The Basics of Trading
This is a discussion on The Basics of Trading within the First Steps forums, part of the Reception category; I get the idea.... The values quoted were purely for example... I just took the first round numbers that popped ...
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|Mar 20, 2007, 8:43pm||#489|
Joined Feb 2007
I get the idea.... The values quoted were purely for example... I just took the first round numbers that popped into my mind to make the question a little easier to understand... Obviously I would utilise money management before attempting any trade....
Can I just describe how I would use money management when I start trading to ensure I haven't missed anything out... please correct (if required/as usual)...
If using money management correctly, I will ensure that my maximum potential loss for any trade will never be above 1% of my total trading capital...
So let's say that C is your trading capital....
Then 1% of C is C*0.01.... let's call this R (= C*0.01)
Now if we include the broker fee's for the trade... let's call this fee F... I believe we need 2 of these as we have to pay costs to enter and exit the trade...
So the equation so far is for the amount of capital we can actually use for the bet and is equal to
R - 2F....
So, let me get this right, the amount of money you have available to bet per point will depend on where you put your stop loss.... i.e. if the current buy value is B, and I place my stop loss at value S.. then the amount of money available to bet per point is (R-2F) / (B-S)...
Is that correct??
So what are the average fee's the setting up a trade nowadays (I presume that different brokerages have different costs) also is my stop loss guaranteed i.e how accurate is it??
I read somewhere that you have to allow yourself a slippage value in your stop loss... what does this mean?
Can I just say once again... thanks for everybodies help... and I'm sorry if I have kind of turned this thread into a "Frinos does trading" thread :-)... I hope other people are benefiting from this thread as much as me... and I hope I am asking the right sort of questions for this thread...
TBS, you mentioned that you did futures rather than spread betting.... Is it possible if you could write a couple lines just so I can get an idea of how futures are traded compared to spread betting...
Do you use £s/point in futures?
Also I read somewhere that they are called "Futures" if they are traded through exchanges but they are also called "Forwards" if traded through a dealer/broker... Is that right?
|Mar 21, 2007, 5:05am||#490|
Joined Jan 2007
Dos and Donts
OK OK OK.. enough... MAN.. too many issues.. not enough grounding from some people.. heres my contribution from experiences on the basics.. Im really sorry if its too long but ive been told it contains a lot of timesavers for those very green to trading:
From my experience Spreadbetting is a mugs game for those looking to trade rapidly or even intraday.. just dont do it. The only way you should consider spreadbetting firms is for swing trading or holding positions for say three days to 2 or 4 weeks looking for gains over that time frame. Anything shorter than that and you will experience the skulduggary of these who will do things like stop you out of a trade, deny access to the platform/trade, distract you or provide meaningless or ridiculous graphs that may mislead the novice. First thing you must know is that many markets offered by these companies are FAKE!! ie they are weighted to improve volatility and to entice your trade.. so you end up loosing.. This is the same with nearly ALL CFDs.. these are repackaged deals that are offered completely independently and are simply a contract between YOU and the Broker who has simply decided to make a market for you. This means your CFD position is not traceable or of any value to anyone else not even another broker offering CFDs be warned!! thats why the Fake markets offered by spreadbetting form and the CFDs never ever seem to tally properly with the REAL values of the market...BECAUSE THEY ARE MANIPULATING THEM!!!!!!!!! TO SKANK YOU OF YOUR MONEY!!!!! CFDs can be good though if you use DMA (Direct Market Access CFDs.. its mainly a platform thing where you get actual market quotes but usually the firm will take its cut based on a % of the total trade.... never do CFDs without using DMA..insist on DMA!!)
If you start winning a lot and regularly expect to be denied access intermittently or at market opening. Avoid fancy products like Binary bets, these are one arm bandits in disguise, unless you are 1. very knowledgeable on the fundamentals for the outlook you you are positive will happen AND 2. Disciplined to leave those flashing lights alone.
