Is this rediculas?

klastica

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If I had £500,000 would it be possible to spread bet the FTSE only ever betting up with small bets. Eg. FTSE 4200 - bet £2 - everytime it falls 20pts bet another £2. Keep bets rolling over and only collect when bet is 20pts higher or better.

I have been paper trading the CAC over the past few weeks and it seems to work well.

Oh by the way I'm quite new to spread betting but any sensible comments will be appreciated.

Mike
 
Search martingale theory. This won't work. If it crashes tons you'll lose a lot, and if you even had 500k you wouldn't want to make £40 per trade. That's less that 1% gain per trade with a risk of the whole pot...

FTSE at:
4400 - £20
4300 - £840
4200 - £2640
4000 - £9240
3600 - £34440
3300 - £63840

If you pick a top or bottom you could be waiting years for it to hit there again.

You mayaswell go all in 5 times in a row using £1000 bets.
 
It's not exactly martingale theory as there is no doubling up.
If FTSE is 4200 bet £2
If it drops to 4180 bet £2
if it drops to 4160 bet £2
etc etc.
I am aware it's not spectactular and there are probably better ways of using £500k but has it any flaws? I am aware that if the market was to drop considerably I could be caught with many of the bets hanging for a long time - BUT that said the market has already fallen quite alot in the past 18 months and is realistically gonna recover a bit towards the end of the year.

Any more thoughts?
Any serious flaws?
 
youre not ridiculous, i saw there are people dare to offer this strategy on managed account. apparently there are still doing ok, but i wont trade this way.. just my personal view.
 
Hi Klastica,
Welcome to T2W.
Your idea is very appealing in many ways and, indeed, will work a lot of the time especially in a rangebound market. The problem - as KillPhil08 points out - is when the market trends strongly and you're got in at, or near, the start of the trend. The question you have to ask yourself is this: are you going to hold your nerve when the trade going against you and your loss mounts up exponentially? Not only that, are you going to keep adding to your position the further offside it goes (i.e. averaging down)? I did use this exact system for a paper trading competition before Christmas and, when it works, it's spectacularly profitable. However, when it goes against you, it gets VERY scary VERY quickly!

It may be worth investigating its use as an entry technique in zones of support and resistance. Attached is a chart of the Nikkei, chosen purely to illustrate my point. The heavy middle red horizontal line a the resistance line based on price action dating back to November last. Although price rises up towards the line at the start of the year, it never actually reaches it. So, for example, if you placed a single sell order at 9,500 - it wouldn't have been triggered. However, if you place additional orders either side of this at 9,300 and 9,700 respectively (thin red horizontal lines), you increase your chances of being filled by at least one of them. As the X hairs on the chart show, the first order at 9,300 would have been filled on the 7th Jan and the trade would have been profitable. What is important is that corresponding stop orders are placed at three points above the three entry orders so that if there's a full blown reversal and price breaks through the 9,500 resistance zone, then one doesn't find oneself in the unenviable position outlined in my first paragraph.
Tim.
 

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Thanks for ur help Timsk - didn't really understand much of the second paragraph though. (my trading dimness i'm afraid)

Lets say u did have £500k and u worked this system and the market fell from 4200 to 2000 which although unlikely could happen cos anything is possible. No stops would ever be triggered cos there arent any and no money would officially be lost cos each bet could be covered to zero.

What I didn't put in my original thread is that bets would (quite large 50/100 per pt) would be placed on major market moving decisions. Like retail results in US this week and oil inventries two weeks ago.

This sets up a fortunate catch 22 situation. For the market to fall from 4200 to 2000 this would involve some increadible bad news which could be traded on. Also if the market fell 200pts in a day I wouldn't desperately get in at every 20pt interval as it fell. I may wait for it to stop and do a cumilative bet (making it a little more efficient)

If the market doesn't fall much and just bobs about money would just be collected each day without pressure or risk (IMO)

would this work?
 
You would get to a maximum bet size eventually.

In which time their spreads would increase.
 
Only in some circumstances can you make bets higher than the maximum. I think the highest for most is £500 per point but some £2000.

Once you use these higher bet sizes they usually increase the spread so they make more off it (or so i heard, I can't 100% confirm this myself). I heard on ig once you get over 100 per point the spread goes up massively (some thread some guy lost 22000 by using these bet sizes only to get margin called).

Therefore, you'd either have to have a very special relationship with the SB firm or you would have to be a multimilionaire who doesn't know what they're doing - a certain football manager comes to mind here.
 
