Advice / info / clarifications on short term trading.

This is a discussion on Advice / info / clarifications on short term trading. within the First Steps forums, part of the Reception category; Hi, I have made a decent return on some shares (150% over 12 months or so). I am now looking ...

Reply
 
LinkBack Thread Tools Search this Thread
Old Aug 19, 2013, 4:41pm   #1
Joined Aug 2013
Advice / info / clarifications on short term trading.

Hi,

I have made a decent return on some shares (150% over 12 months or so). I am now looking to withdraw my initial investment and continue investing or trading with the profit.

I have a few questions relating to day trading and swing trading. Everything I read about day trading is that it is very risky so beware etc etc...Reading this post (What Style of Trader Am I?) I think this question relates more to swing trading.

I will try to explain as best I can:

Say I have £10k to invest in some stock that is regularly oscillating 5% (at least a few times a week) - what am I missing in terms of risk? Since I looked at the stock a few weeks ago, I would have made about £12k profit so far IF I had used the buy/sell prices I was practising with. Trading like this just appears to be similar to investing, but on a much smaller time-scale, and therefore carries the same risk (i.e. you can lose your initial investment - but no more).

I realise these returns are probably chicken feed compared to what others are doing, but for my current needs this is more than sufficient.

My point is, this seems to be too good to be true which leads me to believe I have fundamentally misunderstood something. What's to stop me opening and closing 2-3 £10k trades per day (or longer if day ends with a loss), on the same stock (with a trading balance of £10k in total)?

Is this because I have not considered the fact that day traders close on the same day - regardless of profit/loss? AND they leverage their positions which can multiply their losses.

Please note, I am an absolute beginner here so I apologise in advance for my naive questions...

Thanks in advance for your patience.
Boon Trader is offline   Reply With Quote
Old Aug 19, 2013, 5:00pm   #2
Joined Sep 2010
Quote:
Originally Posted by Boon Trader View Post
Say I have £10k to invest in some stock that is regularly oscillating 5% (at least a few times a week) - what am I missing in terms of risk?
Trading like this just appears to be similar to investing, but on a much smaller time-scale, and therefore carries the same risk (i.e. you can lose your initial investment - but no more).

My point is, this seems to be too good to be true which leads me to believe I have fundamentally misunderstood something. What's to stop me opening and closing 2-3 £10k trades per day (or longer if day ends with a loss), on the same stock (with a trading balance of £10k in total)?

Is this because I have not considered the fact that day traders close on the same day - regardless of profit/loss? AND they leverage their positions which can multiply their losses.
Your suspicions are correct regarding leverage.
Forex Leverage: A Double-Edged Sword
That also means you can potentially lose more than you have at risk.
Normally a broker would close the positions before that happened,
but in a fast moving market, you could end up owing your broker quite a bit of cash.

http://www.trade2win.com/boards/gene...c-kingdom.html
I generally refer anyone new to the above link when it comes to risk and position size.
It covers the basics well, and will keep you out of trouble.

Which brings me to your account size - 10K, and you mention taking 10K trades.
Essentially your risk per trade would be 100% risk per trade, not good.
Typically 2% risk per trade or less is recommended.

Last edited by Liquid validity; Aug 19, 2013 at 5:08pm.
Liquid validity is offline   Reply With Quote
Old Aug 19, 2013, 5:40pm   #3
Joined Aug 2013
Boon Trader started this thread Thanks for the reply. Sounds like leveraging carries a similar risk to shorting - i.e. you can get into a lot of trouble very quickly if you don't know what you're doing (or even if you do...).

I will read those other two posts when I get a second.

Just to clarify, trading at a 2% level - £200 - (using the example previously provided), 5% swings on share price would leave me at a loss taking into account fees and commissions etc. leaving no opportunity to cummulate the profits into something more substanstial. This would suggest I either increase my account size, give up or accept a higher level of risk...

Can I assume that everyone that starts out investing using a 2% risk level either starts out making tiny profits or comes to the table with a large investment?
Boon Trader is offline   Reply With Quote
Old Aug 19, 2013, 5:43pm   #4
The Staff are paid members that perform various roles such as editorial, advertising, support or technical work.
 
timsk's Avatar
Joined Mar 2002
Quote:
Originally Posted by Liquid validity View Post
Which brings me to your account size - 10K, and you mention taking 10K trades.
Essentially your risk per trade would be 100% risk per trade, not good.
Typically 2% risk per trade or less is recommended.


Hi Boon Trader,
Welcome to T2W.

