Newbie says Hello

Tun

Junior member
22 0
chump said:
Tun,
I posted too quickly earlier and did not make my point clearly hence no surprise you misunderstood me.
The misunderstanding probably comes down to me being new to all this, but cheers for being polite about it ;)


If you have a £1000 to trade and you establish 2% per trade to be your rule for entering a trade then what you are saying is I am willing to lose up to £20 on this trade. Now if you take a trade with most SB's they establish a minimum bet size at £1 a point.
I'm fine with all this


From this you can see you could only enter a trade if if it allowed you to establish a 20 point initial stop. From this you then have to look for trades that will meet this requirement. The problem you may have is one of timing. You may have to be very good at pinpointing turning points and or you are going to have to take trades intraday where the range of movement anticipated meets your rule.
This is a bit general,because there's at least one SB I think who can take a bet size at 50p a point which will help you and indeed there may also be UK stocks which may have a range of movement that meets your rule.
I think I get you, I'll try and use an example to clear it up

Say for example a share is trading at 408.5 so the spreadbetting company offers 406.4/410.4(These figures are approx 0.4% to 0.5% but I've massaged them for the sake of this example). So that means if I think the stock is going to go up and I buy at 410.4 with a stop 20 points below (as of my rules) this puts the stop at 408.4. Then all it takes is a 1 point or 0.1p shift in the wrong direction and I'm out.

However if I picked a share around 103.5 the figures the spreadbet company offer would be 103.0/104.0. If I thought they were going to go up my stop would be at 102. Which gives me a lot more room for things to got the wrong way, even though I'd be taking exactly the same loss.

Is this what you're trying to show me ?

This leaves me with a number of options
- Limit myself to certain shares
- Find a company that offers bets of less than £1 a point
- Start with more capital

If I've got this right it looks like I need to find somewhere that offers bets of less than £1 a point.

Working through those examples (if I have them right) it doesn't look like an attractive proposition at all. I've got a heck of a lot more investigating to do before I get into this, but from the above two examples the odds are horribly stacked. I think it's time for a spreadsheet and a dust off of the old VB skills !

Don't equate more capital with more risk in terms of your ability to survive the learning curve.
I find this even harder to get than the above bit :) Does it mean, if you start with more money it doesn't necessarily increase the odds of (or the magnitude) of a failure ?
 

chump

Senior member
2,212 274
Tun,
Take this example : you want to buy XYZ stock at quote 10.20 ...your initial stop loss would be 10.00 or closer. However, if that stock has a range of movement of say 0.60 a day then if you are not to get your stop taken out you must be able to do one of two things
1.find the turning point where the range is about to move in your direction with a degree of accuracy inside your stop range
and or
2.chop that range of movement into smaller chunks by monitoring the movement on a shorter time frame inside the day which I understand you cannot do.

With regard to my other comment that you did not understand. Think of it this way. With a £1000 and a 2% rule if you take 4 or 5 hits your ability to trade and maintain that rule becomes increasingly harder conceivably to the point where you won't be able to trade outside of the smallest timeframes.
Consider if that £1000 were £5000 is that the same problem if you take 4 or 5 hits?

I think funding may be one the reasons why day trading seems to be the first port of call for new traders.

Cheers
 

ithomas21

Junior member
25 0
Tun,

I originally faced this same dilemma with spread-betting. My system involves risking about 0.5% of my capital per trade and at £1 per point this would mean the stops were too tight for my plan.

As a result, I set up a CFD account. Because you can trade with as little as 1 CFD you can set the size of your position to much smaller values.

Best of luck.
 

Tun

Junior member
22 0
Chump.

I'm beginning to see now how my original thoughts for this are way off. I'm going back to the drawing board.

A 20 point stop on a stock that has 60 point daily movement plain won't work. I need to be able to place stops that are only going to be taken if the price makes a definite move in the opposite direction.

Whether I come back and decide to start with £5000 or just use £1000 on a 20pence per point or even £2500 on 50p a point remains to be seen. I don't know anything yet so 20pence per point looks most likely at the moment, then increase the capital if I become more confident.

Yep I can see the difference taking 5 hits on £5000 than £1000, proportionally you've got a lot more play with with £4500 than £900. I'd need to run some examples to make this clearer in my head.

Unless I can monitor the trades during the day I might just have to leave it.

Cheers for taking the time to highlight these things.


ithomas21
Hi,

I've heard of CFD's before but I haven't looked into them much, from what I've read else where they needed more capital to start in than spreadbets,somebody recommended trying spreadbetting before CFD's. After what you've said I'll look into them in more detail.