If your serious about trading open one of the following accounts and forget the rest
Interactive Brokers many markets low commission and low spreads no fake markets
Etrade US account... good for general trading esp swing trading.. not so good for intra day
tHINK OR SWIM: THE WORLDS GREATEST OPTION PLATFORM IN MY OPINION
Optionsexpress excellent for WEB options trading
Schwab excellent for help and advice but youll pay for it. online general broker
Tradestation; The rolls Royce of platforms.. ultra low commissions for futures options and stocks (with a fully automated platform base and charts that are tick charts not just basic 1 min charts)
Saxo bank: Only ask for thier DMA version not the general platform otherwise fees are too high use them for Forex, CFD trading (which works out cheaper in margin terms but very similar to Futures trading in a very general sort of way..) But be careful here, like many other brokers they make markets in CFDs meaning if you want to trade indexes as I do, their market prices can be different from the underlying.. ay you say? this means for example opening breakout profiles on some indexes are not made available to you to enjoy.... but of course that cannot be the case ( I think ) when you are dealing with a DMA CFD platform... Ill update this shortly... NB ASWX (australia) will soon add Exchange traded CFDS!!!!!! that will hopefully mean no skulduggary by brokers masking this market opening profits from us.. ( f'=0ing B*574rds)
Spreadbetting: dont touch it with a barge poll unless you have less than a £1K to invest
Subscription services to follow others trades: dont be fooled... if they can do it.. so can you dont follow anyone.. trade yourself.
Other great tools: Worden charts.. subscribe to Gold service for end of day charting of US stocks and indecies. This is the best charting tool around if you want to trade stocks US in a traditional way, e.g. swing/momentum trading style holding positions for say 3 days to a month or two. This tool is a real must. Also if you need wide range of Realtime charting you can subscribe to platinum service. Remember with this style of trading you can can then also get into Options trading as well, as some of the best option strategies involve the holding of stock. For an overview of option strategies go to optionsexpress.com and checkout the world class section of option strategies for FREE ! If you need any other charting realtime tools for accurate tick by tick data that so many firms annoyingly for me do not easily provide perhaps try Proquote or e-signal products. but really you wont need them unless you are full time trading.. or trading intra-day (which by the way isnt necessarily more profitable than holding longer positions so dont be fooled).
The best places to go to learn how to trade are the free places!! e.g. www.CBOE.com etc etc ie always go to the website of the EXCHANGE for everything you need about understanding an instrument before and during trading.
Apart from just perhaps one or two other non mentioned companies like Mann financial and GNI this really covers it all. Others are morte obscure or simply glorified rubbish.. for example: CMC markets.. ohh Please.. the platform for CFDs I demoed was being at kindergarten and really bad graphing tool reminding me of some of the worst spread(your wallet you gullable fools)betting companies. IGMarkets; good market coverage but the DMA platform did not work properly for me and I was disappointed to see in their IGMARKETS platform (the pro) was still offering Binary bets.. (cmon guys grow up).
WARNING: when you start trading I guarantee you you will lose and lose and lose again. Be prepared to lose 3/6 months worth of trades before you begin to realize a. you dont need to trade everything. b. your personality really matters. c. anyone asking for money outside of a platform or direct access should be viewed in the same way you perceive snake oil salesman and some second hand car dealers. Realise that you must learn from every loss and re-live what you could have done differently. d. You will learn that you must have a strategy that defines when you will place a trade and when you will exit and how much you will always risk on trades (that figure will not change very much at all regardless of the instrument you trade because it is set according to your initial size of your account..
Courses: I really can recommend only two courses for those interested 1. Anthony Robbins Wealth Mastery will enlighten you and it cuts through the crap of trading with people like AJ Monte (pit trader from Trading Places & huge contributor to Etrades help pages!!!) making appearances and teacvhing about stock and Options trading safely . A real must for those looking to overhaul thier lives financially and set trading in its proper context by sorting the rest of your financial life out first over 4 days costs around £1200 and worth every single penny..(expect to meet loads of people, dance on chairs root out your financial habits that dont serve you, make more money, engage in true learning games, and be prepared to be shocked by the quality of the whole experience and be moved to tears from the extra special speakers and participants forget the rest because the adage.. those that cant teach" becomes very apt with them all and thier boring courses. Next is an add on to this course where advanced Option strategies are taught for a huge price tag in Davos or Marbella for those who need to know the REAL deal behind options trading.
