Spreadbetting - Beginner to pro

[dan1986ccfc]

Hi mate,
Firstly, please remember that I'm using this trade to a)get used to software/stop losses etc b) get used to using some form of technical analysis.

so my thoughts were as follows:

On initially looking, it seems a relatively fluid stock with a value I like (I'm trying to keep them within the 100-500 range, purely because I feel it minimizes my exposure for the time being). I then looked into the graph. Firstly, a two hour graph. since the eigth there has been a pronounced downward trend (with a small peak towards the end of play on the 13th). I then looked back at daily and found that it had fallen to ~126 a number of times and then come back up. Given the combination of a downward trend and this support point, I thought it seem logical that it could fall again, especially as looking at the company fundamental points, there doesn't seem to be much on the horizon...
Add to this the fact that it has a pattern of up, down down, up down down and it's just had an up.... I felt this was an okay short.
It has reached this support point ~3 times since feb..

As i say, i'm very new to this type of analysis and this bet is more for fun/interest than serious money making.

Ps. I'm not sure how to include graphs, sorry..

What are your thoughts on that?

Hello,

Yeah I see where your coming from now. Although i'm still not sure its a 'strong' downward trend as its only been happening a couple of weeks, but hey what do I know!
Also, maybe the support point needs to have been touched more than 3 times to make it reliable. I suspect the fact its been support since february probably helped your decision.

When you say its a fluid stock do you mean liquid?

Regards, Dan

 

[dan1986ccfc]

P.S

I acknowledge the fact you were mainly taking the trade to get used to the software and technical analysis. I'm not in anyway disputing the decision you took

Just wanted a better understanding on it thats all!

Dan

 

[market_bull]

Kudos to you for getting your hands dirty and trying it out, man. I'm still greenhorning it with all the text I'm reading!

 

[Caledonianbu]

Hello,

Yeah I see where your coming from now. Although i'm still not sure its a 'strong' downward trend as its only been happening a couple of weeks, but hey what do I know!
Also, maybe the support point needs to have been touched more than 3 times to make it reliable. I suspect the fact its been support since february probably helped your decision.

When you say its a fluid stock do you mean liquid?

Regards, Dan

It's entirely possible i mean liquid yeah , sorry my techno lingo isnt very good. I simply mean that the share price seems to have been moving around a fair bit!
I agree, calling it strongly downwards was probably not quite correct... And yes, It was just more a bit of a fun trade, to see if what I thought was right was infact right! Anyway, made 1pip on it, so it's not too bad, I'm paper trading at the moment with some new ideas as to identifying possible shares and then deciding on entry/exit points. I hope to post a more comprehensive post outlining this shortly in the future. Any advice/criticsm is appreciated!

 

[Caledonianbu]

Kudos to you for getting your hands dirty and trying it out, man. I'm still greenhorning it with all the text I'm reading!

Thank you! Keep on reading - I'm more of a learn on the job person, and while i've done a good few months of reading/demo accounting, i'm still massively new to all this. I figure making mistakes at the .10p/pip point is probably better than reading loads into it, feeling super confident and trading at £1 a point!!

 

[Caledonianbu]

Okay so I've done some work on how I'm going to select my shares for spread betting. This is loosely taken from my demo account - if anyone has any further ideas/tweaks for me please point them out!

So I'm going to have 3 types of bets:

1. Long term
2. Short term
3. Pennies

A long term bet is anything that goes >7 days, and my selection of these will be ~70%fundamentals, 30% Technical analysis.
A short term bet is anything that goes <7 days, and my selection of these will be ~70% Technical analysis, 30% Fundamentals!
Pennies - these are shares of tiny, tiny value (<25p) and I will look to have one of these open with a minimal bet and wide stoploss in the hope that either it crashes = I owe 2.50 or takes off in which case the returns could be very good. I'm planning on incorporating this at a later date. Most likely will be ~100% fundamentals (small mining/oil etc. companies).

Fundamentals
1) RISK, what risk am I exposing myself to by entering this bet. I have broken this down into a)stop loss risk and b)absolute risk (i.e. if the share collapses overnight and I have no garunteed stop loss what do I stand to loose?).

