Initial Approach - Any Thoughts?

Hi All,

I started looking into this trading malarkey at the weekend and have found myself quickly hooked. I just wanted to post an outline of what my initial plan of attack will be so I can hopefully get some feedback on any major flaws in my thinking, or anything you think I've overlooked.

Here goes:

* I plan to spreadbet FTSE shares and major indices, focussing on a group of around 10 that I will become familiar with in the first few weeks, then gradually expand my horizon.

* I work during the day, so I will spend 1-2hrs in the evenings looking for positions to hold for around 1-5 days.

* I will primarily pick positions by identifying reversals, using a handful of the commonly used chart analysis tools but focussing on learning to read candlestick patterns. I will also look out for larger movements indicated by triangle, head and shoulder, and double top/bottom patterns.

* I will trade on whatever looks good at the time, rather than sticking to a rigid system. This means taking positions when I feel I know the direction the market will take, and getting out when I don't.

* I am using charts from ProRealTime, get most of my information and advice from T2W, and have set up demo accounts with Trade Fair and Capital Spreads - the latter of which platforms seems less buggy.

* When I'm making consistent pretend profits, I will open a live account with £300, all
of which I expect to lose over the course of 2-6 months.

* That will give me the motivation to implement a more rigorous system. This sounds dumb, but there's no way I'm going to believe I can't win without a system until I've lost actual money.

* I will aim to double a stake of £1000 on a second live account within 6 months of opening it by making 20 trades/week, risking £20/trade, averaging a £2 profit per trade. I'm probably getting ahead of myself with this last bit, but making money is what this is all about for me.


All your thoughts will be appreciated.

Kind regards,
Ben.

Two thoughts Ben

1) Any plan only works if it's truly your own imho.

2) The main thing is to have structure (which you appear to have) and yet be humble / self aware enough to admit if you're getting something wrong (both at an individual position level, and also in terms of your whole approach).

I personally think you're on the right lines. As you're going to trade equities, my only other specific advice is to become familiar with techniques that incorporate traded volume, as they can be powerful allies in that market.

Good luck

GJ

Benjameanie said:

get most of my information and advice from T2W,

Be VERY careful, there is some good stuff on here but a lot of balls as well



* I will aim to double a stake of £1000 on a second live account within 6 months of opening it by making 20 trades/week, risking £20/trade, averaging a £2 profit per trade. I

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do you mean that for every trade you will have a stoploss 20 points away but take profit at 2 points? If so thats madness as for every 1 bad trade (and they will happen) you need 10 good ones just to breakeven......

Benjameanie said:

I will open a live account with £300, all
of which I expect to lose over the course of 2-6 months.

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Out of all the waffle (or delusion) this seems to me the significant bit. Surely the attitude is "I have £300 or £X to trade with. I will try my damndest (and more) not to lose a penny of that money"

What does that require? Knowledge, patience and luck. If you have any of these in small amounts you will quickly lose. Solution: Don't start yet! If you have these in reasonable quantity: You have a slim chance, or will extend your trading life. If you have these in great quantity you will win (no doubt).
If you are going to trade equities I would forget technical analysis, instead concentrate on gathering knowledge on a bunch of stocks/sectors: Their history, management, product, relation with global economy etc.etc.
It seems that beginners always start with technical analysis. They believe there must be a "system" that will work if followed methodically, if all emotion could be banished. Unfortunately not!

Forex Currency Trading Online - Forex: Foreign Exchange (FX) Market

Patience! Read, mark, learn. Patience.

Why spreadbet?
True, profits - if any - are not taxed. But you pay for that by a wide spread.

Benjameanie said:

* When I'm making consistent pretend profits, I will open a live account with £300, all
of which I expect to lose over the course of 2-6 months.

Click to expand...

If you're going to open such a small account you may as well trawl around to find a company that will stick some money in your account to start you off. This one Financial Spread Betting | Spread Betting Accounts | ETX Capital advertised on here recently to give you £100 to start and there are others about.

cheers and good fortune

jon

Thank you all for your advice - some interesting points.

Raysor, I'm committed to using technical analysis, partly because I'm a data analyst by profession, partly because it seems to me that trading opportunities based on fundamentals are relatively rare, so I would need to be more familiar with a wider range of companies than I think I'm capable of. Given this, perhaps stocks aren't the right instruments for me?

Foredog, I meant that I expect I expect to average a £2 per trade profit, based on a £20 risk, and limits set at whatever level seems sensible at the time. I've no idea if this is reasonable though.

Simmo, I chose spreadbetting as it seems to have the lowest cost per trade for small stakes. Is this not right?

Thanks once again.
Ben.

Mini or Micro account. If the spread is wide then the market has to move that difference just to break even. Keep an eye out for the times when announcements are made. That babypips site is well worth studying. Objectivity is needed!

Benjameanie said:

Raysor, I'm committed to using technical analysis, partly because I'm a data analyst by profession,

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Fair enough. I am rather sceptical of technical analysis and trading thereon, possibly because 1. I have never bothered to try and understand it. 2. In my professional life I have seen technical analysts come and go (over 40 odd years). and 3. I always think that if a human could analyse historic data and signals etc. and guess the future more times right then wrong then it wouldn't be too difficult to program a computer to do it more efficiently, especially a program that learns by its mistakes.

raysor said:

Fair enough. I am rather sceptical of technical analysis and trading thereon, possibly because 1. I have never bothered to try and understand it. 2. In my professional life I have seen technical analysts come and go (over 40 odd years). and 3. I always think that if a human could analyse historic data and signals etc. and guess the future more times right then wrong then it wouldn't be too difficult to program a computer to do it more efficiently, especially a program that learns by its mistakes.