Hints for options trading: dO NOT START TRADING OPTIONS UNTILL YOU HAVE A FEW MONTHS LIVE STOCK TRADING UNDER YOUR BELT AND YOU HAVE READ AND READ UP ON ALL STRATEGIES AND THIER RESPECTIVE FOLLOW UP ACTION..ASSUMING THIS IS THE CASE READ ON Its really simple, an Option is like a Pizza coupon ..thats it!! either the coupon will allow you to buy pizza or you can make the coupon and sell it ( but if you sell it of course you must have the pizza (the stock) readily availble in case the coupon buyer decides to use it..SIMPLE ISNT IT?? Remember go to optionsexpress and learn for free all you need to know.....thier are many MANY strategies but you will need to focus primarily on perhaps 2 or 4 at most... you dont need to do more than that to be successful, some institutions stick to just two strategies one of which is the safer but excellent WRITING COVERED CALLS strategy ie selling/going short against a stock (or a LEAP in place of the stock which is always required in case the option you sell (WRITE) is excersized against you. Dont worry you will learn this in one or two days.
hmm.... why you say?... because most options expire worthless!!!!!!!!!!! thats why!!!!!! and if you write an option you immediately receive a premium into your account someone will pay you for untill ithe option you created expires!!!!!!!! Also, kNOW THAT YOU CAN USE A leap OPTION TO ALSO ACT LIKE STOCK!! and save you the money involved in buying expensive stock.!!!!! LEARN ABOUT ROLLING UP AND ROLLING DOWN AND THE CONCEPT OF STRANGLES AND STRADDLES.. and calendar spreads . All these do is allow you to profit from various scenarios whilst making sure you losses are limited, otherwise you could BUY coupons without protection and believe me that is so very risky because option prices fall like stones. If you buy a CALL or PUT option alone dont hold for more than 3 days!!! and watch like a hawk. simple.!! REMEMBER YOU ONLY NEED ONE OR TWO STRATEGIES THAT YOU WILL PLAY OVER AND OVER AND OVER AND IF YOU START WITH £2000 AND MAKE JUST 15-20% ON YOUR MONEY PER MONTH AND COMPOUND THIS YOU COULD MAKE A MILLION IN 5YEARS. SO DONT BELIEVE THOSE PEOPLE WHO CLAIM TO DO MORE..THOSE ARE THE PEOPLE WHO WILL WIPE THEIR ACCOUNTS CLEAN as if just opened..
Magazines: Traders magazine & commodities & stocks ( I think) magazine are musts.. forget the rest for now.
Lastly.. some of this you will know but you wont internalise it until you actually make losses, then the impact will hit home.. no amount of paper trading will necessarily help you. because you have to feel the loss and that will force you to learn.. I'm still yet to make consistent monthly profits. You will know when it gets better because you will approach trading in a zen like state of mind where you wont celebrate wins or losses so much.. but when you observe your trading results out of trading hours you will feel pride that your begging to master the markets.... if your trading brings about heart thumping in your chest you havnt got your money management right and although thrilling in the short term you will eventually wipe your account, dont even think about being clever enough to avoid this one.. this one will clean you out baby... CLEAN!!!
Please read again and dont be sucked in by the thousands of idiots who believe they can help you for a small monthly fee..DO IT YOURSELF my friend..After the Anthony Robbins course I learned that the even the brokers at these firms did not know as much as us. Your skill level is all about your perception because whatever you are told thier is no holy grail only thousands of different ways to eek out profits over time...
So the musts are as follows:
You must know in advance your chosen strategy, ie exactly what signal or combinations of EXACT signals will cause you to enter a trade, or exit a trade, otherwise you dont have a strategy, you have a financial-blow out plan and I give you 3 weeks till it blows...
You must work out how much to risk on a trade (I say maximum 5-10% of all your money on any single trade.. including margin.. even many think thats too high and use the 1% rule. This area is called money management. Bad money management, e.g. trying to double up the stake on the next trade to win your losses back is often called gambling. Gambling will wipe your account clean in minutes why.. because your being too emotional, l trust me.. . dont trade think.. the market will always be there tomorrow and next week .. no rush.
To begin with Learn about Bollinger, Stochastic and MACD indicators first... these indicators (and there are many more) form the apparatus upon which you base your strategies for entry and exit, however in most cases you don't need more than three..simplicity is the key.
Dont think you need to trade everything in site, get to know a market like a new partner, stick with it and understand the markets personality over time..
Avoid brokers fake markets or markets where they "make a market." I mean would you really bet on a horse race if you knew the organizer was doping the horses at random? ..really?
Always choose Direct Market Access tools, you will save money and have more control.
