Article Basics of Trading: Part 1

LOCOPERRO

Newbie
8 0
DaveJB said:
Okay, I'm on page 2 and will add to it when the Nasdaq closes....
Not one for high rollers, and definitely inclined to the light hearted approach, but there's a market for 'don't know much, and may never have much, but it'd be nice to have a go before death sets in' <g> It won't be definitive, it may contain errors, but it'll give a feel for what really involved in taking a very small pot and having a go at it from the amateur hour viewpoint.

Might have known Daniel would chip in <g>

Dave
DaveJB anything new yet i have £500 i need to make into £250000 in 2 months so i am waiting patiently
 

DaveJB

Experienced member
1,159 42
Yup,
I sent it off to Daniel last weekend, but he had some business to take care of and has to do the editor type stuff and so on. As I've pointed out (copiously <g>) you ain't gonna get rich off any of it, there's a bit about what you can trade, how the spreads affect your decisions what to trade, simple stuff like adding the margin requirement up to see how many points of how many shares you can run at the same time, and so on - nothing about selecting trades, I'm not good enough to do that, and I still make some basic errors... like you I put a few hundred into an account, I view this as my tuition fee - losing bits of it teaches me a lot more than paper trading thousands ever did.

I think my little effort is likely to appear sometime in the next week from what Daniel said when he got to it,
Dave
 

FTSE Beater

Experienced member
1,518 4
ale said:
Hi FTSE Beater.
Being new to this game I'm still trying to understand the differences in trading modes. Is the article more relevant to spreadbetting? Can you recommend a good article/book etc for the uninitiated.
Is there an answer to my basic question ie what would be the minimum capital to start trading stocks effectively using the 'rules' of the article? :confused:
Hi Ale

Sorry for the delay in getting back to you.
The information in the articles is designed for everything, as Technical Analysis can be applied to any market in any time-frame and the market doesn't care if your spreadbetting, direct access trading or broker trading - it will still behave in the same way :cool:
With regards minimum capital needed. It's based on the level of profit you have to make. The more profit you have to make, the larger the capital size needed. A profitable trader should be looking to increase their trading capital by roughly 1% each day. Which, if you do this constantly for 20 trading days in the month, would result in a profit of 22% - It makes it sound so simple doesn't it ;)

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Hi Millsy

Don't know what the spreads are for uk stocks but then again theres not much volatility.(am i rite ftse?)
The volatitilty on the UK stocks is good enough and the spreads from the spreadbetters should be the same as the real market. The stocks I love trading are:

AVZ, AZN, GSK and any of the big banks - LLOY, HSBA, BARC ANL etc.

Hope this helps
 

millsy500

Well-known member
355 21
Hi FTSE
Thanks for the reply. A quick one regarding risk. I've been looking at us stocks because its easier for me doing eod and from what i can gather from on here they're more volitile and therefore more profitable especially the software stocks etc. The problem is even on the small ones they require around a 300 p stop so if your risking 1% then you need £30000 pot. Is this correct? On a pot of around £3000 is this too risky?
Many thanks regards Millsy
 

ale

Active member
108 1
I'm glad to see the level of discussion here. Clearly a lot of people have need for some basic guidance and I'm learning a lot just by following these comments.
Just to lay my cards on the table:- I had some shares in my ex company from a sharesave scheme and I sold them a few months back at a peak (using iii as a cheap trade method). I took 120% profit on the original cost price (due to the discounts and the well timed peak) and have reinvested the £2700 in 4 other stocks. I won't name them but they are in oil, mining, chemicals and entertainment. After a month I am even (including allowing for all trading costs), although one is down a few %, one level and 2 up marginally. I could have reduced trading costs by taking only 3 stocks although would I have not taken the loser or a leader? So, £2700 in 4 stocks. Hold, sell and rebuy, try some SB? Based on info so far I plan to sell one stock and have a go at SB but I'd like to try a dummy account first. Are there such things? If so can anyone recommend one or is this not the place to mention specific sites?
 

DaveJB

Experienced member
1,159 42
Hi,
yes, SB sites have dummy accounts - they'll let you play with a pretend £X000 account while learning the ropes, some (I think Finspreads is one) will also let you start off very small for a month or two, betting 1p a point (the share price moves 1c, your bet wins or loses 1p... the 'norm' is £1 for each movement, ie win or lose £1 for every 1c a US share moves, or (I think - I trade US) per penny of UK stock price moves. UK prices seem rather sedate compared to US. Needless to say £1 a point is much more common, the odd SB company trades down to 50p a point but £1/pt minimum is the norm.

This means you can win/lose a lot very quickly - it also means an overnight gap can kill you... some shares can drop $10 overnight, that's £1000 change in your account - UP £1000 is pretty good, but imagine if your bet dropped that much overnight - and stop losses won't save you, that sort of drop DOES occur and you are locked into the loss up to the SB company's opening time. A common misconception is that stop losses allow you to set a limit at which you exit - they do SOMETIMES, but sometimes you can't get out until the drop has finished... you need deeper pockets, in SB, than appearances suggest.

