Another newbie wondering about an approach to trading.

[e.nigma]

Hi there,

Up until recently I have never really followed or been involved with the idea of trading, be it for something to pass the time or for a living. After reading through the various postings and deciding that it would be something that I would definitely like to persue I am looking for a point to start at. Going through the forums, I have read about people on here trading using various strategies and I was wondering whether you all would be so kind as to suggest a few ideas based on where I am at. I have £5k as my starting capital and have both a spreadbetting account with Finspreads and also a CFD account with IG.

Looking at the margin requirements I was thinking whether it would be a good idea to stick with UK stocks or should I consider other instruments. I have read up on some methods such as moving averages, support/resistance, trendlines, Indicators and even Fibonacci but I see that a lot of people say it's a good thing to keep things simple. Each have their good and bad points which is making it a little difficult for me to pick something to start backtesting with. I am aware losing is part of the game so i'm not looking for the 'Holy Grail' as they say and i'm not looking to make a fortune in one week, but merely something to test the water so I can start to get the pyschology and money management in place so I can gradually progress (assuming I make a return of some kind).

Sorry to have been long winded about this but I figured the more you know the more likely it is you can help with suggestions.

Thanks.

 

[Splitlink]

Starting fresh, since you have an account with Finspreads, why not take their course?

I have an account with Fins, but do not want to get started on the debate about which company is best, you'll decide as time goes along. UK companies are a bit slow, Footsie is better. Some posters are keen on forex, others on the Dow.

Swing trading is not a bad route to follow because there are some good threads on the subject. Get in touch with Barjon, he's a moderator, and favours that method of trading.

On Fins you can trade with small stakes. Do that, so as to conserve your capital. Study another important subject---risk and money management. Plenty of threads and advice on here.

Good trading

Split

 

[damianoakley]

Hi e.nigma,

What sort of markets interest you at the moment? Stocks, Commodities, Currencies?

What sort of trading have you looked at? Day trading, end of day, end of week?

The trading world is vast, and you need to choose a place to start.


Thanks

Damian

 

[e.nigma]

Hi Damian,

I was interested in stocks more than anything else. I know I don't have the mentality for day trading so I was looking at end of day trading where the position can be held from a few days up to a few weeks.

Thanks.

 

[e.nigma]

Thank you for your advice Split. I will definitely look into this further.

 

[Splitlink]

A pleasure.

Your stated preference makes me think that swing trading may be a good start. Barjon has a thread going on the UK Indices section, called "Swingin' the Footsie"

Split

 

[damianoakley]

Hi Damian,

I was interested in stocks more than anything else. I know I don't have the mentality for day trading so I was looking at end of day trading where the position can be held from a few days up to a few weeks.

Thanks.

Hi e.nigma,

I trade purely in Stocks on an end of day basis, and I choose to trade purely in the U.S. market.

If you're going to trade in stocks, then U.S. Stocks are far cheaper to trade because commissions are lower (you can buy 200 shares for $1) and there's no stamp duty.

Plus if you're UK-based, the U.S. market doesn't open until 2:30pm GMT which means you've got all morning and lunch time to set up your trades.


Thanks

Damian

 

[Paul Wilson]

Hey e.nigma, welcome to the boards.

As you have noticed there is a ton of information on these boards, be careful not to be bogged down.

Ok this is my advice, from one newbie to another...

I would recommend starting with the very basics, then slowly building over time.

You have advised in your post you are in no rush to make tons of cash. This is a very good starting point. As long as stay sensible and don't get to greedy you will be fine.

As far as a trading instrument to FTSE 100 is a good place to put a few things to practice. As mentioned, the stocks aren't the most exciting in the trading world, but you will get a good grounding on why prices do seemingly random things. Also if things do go pear shaped, as long as you have covered your stops you shouldn't get burned to badly. The FTSE also is only 100 stocks. NYSE alone has over 4000. With UK stocks you will probably how a lot of them do business(Tesco, BT, Kingfisher).

You should get hold of some charting software and begin experimenting. Sharescope Plus is pretty good. It costs about £14 a month. For that price you will get tons of information and tools.