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:-0

Fair enough. I am rather sceptical of technical analysis and trading thereon, possibly because 1. I have never bothered to try and understand it. 2. In my professional life I have seen technical analysts come and go (over 40 odd years). and 3. I always think that if a human could analyse historic data and signals etc. and guess the future more times right then wrong then it wouldn't be too difficult to program a computer to do it more efficiently, especially a program that learns by its mistakes.

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1. If you haven't even tried to understand it, then why be sceptical. Surely open-minded would be more beneficial.
2. Haven't you seen all kinds of traders come and go over the last 40 odd years? Does every fundamentalist make it?
3. I bet there are plenty of programs out there that can trade quite successfully based on past price analysis.

Calinor said:

1. If you haven't even tried to understand it, then why be sceptical. Surely open-minded would be more beneficial.
2. Haven't you seen all kinds of traders come and go over the last 40 odd years? Does every fundamentalist make it?
3. I bet there are plenty of programs out there that can trade quite successfully based on past price analysis.

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1. I haven't tried to understand it in depth.
2. No and No, but depends what you mean by make it. From my experience I have seen teams of technical analysts working for brokers go for about 2-3 years then dissappear (and not because they 'made it'). Traders and fundamental analysts I knew 40 years ago in the business I still know now. Ok so that's only from my limited view and maybe I shouldn't generalise.
3.Show me one. Why aren't there brokers or institutions that specialise in trading for clients just using technical analysis (maybe there are but they aren't widespread).

2.You distinguish fundamental analysts and traders. What do you define as the trader? What is he making his decisions based on? I'm genuinely interested. By the way, I am not against those that use fundamentals, I believe that can work as well as technical analysis if you are good enough at it.

3. You're asking an individual to give you a program that makes money in the markets. But that isn't really the issue. Are you suggesting that no banks ever use programmed/automatic/mechanical trading? If you want examples of people that have developed computer programs that can make effective and profitable decisions, then you just need to look into Market Wizards and you'll find plenty. Whether they are based on moving averages, or some other indicator, they exist. How much of trading now is automated?

Why aren't there brokers or institutions that specialise in trading for clients just using technical analysis (maybe there are but they aren't widespread).

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This part I don't understand what you mean. If an institution is trading for a client, what is their primary motive? To maximise the client's profits? To maximise their profits? To strike a balance between maximising their profits, and giving the client sufficient profits so that they don't go elsewhere? And why 'just' using technical analysis? Why not that, and fundamentals, and whatever else you consider important. I do believe there are many that use technical anakysis but wec an agree to disagree on this.

Calinor said:

2.You distinguish fundamental analysts and traders. What do you define as the trader? What is he making his decisions based on? I'm genuinely interested. By the way, I am not against those that use fundamentals, I believe that can work as well as technical analysis if you are good enough at it.

3. You're asking an individual to give you a program that makes money in the markets. But that isn't really the issue. Are you suggesting that no banks ever use programmed/automatic/mechanical trading? If you want examples of people that have developed computer programs that can make effective and profitable decisions, then you just need to look into Market Wizards and you'll find plenty. Whether they are based on moving averages, or some other indicator, they exist. How much of trading now is automated?



This part I don't understand what you mean. If an institution is trading for a client, what is their primary motive? To maximise the client's profits? To maximise their profits? To strike a balance between maximising their profits, and giving the client sufficient profits so that they don't go elsewhere? And why 'just' using technical analysis? Why not that, and fundamentals, and whatever else you consider important. I do believe there are many that use technical anakysis but wec an agree to disagree on this.

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What do i define as a trader? Someone who buys and sells 'things'. Either on his own account or for someone else. I suppose someone looking for a shortish term movement that he can profit on. As opposed to 'investing'.
OK, how does that work? probably not fundamental analysis. From my limited knowledge I would say a number of factors. I would usually sum this up by saying knowledge or experience of the subject, information that, let's say the majority don't have access to, and luck. I have known traders that are 1. extremely clever (intellectually) and also 2. extremely not clever. so I don't think that's a factor.
Information. This seems to be the key. And by information I mean knowledge of facts that will occur in the future. I am running out of the will to write this so I will jump to technical analysis. As I see it if you are trading relying purely on technical analysis you are attempting to predict the future by analysing the past.
I just don't think this is possible.
However I am sure that a few people are successful but I suspect that that success is due to much more than just the technical analysis. For example a postion might be closed 'just because the trader had feeling that something didn't feel right'.
OK, so this is a load of waffle, but anyone starting off thinking that technical analysis somewhere contains a holy grail will be dissapointed.

OK, it seems I've opened a can of worms here. But what I'm going to take away from it is that completely ignoring fundamental analysis is a bad idea - perhaps analogous to ignoring a longer time-frame on a chart. That's part of the reason I thought trading UK stocks was a good idea - so that I couldn't help but be aware of general market conditions, but I will go away and read up on it some more.

Thanks,
Ben.