FTSE Beater
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Hi All
A number of people have recently asked me. I want to get into trading, but I don’t really know where to start – So I thought I would start this thread with the aim of giving new traders a place to start and a simple strategy that can be implemented without (fingers crossed) too much trouble.
I used to trade a slight variation of this a while ago. The UK stock markets are naturally range-bound, especially on a short-term basis. This strategy looks to buy low and sell high, so it is swing based. It uses the basics of support, resistance and trendlines combined with money management. These are the elements I looked at Here.
What is the strategy
Here’s an example of what I mean from the last few weeks - looking at Royal Bank of Scotland.
Here there is resistance at 1614, which has been tested and failed to break above that point. There is a potential trade here, but the price says 1605 which, with a stop at 1616 and a target at around 1590, would give a Reward / Risk ratio of 1.36 – which is too small to trade
However if we enter a limit order in the market at 1608 then we will get a Reward / Risk Ratio of 2.25
Lets see if we get a fill on the next bar.
Yes we got filled. That last bar shows a high of 1610 and a low of 1604, so our limit order at 1608 would have been filled.
Ok, so we are now short with a stop at 1616
For the next few bars the price moves down slowly, but surely. Once price hits 1590, I’m out of the trade and taking the profits Is that the right decision?
Well……..
Nope The price fell further. Would I be happy taking profits where I did. Yes
The next trade set-up is at this point. The price has bounced off the previous support level, so this is now resistance. With the price at 1584, a stop at 1590 and a target of 1557, so a great Reward / Risk ratio of 5.5
So we are now short (as we enter on a market order to get a price of 1584), with a stop at 1590.
eek
Price never really started to fall, so stopped out for -6.
Here’s the next set-up. Again a test of the 1590 mark. The problem is price hasn’t quite tested it, and on the next bar this happens.
eek
What a fall, could you have caught it? Possibly, but you would have had to be quick and if I managed to get in on the trade then I would be exiting at 1558.
On the next bar, the price does indeed bounce. Price at 1560, stop at 1554 and a target of 1590 gives a Reward / Risk ratio of 5:1
So long with a market order to get filled at 1560
After threatening the stop on the previous bar, the stop got hit on this one. Out for -6 again
This is where things get tricky and at this point some people would abandon this strategy. – Well we have had 2 losses in a row. The ability to carry on with a strategy, that in the short-term is failing, is where a strong psychological make-up comes in.
The next set-up comes here. A bounce up off the previous support level gives a long entry at 1547 with a stop at 1541 and a target of 1570. So a Reward / Risk ratio of 3.83
The exit comes a couple of bars later as price hits 1570
After that the price carried on all the way up to 1635.
So there you go, a few easy and relaxing trades in Royal Bank of Scotland
The one thing I would say with this, and it goes for much of trading, you need patience. 3 (maybe 4) trades in a the space of 2 weeks, is not a great deal. So the majority of the time you will be waiting for the trade, which isn’t always easy to do.
This strategy is by no means perfect. I could pick holes in it all over the place, but as a starting point – it’s pretty good.
Feel free to ask questions, and post comments
Thanks for reading
A number of people have recently asked me. I want to get into trading, but I don’t really know where to start – So I thought I would start this thread with the aim of giving new traders a place to start and a simple strategy that can be implemented without (fingers crossed) too much trouble.
I used to trade a slight variation of this a while ago. The UK stock markets are naturally range-bound, especially on a short-term basis. This strategy looks to buy low and sell high, so it is swing based. It uses the basics of support, resistance and trendlines combined with money management. These are the elements I looked at Here.
What is the strategy
- What were looking for is a test of support or resistance or a trendline that fails to break.
- If it tests support and bounces up, then go long and place the stops just under the support level.
- If price tests resistance and bounces down, then go short and place the stop just above the resistance point.
- Take profits at a test of previous support or resistance.
- Once the trade is in profit (how much is up to you) Move the stop to break-even, so your then sitting on a “free trade”
- Trade stocks, That are in the FTSE 100, and That have a high average daily range
- Trade off a 60 minute bar or candlestick chart
- Look for a Reward / Risk ratio of at least 2:1 – ideally 3:1
- No trades held overnight if the company is reporting the next day
Here’s an example of what I mean from the last few weeks - looking at Royal Bank of Scotland.
Here there is resistance at 1614, which has been tested and failed to break above that point. There is a potential trade here, but the price says 1605 which, with a stop at 1616 and a target at around 1590, would give a Reward / Risk ratio of 1.36 – which is too small to trade
However if we enter a limit order in the market at 1608 then we will get a Reward / Risk Ratio of 2.25
Lets see if we get a fill on the next bar.
Yes we got filled. That last bar shows a high of 1610 and a low of 1604, so our limit order at 1608 would have been filled.
Ok, so we are now short with a stop at 1616
For the next few bars the price moves down slowly, but surely. Once price hits 1590, I’m out of the trade and taking the profits
Is that the right decision? Well……..
Nope
The price fell further. Would I be happy taking profits where I did. Yes The next trade set-up is at this point. The price has bounced off the previous support level, so this is now resistance. With the price at 1584, a stop at 1590 and a target of 1557, so a great Reward / Risk ratio of 5.5
So we are now short (as we enter on a market order to get a price of 1584), with a stop at 1590.
eek
Price never really started to fall, so stopped out for -6.
Here’s the next set-up. Again a test of the 1590 mark. The problem is price hasn’t quite tested it, and on the next bar this happens.
eek
What a fall, could you have caught it? Possibly, but you would have had to be quick and if I managed to get in on the trade then I would be exiting at 1558.
On the next bar, the price does indeed bounce. Price at 1560, stop at 1554 and a target of 1590 gives a Reward / Risk ratio of 5:1
So long with a market order to get filled at 1560
After threatening the stop on the previous bar, the stop got hit on this one. Out for -6 again
This is where things get tricky and at this point some people would abandon this strategy. – Well we have had 2 losses in a row. The ability to carry on with a strategy, that in the short-term is failing, is where a strong psychological make-up comes in.
The next set-up comes here. A bounce up off the previous support level gives a long entry at 1547 with a stop at 1541 and a target of 1570. So a Reward / Risk ratio of 3.83
The exit comes a couple of bars later as price hits 1570
After that the price carried on all the way up to 1635.
So there you go, a few easy and relaxing trades in Royal Bank of Scotland
The one thing I would say with this, and it goes for much of trading, you need patience. 3 (maybe 4) trades in a the space of 2 weeks, is not a great deal. So the majority of the time you will be waiting for the trade, which isn’t always easy to do.
This strategy is by no means perfect. I could pick holes in it all over the place, but as a starting point – it’s pretty good.
Feel free to ask questions, and post comments
Thanks for reading
