Hoping for more help and advice...


Hi all – and apologies in advance for this long post…

Well, I’ve been busy the last couple of months reading and developing/back-testing my trading strategy and writing up my trading plan. I have now been trading for three weeks using Finspreads 10p per point deal, which is an excellent way to learn some relatively cheap lessons! The strategy is basically swing trading and is ‘my own’ in the sense that it has taken elements from several other strategies and combined them in a way that (so far) works for me. Nothing esoteric here - all of the elements will be very familiar to experienced traders and I’ve tried to keep it simple but workable. I’m now in the process of tweaking percentages week by week until I arrive at a combination that works. I’m only trading FTSE100 companies, and at the end of each day I download the data to ShareScope carry out my analysis, place buy/sell orders to a target price and place a stop-loss (currently 1% below previous day’s low/high depending if I’m going long or short). I know exactly what my potential loss is on each trade, and I keep it to <2% of my total (artificially imposed) equity of £200. I’m using trailing stops to lock in profits (or at least to reach break-even).

So far all my trades (about 20 of them) have either ended in break-even or made very small losses (grand total losses of £2.60 so I’m not bothered!) but that’s okay because as I say it’s part of the learning process and I feel I’m taking a measured approach which will come right in the end (I’m not looking for excitement, just a system that works). First week I was subject to whipsaws and got prematurely stopped out on pretty much every trade. I tweaked my percentages and the second week none of my trades were triggered at all! Altered the percentages again and week three I had 1 loss, several break even trades and a tiny win. So I hope I’m getting there…

So now I have a bunch of questions that I’m hoping you can help me with.

1. I think my short term entry strategy and money management are basically fairly sound but I don’t feel that I’m getting a good handle on the longer term picture (or an appreciation of the value of it). I have a chart setup using daily candles that goes back about 4 months and that’s the one I use to look for entry; and a weekly candle setup that goes back about 3 years. But I’m not really sure what I’m looking for on that one – I’m aware of trend lines and S/R but somehow or other I feel that I’m missing something. Any advice? Are there any indicators that work well at that longer time scale?

2. Pivot Points – I understand how they are calculated using HLC from the previous day and they sound like a useful addition, but are they any use to an end of day trader, or are they really only for intra-day trading?

3. I’m attracted by Forex for the simplicity of not having to scan a 100 or more stocks looking for entry signals, but from the outside it all looks a bit frantic (!). Are there people out there who trade Forex end of day, or are currencies always traded intra-day? I work full time but I quite like the idea of trading Forex for an hour in the morning and another hour at night but I’m not sure I’m psychologically suited to such short term trades! Is there any way to reduce the psychological tension (‘excitement’ I suppose some would call it…) on these trades? Also, do all of the same elements apply to Forex as to shares – i.e. trends, S/R, bulls, bears etc, etc?

4. My strategy is really designed for stocks which are in a trend. Is there a good way to trade stocks that are in a range? Or should I just stay out when shares are ranging (as many of the FTSE100 shares seem to be doing at the moment)?

Well, I think that’s about it for now. Thanks as always for your replies and patience!(y)
Yes - I figure that at 10p per tick it's worth it for the experience. I did paper trade first, but I kept tweaking my strategy so often I felt I was getting nowhere.
The only thing I would say is that you are doing the right thing, going through losses is part of any traders learning curve - and trading pennies is the way to do it.

I'm sure everyone here could tell you the way they prefer to trade and what instruments - but we're all different and I suggest you try out all the things you are talking about using demo accounts to see which does suit you.

Also - the markets are going through a very volatile period at the moment. 200 points swings in the FTSE within an hour - that's not something you see very often so we're all finding the conditions a little difficult at the moment and it requires a different approach to "normal" - whatever that is...
Yes - I figure that at 10p per tick it's worth it for the experience. I did paper trade first, but I kept tweaking my strategy so often I felt I was getting nowhere.

The amount of money is irrelevant. You have not yet developed a consistently profitable strategy. Therefore, trading with real money is pointless, unless your goal is to screw yourself up.

If you don't have the patience to develop the strategy, you won't have the patience to trade successfully.
Fair enough DBP - as you'll know from my previous posts I'm keen to do this properly - I'll take your advice and go back to paper trading. Unfortunately my opportunity to trade at 10p per point with Finspreads expires in 4 more weeks but you are quite right - that's not as important as getting the strategy correct, and why give them any money at all when I don't have to, eh? ;)

Any further thoughts on what I wrote?

You seem to be doing just fine, working at this deliberately and rationally. However, I don't know what you mean by "tweaking". Rather than open up new threads, I suggest you transfer what's most important to one single thread, perhaps a journal thread. That way, whoever is interested in what you're doing doesn't have to research all your old posts to find out what you're doing and why. Otherwise, the kind of advice you get will more likely be the bumper-sticker variety.

Beyond that, you're almost to the point of having to address the questions you've asked, but an explanation of what you're doing and why and how would provide a context for them. For instance, in #1, what is "basically fairly sound?" And why do you need to "get a good handle" on any other timeframe? Without a clear idea of what you're doing, any answers to such questions would be based on what people think you're doing rather than what you really are doing.
A journal thread sounds like the way to go, though I must admit that as a beginner it feels a bit daunting! I take your point about the rather vague statements - I didn't give more detail because I didn't want to bore people, but I'm happy to detail exactly what I've done each week with specific examples (and what I plan to do next week). I'll sit and spend some time with it this evening. Thanks again
Gododdin just a few points.

With regards to your stop loss. You mention that this is 1%, from the previous days high / low. I think you probably need to do a little work on this. Personally I would say that you need to customise your stops depending on the shares that you are trading. I also trade FTSE shares and with the more volatile shares you would get stopped out too often using 1% even if the market moved in the way you predict. You may do better using a stop that takes into account the recent volatilty of the share eg a Chandelier or Elder Safezone stop.

For the longer term charts the main thing you want to be checking is simply that you are not trading against the longer term trend. Eg if the MA is rising and the MACD is positive then you don't want to be going short. I don't think you need to analyse things in much more detail than that, with the exception of looking for support or resistance that may affect the shorter term trades. Others may disagree of course.
Useful stuff there Shanghai - thank you - I've just started a new journal in that section of the site and will continue to develop these themes over there - and have no fear I'll be reading up on Chandelier and Elder Safezone stops!