Hi Klastica,
Thanks for ur help Timsk - didn't really understand much of the second paragraph though. (my trading dimness i'm afraid)
I'm happy to expand upon any elements that are unclear - just ask.

Lets say u did have £500k and u worked this system and the market fell from 4200 to 2000 which although unlikely could happen cos anything is possible. No stops would ever be triggered cos there arent any and no money would officially be lost cos each bet could be covered to zero.
I'm not sure what you mean by "each bet could be covered to zero". Do you mean you'd only lose all your capital if the index literally went down to zero? I haven't done the maths, but if you're going long every 20 points as the market falls from 4200 to 2000, you're going to be sitting on a very large cumulative loss. I refer you to my first para in my earlier post. Holding your nerve as the loss gets exponentially bigger is going to be a massive test. Wouldn't fancy it myself!

What I didn't put in my original thread is that bets would (quite large 50/100 per pt) would be placed on major market moving decisions. Like retail results in US this week and oil inventries two weeks ago
This sets up a fortunate catch 22 situation. For the market to fall from 4200 to 2000 this would involve some increadible bad news which could be traded on. Also if the market fell 200pts in a day I wouldn't desperately get in at every 20pt interval as it fell. I may wait for it to stop and do a cumilative bet (making it a little more efficient
This makes your system very complicated because you wouldn't be trading equal amounts at equal intervals as prices fell. Also, you'd have to trade in the same direction as the original trade (long, in this example), otherwise all you're doing is closing out earlier trade(s) for a loss. Can't see how this could work I'm afraid.

If the market doesn't fall much and just bobs about money would just be collected each day without pressure or risk (IMO)
would this work?
Yes, as outlined in my earlier post, your idea would work best in a rangebound (non trending) market. All will be well until the market starts trending and then you run the very real risk of losing everything you've gained - plus a whole lot more besides. In other words, it's a system that is likely to make small gains in nine out of ten trades. But the tenth trade will be a losing one and the losses will be greater than the sum total of the nine winning trades. Whenever you get members on here who claim to have a system with a 90% plus success rate, this is invariably what they're doing. They all go broke sooner or later.
Tim.
 
Google pound cost averaging.

This is actually a very good way of investing (although you would be doing more per point as it falls) as it saves you from having to time the market.

For spread betting this is a terrible idea.
 
Yes, as outlined in my earlier post, your idea would work best in a rangebound (non trending) market. All will be well until the market starts trending and then you run the very real risk of losing everything you've gained - plus a whole lot more besides. In other words, it's a system that is likely to make small gains in nine out of ten trades. But the tenth trade will be a losing one and the losses will be greater than the sum total of the nine winning trades. Whenever you get members on here who claim to have a system with a 90% plus success rate, this is invariably what they're doing. They all go broke sooner or later.
Tim.

i can put 100% success rate with my trading, if market go against 1000, 10k points away or whatever, my margin still relatively safe as long as broker is reliable.. :p
 
i can put 100% success rate with my trading, if market go against 1000, 10k points away or whatever, my margin still relatively safe as long as broker is reliable.. :p
Hi everyonerich,
Are you saying that you never have a single losing trade?
Tim.
 
With this system If u had enough money and time u would never have to take a loss.

Or am I missing something?
 
OOOOOOOH DOUBLE BURN.

Only joking klastica, yes it probably would work. But it'd be easier to live off that money and not have to do that.
 
- BUT that said the market has already fallen quite alot in the past 18 months and is realistically gonna recover a bit towards the end of the year.

Any more thoughts?
Any serious flaws?

This assumption is the biggest flaw.

Realistically the market can do anything.

I wouldn't be at all suprised to see the FTSE below 2000 by the end of the year and then taking many years to recover to even where we are now. I'm not saying it will happen, but I wouldn't be suprised and I certainly wouldn't make assumptions that it won't. This could leave you feeling some serious heat.
 
I not assuming anything that's why each bet would be covered to zero. If the markets did fall below 2000 many investors/traders all over the world would be hurting. BUT with this at least I would still be in the game. And be making between 1k and 5k a week. If you also throw into the hat that I may make some big gains with big market moving decisions.

AND as the markets move lower I could use profits to increase the size of the bets - By my calculations it would be possible to make 120k to 150k per year whether the market moves back or not.

I'm waiting for someone to come and tell me this is rediculas and why
 
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