Rant from a (profitable) Trading Novice
Yep, I understand that.
But I have to trade with what I understand.
So indexes are what I trade. They are always the top companies, and long term always go up.
Yes, perhaps that is true. If that is the limit of your trading strategy, then why not buy some shares or tracker funds for your ISA, and don't use leverage. Your attitude reminds me of the Joe Sixpacks who think they can become instant property millionaires because "house prices always go up" and "they are not making any more land".
Corrections are about 13%, I now know to risk 15-18% to ensure I don't get caught out and trade in the peaks and dips, and hold through the corrections, easy eh?
Yes, corrections are "about 13%", until the 20% correction comes along. Also, if you are using any leverage, 13% is too much to risk.
So Buy and Hold should always be a winner over the long term, spot trends and buy in a dip and as close to the top as possible. I know not to get greedy and making some profit between the dip and peak is fine by me.
I'm only playing with pocket money, £370, trouble is, I've lost all my money now, although I'm a bit wiser I'm loath to throw more money only to get caught again by something else I hadn't expected.
I started spreadbetting with a TradIndex account last year. I opened the account with £200, and started day trading the FTSE. In a few weeks, I had run my account up to £380 and then got wiped out in 1 hour when the FTSE took a very sudden and sharp dip and I was long £7pp. One of those lessons you never forget.
I began to approach my trading in a more disciplined way, and slowly recovered some of my losses. Then I started trading erratically again, breaking my own rules, and switching strategies. I was out of control, and spending 10 hours a day in front of the screen, and any time left over reading about the markets. By the time I found these forums, I was down £1k to the markets, had left work to trade full time, and was eating into my savings. Great sacrifices were made, and I began to wonder if I had made the right decision.
Later in the year, I had switched to day trading the Dow. I again jumped from system to system until I found something which worked. Perhaps I missed the obvious more than once. Again, discipline issues affected my consistency and P&L. My account was down around £2k going into July.
I had learned many painful lessons by this point. However, unlike the "buy and hold" set, I identified when the markets were over extended. I had been calling a top in the ES and YM for most of the summer, and getting burned each time. (see my very first thread here - "End of the Dow Bull Run?"). I started a new thread about strategies for trading the debt crisis (also on these boards somewhere). I spent hours each night looking over historical charts of other equity corrections, the Dot Com crash, 1987, the Asian crisis. I looked for correlations in the carry trades and the sell off of equities. I studied up.
Then, when the markets began to show weakness, I sold. Still being an impulsive and immature trader, I didn't listen to the fundamentals and pulled my shorts in for anything between +60 and +90 when I had shorted within a hundred pips of the top. I continued to sell the Dow, FTSE, and S&P, and continued to buy as much Yen as I could afford the margin for. I had a plan, I executed it, and I recovered all of my losses and made a few thousand profit on top. This means that barring some disaster or reckless trading in the next month, I'll end the year up. A fairly nice profit from someone who placed his first futures trade in a bucket shop only a year ago. It has been a painful journey, and given the hours I have spent financially unrewarding. However, I have learned a lot about myself and the markets.
My own amusing little anecdote illustrates why it isn't wise to think from the long side to the exclusion of all else. Markets move both ways. This goes for the property market as well. Speculative bubbles all burst in time. If you want to be a trader, you need to think beyond buying the FTSE and Dow at £1pp and then sitting through a 1000/500 point correction, watching your profits evaporate without so much as a trailing stop to protect you.
I am still a very naive, impulsive, and poor trader. I recognise this. I stopped day trading the Dow because it wasn't the right market for me. I now do a couple of trades a week, down from a couple of trades an hour. I've stopped getting shaken out after 10 minutes, although I still exit early. I've not held a trade for less than an hour in about a month. Overall I am more relaxed about the markets.
Most importantly, I still make mistakes. I lost 90 pips today because I jumped the gun on a trade instead of waiting for a final signal to confirm that the odds were in my favour. Another lesson from the markets I have paid for.
I just can't handle currencies or commodities or sells on stocks/indexes, because you never know which way they are going long term.
You never know what the market will do next. You don't need to know to make money. When you understand and accept that truth, you will be in a better position to profit. I suggest that if you still want to trade, you read a few books by Elder Alexander, "Trading in the Zone" by Mark Douglas, and perhaps take a look at the thread "Making Money Trading" (link in my signature). The latter thread is very useful.
If you are looking for a way to make some pips in the markets without spending 11 hours a day at a screen, I think that is the thread for you. A clear system which gives easy to understand signals and stop order placements, works on a large timeframe, and is good for catching trends. All it requires is to follow the system and check the FX pairs (or whatever market you are trading) once per day to look for signals on the daily bars. Then you can set your orders and walk away.
That said a US friend of mine uses a subscription newsletter service which has doubled his money on in 1 year, it gives specific instructions on Commodities,Stocks and Currencies. Its expensive at around $100 per month, but is coming good for my friend. This type of service would suit me as I'm too busy to spend the time on it.
As laptop1 demonstrated in his thread at the beginning of the year, you can double your money in one trade. Crude oil bought at $51 for example. What if the system which was doing so well simply involved buying one contract of the Dow or S&P at the beginning of each month, with no stoploss? That would have made quite a bit of money from March to June this year, but how do you think it would have done between 14000 and 12600 on the Dow?
There is no use paying market "gurus" and advisory services if you can't trade yourself. You will not know how to react to unforeseen events, and will be at the mercy of the publisher. If you want to "get rich quick" without understanding the markets you trade, then I would suggest you consider a mutual fund of some variety, and just pay someone else to manage your money. It would be safer than an advisory service in the long run.
I'm sorry if some of this sounds harsh or critical. Trading is one of the most difficult jobs, and requires no small amount of dedication. Risking your own capital to compete with some of the sharpest minds in the world is no easy task. Trading does have its rewards, and whether you are trading for a living or investing as a hobby, there are profits to be made when you become disciplined and consistent in applying a proven edge.
"It is just plain gambling, with the only real winners being the companies offering the service."
I think you would cause some offense here by dismissing trading as "gambling" where only the bucket shops win - there are some very successful traders here who would disagree. There are even some rank amateurs here (myself included) who have beaten the FTSE / risk free interest rates / mutual funds / etc with their trading. I've made a few thousand in a year - I am trading a small account, and I know there are some here who would make or lose that in a day (hour?), but I put in the work and it eventually paid off.
A year in, and I've had the following bucket shop accounts:
Capital Spreads (in profit)
TradIndex (in profit)
Barclays FST (City Index, in profit)
CMC Markets (in profit)
IGIndex (£500 loss, my newest account)
It is possible to beat the SB firms and the market. It just takes dedication, discipline, and the consistent application of an edge. As for reputable companies, did you own any NRK shares? Is the fact a company is listed on the FTSE 100 any guarantee that it will not lose 90% of its value in 6 months? In my view, you need to rethink your approach to the markets. There is no easy money here.
Sorry if this sounds preachy - I still have a lot to learn myself, and will most likely wipe out my accounts again before I make consistent profits in the markets. I hope that you will paper trade for awhile, try some new strategies, and read about the markets as much as you can until you become profitable (on a paper account). Then consider risking more money. Meanwhile, Sainsbury's Bank has a good instant access savings account which pays 6.25% gross if you are looking for a risk free (up to ~£30k) place to put your cash. Either that or buy a few index trackers for your ISA.
All the best for the future, and thanks for reading.
