understand how you can have a day AND night job AND begin to learn about trading, NI…

And more to the topic, looks to me like Spreadbetting UK stocks with a D4F account and a swing trading strategy would stand you in good stead. A subscription to Sharescope and later on Pfscan would be all your would need to do a good job, you can monitor prices for free on ADVFN.

How does that sound?


Not sure when to invest in software.

There are several other factors, I guess , which come into play here. Not least of all family pressure for time and reliance on steady income.

This one is Trading Stumbling Block #4 – Can I seriously get myself into a position to support my family ?

What should buy / When should I buy / When should I sell / how can I reduce my risk

Building on this burgeoning interest in TA, which after flirting with FA (see above) somehow ‘feels right’. I am looking at trends and patterns, support and resistance. Buy just above support and sell as approach resistance. On every potential bet, am going through the risk/reward exercise (minimum = 2:1). Always think about what the plan is and then carry it out. Always know where my stop loss is. Always have a target price. Consider moving stop losses if trade goes in my favour. Money management = always ensure that if the stop loss is hit, the money lost will never exceed 1% of the capital account. Although I make never win big, I should always be around to play again. Small, sure and often to be etched into my monitor.

Can I psychologically carry out this strategy?
Not sure. Time will tell once the emotional aspect of trading kicks in.

Once you have come back with those answers then you can start to put together a plan of action which will start to form around these sorts of questions

Well, I believe I’m not an expert in anything in life - more jack of many things and master of none. But I have several characteristics that serve me well in my job and in my life in general – discipline, methodical, refusal to give up, enjoy researching new subjects before acting (this can lead sometimes to paralysis by analysis), self reliant and not afraid to ask (silly) questions for fear making a fool of myself.

Constructive comments welcome.

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Old Mar 17, 2003, 11:30pm   #190
 
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Hi Andrew,

Great post. Just one thing with Fins you do know that you need a minimum bet size of £2 a point to place stops don't you?

With D4F you can place them at £1 a point, I also think that the spreads are better on D4F for UK shares. What were your reasons for choosing Fins?
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