One key thing is to realise that the price of a any stock is the value, we as traders/investors give to it. It doesn't really have anything to do with the company as such. It has more to do with the supply and demand of the individual shares of said company.

If the demand for a stock is high and many people want to buy it, the holders(sellers) of the stock are in control. They can choose at what price they can sell the stock to the buyers. As long as the demand for the stock is there, the price will rise.

This will happen up to a point where the demand will dry up. The buyers will see the stock as possibly too expensive for a potential investment. Once we are in this scenario a reverse of the above happens. The sellers now have a stock that no-one wants to buy. The only way to off-load the stock is for the price to come down to a level which will entice the buyers back in. Until the buyers are back, and are purchasing the stock, the price will fall.

There are obviously a few other things which wil affect the stock price, but the above is the general idea with what makes the ziggy-zaggy lines you see on the charts.

As a trader the goal is to identlify who is in control of the direction of the price.

For example, if we establish the price of the stock is rising, and the buyers are demanding the stock, that is when we want to get in and buy. Short term trading is basically "jumping on the bandwagon". The next step is to get out of the trade before, or when the price direction changes, thus maximising our profit on that particular trade.

The above was not meant to be patronising in anyway. It was really for the benefit of any newbies. I think sometimes trading vehicles can seem more complicated than they actualy are.


Now with your FTSE stocks you want to start learning how to draw trendlines. Again this is for the benefit of newbs. Trendlines matter. Stocks spend a lot of time trending in a particular direction, It is important to notice when a stock is retracing to a trendline, but still moving continueing with the trend. These retracements provide good opportunities. Also notice what happens when the price breaks below the trendline. This can usually signal a change in price direction.

It is late for me now, I need to catch some ZZZZ's.

I'll probably pick up on this tommorrow. I just remember when I was starting out. I literally went in feet first after reading a crappy book which told me how to make money with moving average golden crossovers, double tops and bottoms and S+R lines. Then I went onto stochastics and RSI's. It took me a while to realise that without understanding the above I was setting myself up for a big fall.

Goodnight, Much love.

Paul.

 

[e.nigma]

Hi Paul,

Many thanks for the breakdown. It has been very useful and I quite agree that it is input like this that makes the biggest difference and not something you might read in a £9.99 book.

If am correct in my thinking, then to some degree, reading the price of a stock can be assigned to basic economic principles of supply and demand allbeit in conjunction with some indicators and trendlines?

Thanks once again.

 

[pootanga]

confused

e.nigma

I am also a newbie looking to start trading, however i have read so many articles and getting bogged down and confused as to where to start and get advice, can you recommend any books or sites as a starting point.

pootanga

 

[Joey]

Get hold of the following:

1. Stikky Stock Charts $12 at Amazon
2. The Market Maker's Edge by Josh Lukeman
3. High Probability Trading by Marcel Link.

Visit www.tradeguider.com , tons of info on their free archives site to learn about price and volume as per wyckoff's principles, it will be time worth invested for it will enable you to go beyond price based indicators and understand how professional (smart) money moves the market. When you use maths indicators you are looking at variable A(price), then slicing and dicing with maths(mCAD, RSI etc) to predict what ? Price A)) i.e using price A to predict price A) does this sound logical?

 

[e.nigma]

Hi Joey,

Many thanks for the recommendations.

 

[e.nigma]

Pootanga,

It's good to speak to other people in the same boat as me. I have not read any books on this subject as yet. The best resource I have found so far is this site. Having trawled through the forums I have managed to get a better understanding of what is needed to undertake trading as a profession based on what people like you and I have experienced which I feel is worth more than any book or web site at the moment.

No doubt suggestions on what to read or where to go on the internet will be made so keep looking at this thread as I will be doing.

 

[damianoakley]

Hi e.nigma,

If you're looking at Stocks, then I always recommend "How To Make Money in Stocks" by William O'Neil.

It's got a corny title, but trust me, the principles behind the selection method are excellent.


Thanks

Damian

 

[pootanga]

e.nigma

Thanks for the advice, i will keep in touch


pootanga