Upgrade to a business account on your DSL line to reduce contention issues if youve hd problems recently
You will lose probably 50% of the time (95% in the beginning) profits will come by simply slightly reducing the losses and slightly improving the volume or value of the winners
Your ability is really about your own perception of your capabilities.. there is no holy grail so dont be intimidated by pushy well rehearsed brokers who unlike you require the security of a firm to trade, ask to speak with someone else or threaten account closure.. remember especially if they are spreadbetting with you they are not necessarily your friend if the firm makes a market and you trade in that fake market, they are fleecing you!!! and your a mug for betting on doped horses without clarifying first.
You are better than you think.. because where there is spread there is a company taking a tax from your work before you can even take profit for yourself. They win even if you lose!!
The best institutions make perhaps 35% on their total account values because they must excersize good money management, thats still a whopping 30mil on a 100mil size account thats about 0.6% a week on thier total capital employed.. so you know people who talk about 50% consistently per month are jokers.. you must run run run from these pretenders especialy the ones with photos of themselves and a poor quality one page oversell followed by payment methods..
Trading intra day isnt necessarily more profitable than Swing or momentum trading sometimes its worse. The very best trading system will trade mainly on technicals but always have an eye on the fundamentals (news, earrings calender, buy outs and economic progress or retardation indicators.. yep sorry guys no short cuts but the good news is fundamentals only take 10 mins followed by keeping an eye out through the day.
when buying simple Call or Put option alone, you really do need to get rid of it within a couple of days before the price drops... options trading is very much about how long you hold that option position and offloading it quick at the hint of a drop This does not neccesarily apply if you are using constructed option strategies like spreads or strangles etc goto optionsexpress web site, sign up for free and learn thier first. then buy books best rated on Amazon. Options trading if you get it right wil astonish you for the returns it can provide but your losses are also magnified... hence various strategies exist to limit any potential loss (however these reduce the returns.. hint dont get greedy and buy too many calls and puts individually.. you will lose!!
Always set a mental stop loss e.g.5% or 10% drop for options. Most options expire worthless so any strategy involving you selling (writing) will have advantages if you structure it right e.g. SHORT strangles and straddles and some diagonal calender spread strategies.... nice!!
For all other trades it is a sin of the highest order not to use stop loss or trailing stop orders (but never rely on them completely because they can sometimes be missed by the system.
When swing/momentum trading Always place your money in the direction of the movement, because guessing market tops and bottoms is a mugs game... what goes up does not necessarily come down unless the indicator has repeatedly shown the cycle at least 3 times..always go with the price... PRICE remains the single best indicator of them all..
Never hold too many open positions 5 max!! or you will forget why or when you need to exit them..especially if options are involved. When options are involved write down why you bought what return your looking for and when you will sell or you will lose!! wipe your account and have to answer questions about the ware abouts of the family savings....whilst depressed.. not nice trust me... Ive been there...
Just my tuppence worth
|Mar 21, 2007, 11:10am||#491|
Joined Jan 2006
I do not think advising novices to trade options is a good idea though as they are complex derivatives which require an understanding of the components that make them up. I'm sure most novices have no idea what greeks are and how underlying/dividends/interest rates/strike/volatility/expiry affects the option price.
If you intend to be a scalper grabbing a few pips here and there then I would agree that leaving SBs alone is a good thing. Your quick trades do not give them time to hedge your positions, so they will delay your trades on manual dealing to give them time to put in a hedge trade on the real market if you're a constant winner.
However if you plan to hold a trade for over an hour then slipping the odd pip or two should not matter too much (I rarely get fill problems - it does happen occassionally) then SBs are an excellent vehicle to get started with. Particulalry if you take advantage of their DEMO accounts. You can trade much smaller than with a Direct access account.
Referring to the earlier questions - you can trade futures through a SB the same as you'd trade a CASH product. A FTSE future e.g. is the same as the CASH except
(a) future spreads are usually wider (b) You do not get charged overnight interest on long positions (neither do you get given interest on short positions either) however the future price is adjusted upwards (for indexes) for the interest and future divis, but you'll find the cost of the future in the long term is a lot less than a daily Cash product (c) if you run a rolling cash product it never expires - futures have an expiry of the 3rd friday of the month in question.
My advise I always give beginners is to find you're own way - it's the only way you'll ever really learn - by doing it - open up a demo SB account and trade away with virtual money to your hearts content. Try out your various ideas and see which of them work. When you have three months consistent profit (it's easy to get 1-4 weeks profit - but much harder for a whole quarter) - then you can start thinking about opening a real account.