SO... DO make use of the 'pretend account' (known as 'paper trading') if you look at SB, use it particularly to find out how to use things like limit orders, figure out the margin issues, and so on - the average 'paper trading account' has a large balance, when you play with a smaller one you discover you can't have 3-4 on the go at once, the margin requirements for each bet determine the total you can have in play at a time.

Getting the direction right is only part of it, a small part - I would think a good few SB players have lost noticeable amounts due to not understanding the margin requirements, or through not realising that what you can 'afford' on a paper account doesn't match what you can afford in real life using a smaller sum - you might happily hold overnight and show a profit, using your paper account of £10,000 - using your 'real money account' you discover a small opening gap creates an automatic close of the position at a significant loss. (You'll get a 'margin call' - but not much time to stump up the amount you have unexpectedly lost).

The thing is - the paper trading account can weather bigger 'drawdowns' than your real one - so play the paper account as close to reality as possible.

Given your experience so far I figure (A) with less than £3k on the go you aren't going to get rich in stocks, (B) SB if you do it really well might well generate a few bob, £3k in stocks won't, and don't let anyone tell you otherwise. (C) Trading is not easy, whilst I would not attempt to put you off this somewhat odd hobby, your chances of turning 3k into a a sizeable pot are limited, and if you are as new to this as your post suggests I would spend the next 2 years at least learning about trading and playing on paper.

Meanwhile... there are loads of websites with useful stuff on them, you don't need to buy anything. Your £2700 could go very quickly otherwise - keep it intact until you understand the game a bit better - the market will still be here when you are more up to speed. Websites are useful for teaching yourself how to spot setups, how to manage your trading, all sorts - generally speaking it's all well meaning stuff from people who are optimists but not making much from the markets. Do not, for heaven's sake, try trading a 'strategy' copied off a website - you really have GOT to read loads, develop critical skills for trading, try ideas out (paper trading) and find what works and what does not - very very little on the web is right as often as a coin toss, and it will take a good while to decide where the nuggets actually are. How 'nice' the author is should not be used as a guide, some very well meaning types will tell you a load of old rubbish simply because it's all they have and they're desperate to please you... the sad truth is that whether a tactic makes money or not is largely down to it being at least vaguely useable and (more importantly) the psychology of the trader - crap tactics and good trading will probably break even or close to it, brilliant method of selection and lousy trading = losses every time.

Have fun, it IS fun, and I'm not trying to put you off... but it's very easy to lose money in 3 ways - 1 is picking bad trades, the 2nd is not understanding the ins and outs of the trading method... you need to get both right, and that is far from easy, 3rd is making a pigs of it because your head is where the monkey (allegedly) sticks his nuts....
... welcome through the Looking Glass <g>
Dave



It should be
 

FTSE Beater

Experienced member
1,518 4
millsy500 said:
Hi FTSE
Thanks for the reply. A quick one regarding risk. I've been looking at us stocks because its easier for me doing eod and from what i can gather from on here they're more volitile and therefore more profitable especially the software stocks etc. The problem is even on the small ones they require around a 300 p stop so if your risking 1% then you need £30000 pot. Is this correct? On a pot of around £3000 is this too risky?
Many thanks regards Millsy
Hi Millsy

Your calculations are correct, however - what do you plan to trade with a 300p stop? :eek:
That's a large amount!!

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Hi Dave,

Great post :cool:
Does that answer your question Ale?
 

millsy500

Well-known member
355 21
FTSE Beater said:
Hi Millsy

Your calculations are correct, however - what do you plan to trade with a 300p stop? :eek:
That's a large amount!!

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FTSE

I've been looking at companies like microsoft on the nasdaq,using spread bet companies.
Is this a bit risky?

Millsy
 

FTSE Beater

Experienced member
1,518 4
millsy500 said:
FTSE

I've been looking at companies like microsoft on the nasdaq,using spread bet companies.
Is this a bit risky?

Millsy
Hi Millsy

No, these companies are fine to trade. MSFT gets thrown about a lot in the day, but on a longer term basis this is fine. Could you give me a chart or an example (with dates and prices) of where you would consider using a $3 stop.

Thanks
 

millsy500

Well-known member
355 21
FTSE Beater said:
Hi Millsy

No, these companies are fine to trade. MSFT gets thrown about a lot in the day, but on a longer term basis this is fine. Could you give me a chart or an example (with dates and prices) of where you would consider using a $3 stop.

Thanks
Hi FTSE

Heres an example. I've been short on ADBE since 18/2/05. I opened on 6310 with a 5% of price stop (IG index ). I went into this trade because of software signal, a reversal to go short and because of negative ADBE news can't remember where i got the info tho.

Millsy
 

Vorbis

Well-known member
270 35
A very good article.
It concentrates on the essential core elements that any beginner should absorb if they wish to have any chance of survival.
 

neil

Legendary member
5,167 746
Chart please

millsy500 said:
Hi FTSE

Heres an example. I've been short on ADBE since 18/2/05. I opened on 6310 with a 5% of price stop (IG index ). I went into this trade because of software signal, a reversal to go short and because of negative ADBE news can't remember where i got the info tho.

Millsy
Can you post a chart ?
 
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