On the right track?

[mollymoomar]

Please could anybody advise me. I am new to trading and use finspreads. I use prophet.net to look at markets (cost £30/month). I am using fib ratio's to determine my entry points (127% and 162%)and do not risk more than 5% of my capital on any trade. My risk:reward ratio should be 3:1. I would like achieve 100 pts per month trading the dow and other US stocks. I will trade end of day and can only commit an hour a day to my endeavours.

In your experience is this achievable or am I heading in the wrong direction. I understand that discipline and emotions play a huge part and I hope to improve and learn from my mistakes. I am not expecting to become rich overnight but over the long haul I hope to develop my capital and skills.

I also like Marc Rivallands Swing trading technique and would also like to ask if using two different systems is feasible.

Any help or advice would be welcome.

 

[damianoakley]

It sounds like you have a definite system in your own mind.

Are you on the right track? From the point of view that you seem to have a definite trading strategy, I would say yes, you seem to be along the right lines. But that will ultimately depend on how well researched your trading system is. Your expected risk/reward ratio of 3:1 - where has that come from? Is there a good reason upon which you can base an expectation on 3:1?

5% risk per trade would be classed by many as slightly excessive risk, but this depends on your expected winning strike-rate. Are you prepared, for example, to watch your capital deplete by 50% if you had a bad run of 10 losing trades?

As for trading U.S. Stocks and not day-trading. Yep - that's exactly what I do every day and it has worked well for me.

To take your final point of operating two different systems. Technically, there's no problem with this; discretionary traders use many different methods to trade. You should just be careful as a beginning trader not to confuse yourself.

Keep it simple, especially at the beginning.


Thanks


Damian

 

[mollymoomar]

Hi DamianOakley

Thank you for your time and courtesy.

Yes, 5% risk of capital could be considered high. I can adjust this in my trading plan to a lower figure. Particularly for the first 12 months.

Is the only way to research the trading system to run with it? Or are there better ways?

3:1 Risk Reward Ratio: The truth is no, I do not have sufficient reason to base my expectations on this figure. I suppose it depends where I put my stop loss, but I would not like to risk more than 100 pts on a trade. Is this pie in the sky?

My bet size would be calculated by between my stop loss and the % of capital I intend to risk on a trade.

From your reply I expect you have already save me money. A bottly of "newky brown" to you.

 

[damianoakley]

The only other way of testing a system other than running with it, is to backtest it.

Many traders shy away from backtesting because it can be tedious and time-consuming, but it will certainly give you an idea of what to expect from the markets. However, be aware that backtesting does not take into account the day-to-day emotions you will have to overcome when trading for real.

When you say you will be be risking "no more than 100pts on a trade", does this mean that you are expecting to make 300 points on your profitable trades? You need to look at past market moves to see if this is realistic.


Good Luck

Damian