Outside of a dog, a book is a man's best friend,
inside of a dog, it's too dark to read. -- G Marx.
|Mar 21, 2007, 11:57am||#492|
Joined Jan 2007
Just for me to clarify though (because I really enjoy throwing my toys out the pram)....
I know what your saying about Spread(yourlegs for a good fleecing)betting companies but all Id say is know the market you are dealing with first.. some markets are not mirroring exactly the underlying and its a scandal this information is obscure unless you absolutely probe for confirmation of the same, also instead of being honest and upfront about things they provide a veneer of respectability which is disingenuous when you look closer because of thier potential for skulldugery, and Ive witnessed it first hand..shame on them..
Well you could say that about options but what do you think a binary bet is which some spreadbetting firms offer? it is almost exactly like an option trade only the price is controlled by the company and not the markets.
Look.. Trading options is actually very straightforward .. its just you can combine strategies to drill down very deep on the analysis or trade options in many types of ways e.g. Volatility trading using Vix etc and analyse why a particular option stretegy works exactly but people overcomplicate them, do you know the exact mathematics behind a price rise and fall in any market? No but you still trade it..........Also, For example You talk of greeks (totally unnecessary for most basic option trades which where possible should be NEWS based ) and then you say most novices have no idea how underlying/dividends/interest rates/strike/volatility/expiry affects the option price. but again you are over complicating the matter because actually the option price is affected in much the same way stocks are affected... what one must know is that small stock movements cause large option movements... Listen..I was taught option basics enough to practice writing covered calls in 2 days by AJ Monte and most people dont read option basics enough or they over complicate the issue with trying to understand eveything like volatility trading or greeks when it isnt necessary in the beginning. Stick to 1. basic options concepts, then writing covered calls followed by strangles, straddles and calender spreads using FREE resources like optionsexpress and in two days of study itll suddenly click!!!! then practice those, but the best way is to risk small amounts of money you are prepared to lose.. Most are not prepared to lose anything initially but oh how they will have to accept this.. as someone said on these boards somewhere.. its a bitter road make no mistake, best accept that profitability will take a few months so you can at least better manage your losses to say a few grand rather than tens of Ks (ouch)..
Dont believe the hype.. everyone can easily understand options and trade them so long as they know how to protect their position,by exit or rolling up or down but you can learn even more complexities if you wish to look into other strategies.. you only need to use one maybe two different strategies that all you dont need to be able to use them all thats not how it works best at all...
|Mar 21, 2007, 12:39pm||#493|
Joined Aug 2004
I thought I'd add this to balance the debate a bit
you fill up my senses
|Mar 21, 2007, 1:07pm||#494|
Joined Jan 2007
HOWEVER!!!!!!!!!! in practice this is not emotionally easy to implement because a. you will place one order and then you will seek to place the next... I guarantee you you will hesitate to commit to it either because you see the market moving for or against your first position and you may just freez, Also realize that you are relying on some volatility (movement up or down) otherwise if sideways (poor volatility) the positions will cancel themselves out and you will end up still down on commissions and/or effect of the spread..
|Mar 21, 2007, 1:17pm||#495|
Joined Jan 2007
Very cool.. I cant complain with that approach, I too am thinking of opening an IB account but Im disappointed they don't trade CFDs so I can get my hands on those indexes directly rather than trading futures based on those indecies which isnt quite the same Normally Id just use a spreadbetting firm but again those intraday spreads.. (and skulduggary)...arrhhh!!
|Mar 21, 2007, 1:38pm||#496|
Joined Jan 2006
Spread trading is in fact trading in two different products - e.g. If you think Lloyds TSB is going to outperform Barclays then you would go Long on Lloyds and short on Barclays. Then it doesn't matter what the markets themselves are doing - the FTSE could collapse 20% - as long as Lloyds price moves away relative to Barclays then you make a profit in the spread between those two companies.
One of the advantages of spread trading is that charts of spreads tend to exhibit more linear and longer lasting trends than the underlyings and you can take advantage of different market sectors that do better in the summer than the winter vs. other sectors that rise more in the winter. However spread trading is a long term strategy.
Outside of a dog, a book is a man's best friend,
inside of a dog, it's too dark to read. -- G Marx.
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