Thanks
 

chump

Senior member
2,212 274
Tun,
I don't know what your original thoughts were and I am certainly not trying to put you off. I am just drawing your attention to the importance of capital and how it drives so much of what is possible for you.


Cheers and good luck
 

Tun

Junior member
22 0
No worries, I didn't think you were. I'd prefer somebody put me off slightly that encourage me into something unprepared. For me you don't have to worry about what you're saying if it's what you believe.

You've shown me a few things I definitely need to be aware of that I might've been caught out on if I'd rushed in like a bull in a china shop.

I'm just going to mull things over read more info, paper trade, demo accounts etc. If you hadn't pointed out the capital issue I may have started a demo with 10,000 hit a few lucky trades and thought "this is easy" then when it came to my own capital get caught out.

Fingers crossed :)
 

seagreen

Newbie
3 0
Hi there,
Sorry to come in so late to this discussion, but I have just been reading the origional post by Tun, and I thought "that's me" almost to the last detail, except that I am freelance and able to check the markets in the day. I have found the replies very helpful and thought provoking however I have a couple of comments that I would really appreciate someone giving me their more expert opinion on.

You have been discussing how restrictive it will be starting up with such a relatively small amount of capital, and the options open, like more capital ,certain types of shares etc. but nobody has mentioned risking slightly more of the starting capital, maybe about 5%. This was going to be my plan because
1. It will give me more experience and I am treating the initial £1000 as part of my trading education
2. Losing all my capital, should it happen, would just mean that I would have to save it up again, paper trading in the meantime, the family wouldn't be out on the street.
3. I don't want to feel as if I am in a straight jacket, I'm scared enough as it is.

I hope it doesn't sound too reckless, as I know all the books say never risk more than 1-2% but can't this rule be more flexible when you are talking about a small amount of capital which it wouldn't be the end of the world to lose.

Just another comment about being emotionless about wins and losses, I've read this a lot as being one of the things a good trader has to cultivate to be successful. Surely any human being is going to be a bit miffed if they lose money. Isn't it more healthy to switch off the computer and go to the gym and hit something. Then start again the next day with it out of your system. Bottling things up gives people heart attacks. Sorry if this has been discussed elsewhere.

I know I don't know anything and you all probably think (if anyone is reading this) that I will last about a month if I am lucky, but I would really appreciate comments. It's not too late to save me as I have'nt committed any money yet.

Thanks for listening
 

chump

Senior member
2,212 274
5% at the very start will just be more likely to shorten your educational experience by wiping you out that much quicker.
Education takes time.Using the lowest viable % to begin trading maximises the amount of time you are giving yourself to learn how do it consistently well.
If your results shows you are a proverbial 'rocket scientist' then that would be the most logical time to increase initial risk and or position size. If like the rest of us you are a mere mortal then going small to start is the way to go.

Cheers
 

TheBramble

Legendary member
8,394 1,170
Seagreen - Chump has covered the capital risk issue, but as for unemotional trading - there is a difference between being 'miffed' and feeling any of the stronger emotions such as anger.

Trading with money you wont miss is essential. But if there's any emotional attachment to it (next month's mortgage, school fees, massage parlour subscription etc...) on the line, it becomes impossible to be unemotional.

And, with anger comes the 'need for revenge' as you ramp up your next position size to 'get back' what the market 'took' from you.

If it's the education you want, keep the risk to the 1% range and use a sub-£ SB...

If you're starting with low capital, it wont matter if your trading 1% or 5% in terms of profits, but it will mean you get to stay in the game longer if you're wrong - giving you a chance to adjust your trading appropriately.
 

seagreen

Newbie
3 0
TheBramble
I see what you mean about having emotional attachment to the money involved in trading. Its almost as if it is not money in the usual sense but stuff you use to trade with. Possibly thats not exactly what you were getting at but its given me something to think about.

Thanks guys
 

Skimbleshanks

1
2,325 16
Seagreen - no matter what you feel right now, when you actually put real money on a trade and manage the trade you will probably be very surprised by your emotional response.

It's just one of those things that you have to experience for yourself to know and understand how profound an effect it can have on you.
 

RAMOUTAR

Junior member
40 0
Skimbleshanks said:
Seagreen - no matter what you feel right now, when you actually put real money on a trade and manage the trade you will probably be very surprised by your emotional response.

It's just one of those things that you have to experience for yourself to know and understand how profound an effect it can have on you.


Excellent, Skimbleshanks!
 
 
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