Further to L_V's comments, this might prove helpful: Essentials Of 'Risk & Money Management'
Tim.
__________________
I'm New To T2W - Where Do I Start? - a must read for anyone new to T2W
I'm New To TRADING – Where Do I Start? - a must read for anyone new to TRADING
The Trading Plan Template - a must read for anyone without a proper TRADING PLAN
Please note: I am part of T2W Admin' Staff - I am NOT a Moderator!
timsk is online now   Reply With Quote
Thanks! The following members like this post: Liquid validity
Old Aug 19, 2013, 5:54pm   #5
Joined Aug 2013
Boon Trader started this thread Hi Tim,

Thanks for that, and the welcome, I'll add that to the 'to read' list

Quote:
Originally Posted by timsk View Post


Hi Boon Trader,
Welcome to T2W.

Further to L_V's comments, this might prove helpful: Essentials Of 'Risk & Money Management'
Tim.
Boon Trader is offline   Reply With Quote
Old Aug 19, 2013, 6:12pm   #6
Joined Sep 2010
Quote:
Originally Posted by Boon Trader View Post
Thanks for the reply. Sounds like leveraging carries a similar risk to shorting - i.e. you can get into a lot of trouble very quickly if you don't know what you're doing (or even if you do...).

I will read those other two posts when I get a second.

Just to clarify, trading at a 2% level - £200 - (using the example previously provided), 5% swings on share price would leave me at a loss taking into account fees and commissions etc. leaving no opportunity to cummulate the profits into something more substanstial. This would suggest I either increase my account size, give up or accept a higher level of risk...

Can I assume that everyone that starts out investing using a 2% risk level either starts out making tiny profits or comes to the table with a large investment?
Sounds like you have been buying shares outright, long only with no leverage yes?
Probably through a self select ISA or share dealing account with a bank or similar?
Outright long only share purchase is meant for position trading - buy and hold.
Its pretty much impossible to day trade using that type of account.

Probably the easiest and most accessible way to trade UK shares would be CFD's
where there is no stamp duty, saving you 0.5% straight away.
Also commissions on outright unleveraged longs are much higher than with
derivatives (CFD's being one).

Yes leverage can get you into a lot of trouble if abused.
Leverage trading is basically trading on loan from the broker.
You put the trade deposit down (margin) and thats it.

Really the best way of looking at is not as a way of increasing trade size
to a level you can't afford.
It simply reduces the margin requirements per trade.
As long as you stick to 2% or lower of £10k as your maximum risk per trade (i.e £200 is your maximum loss),
you will be safe enough regarding leverage abuse - provided your stops are not
ridiculously tight.

Main point though, do lots of reading and googling until you
fully understand risk, leverage and margin.
Until then don't put any money on the line.
Demo demo demo, then the absolute lowest stakes you can trade live with

Last edited by Liquid validity; Aug 19, 2013 at 6:19pm.
Liquid validity is offline   Reply With Quote
Thanks! The following members like this post: wackypete2
Old Aug 19, 2013, 6:18pm   #7
Joined Sep 2008
I'm in the minority here, but I've never viewed day trading as riskier than any other trading style. The level of risk taken lies with the trader. Generally you will complete more trades when day trading, so to minimize risk use smaller position sizes. How you handle the risk is what will keep you in the game during drawdown periods. If you let greed and emotions get the best of you then yes you can lose money faster while day trading, but that is the fault of the trader NOT the style of trading employed. For starters use very small size, keep stops and limits reasonable and hittable within the day, and end the day either in profit or after 3 losses. You can work your way up from there when you begin showing daily profits more often than daily losses.

Peter
wackypete2 is offline   Reply With Quote
Thanks! The following members like this post: Liquid validity
Old Aug 19, 2013, 6:27pm   #8
Joined Sep 2010
Quote:
Originally Posted by wackypete2 View Post
I'm in the minority here, but I've never viewed day trading as riskier than any other trading style. The level of risk taken lies with the trader. Generally you will complete more trades when day trading, so to minimize risk use smaller position sizes. How you handle the risk is what will keep you in the game during drawdown periods. If you let greed and emotions get the best of you then yes you can lose money faster while day trading, but that is the fault of the trader NOT the style of trading employed. For starters use very small size, keep stops and limits reasonable and hittable within the day, and end the day either in profit or after 3 losses. You can work your way up from there when you begin showing daily profits more often than daily losses.
TBH I agree with you.
I've done all 3, position, swing and day.
As you say, if you keep risk and leverage under control,
day trading has a lot going for it, no overnights, no open gaps,
faster cycling of capital and so on.

For people who don't understand those concepts, it can be lethal...
Liquid validity is offline   Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Similar Threads
Thread Thread Starter Forum Replies Last Post
Advice for long and short term investments? legepe First Steps 0 Apr 24, 2011 7:08pm
How to use Gann Calculator for Short term and Long term trading? TradeLearner First Steps 0 Jul 23, 2010 6:39am
Short Term vs Long Term Trading pedro01 General Trading Chat 17 Jun 26, 2008 3:00am
Short Term traders - advice please Jackie284 First Steps 69 Sep 16, 2007 5:39pm
Short term trading tools benvincent Indices 2 Aug 5, 2003 5:12pm

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)