STOP loss placement will be at the ballpark figure of 10%, but this will be adjusted largely based on the pattern of daily trading/fluctuation as seen in the charts. (i.e. if its normal level of fluctuation is 12% then i'll set stop loss @ 15%). LIMIT placement will be based on the plan of gaining ~20% on each trade (predominantly for longer term trades), this will ofcourse be adjusted as the bet develops.

ABSOLUTE risk, this is calculated by bet amount x share value = total risked (if no garunteed stop loss is in place). I realise that this kind of crash is highly, highly unlikely, but still, I would like to minimise my exposure. I will therefore be looking to expose myself for no more than half of my current account amount, so the largest shares I will be betting on for the time being will be <500p. ( bet size .10x500=50).
In any one bet, i'd be willing to risk 2% with stop loss (ie 20 points). THIS MAY NEED ADJUSTING.

2) Technicals (more to follow in another post, though it will be very very basic analysis technique, using candlesticks, bar charts, resistance/support, some interesting blog posts by James16, and moving average analysis. This is an area of trading that I'm very new to!)

3)fundamental company analysis :
Dividend profile?
Latest company report - using the naked trader traffic light system
Debt? Debt/profit ratio.
Any recent director dealings?
Quick look at website.
P/E ratio.
Proft/cap >15 = don't long!

4) Dates (I don't want my bet to coincide with any profit reports etc. that could damage the bet, so before placing I will check company diary to try and avoid!)

5) IN's
6) OUT's
(more to follow on entry/exit strategies)

As a general rule, I will be looking for stocks with more day to day variation for my short terms and longer holds will be more 'stable' (as i see it). I'm going to treat my long term holds as if I were buying the shares myself (or selling them if I were shorting!).

The pennies idea might not take off, it was just something I picked up on reading elsewhere.
Please, now feel free to take this apart, it is by no means comprehensive and by no means finished!!

 

[Caledonianbu]

I have now made some watchlists on IG index. one for each of the above categories. each has around 6 companies in and I will start to investigate each further over the next week. I hope to use these as a foundation, and add companies to the lists slowly. I have put a long on solo oil PLC, if it all goes horribly wrong, I will loose 10p (1pip), so i'm really not that fussed, and if it takes off - awesome!

In other news, the paper trades I did last week are doing really really well ( I would be +40 pips since last thursday, with 3 +ve bets and 1 -ve). So all in all, i'm very happy, will start putting in proper bets soon. Just want to paper trade my current share selection/analysis before I start properly utilising it!

 

[Caledonianbu]

So looking into shares is going pretty well, found a few solid shares that I will be looking at for my long term bets - finding short term is harder, but never mind. Having a little play with news stories at the moment. Paper trading + 1 open position (short on ferroval - this is the company that owns BAA and BAA just got a kick in the nuts from the competition commision... so hopefully take a few points !).

Live and learn!

 

[Caledonianbu]

Fail. Putting an end to spontaneous, rubbish bets - based on media speculation!!

 

[Dogtrade]

Hey Caledonian. I've been checking out your journal with some interest. Even though I'm not into spread betting, your methods are of interest to me since I have been involved with the stock market a fair bit, and actually hope to return to trading stocks in the near future.

I think the thought of using fundamentals to pick your relevant stocks is very good but even >7 days is not really long-term unleass you really mean >70 days or something. Something like the debt/profit ratio probably won't mean much for a companys share price over the next fourteen days, although a horrible d/p ratio will mean that a disaster may be looming, a very good d/p ratio won't tell you much about the markets appreciation of the stock.

A thought of course could be to have a watchlist of stocks you find fundamentally solid and then trade them when the technicals come in play.

I'm interested to hear more about your approach to selecting stocks and what actually triggers your long-term trades.

 

[Caledonianbu]

Hey Caledonian. I've been checking out your journal with some interest. Even though I'm not into spread betting, your methods are of interest to me since I have been involved with the stock market a fair bit, and actually hope to return to trading stocks in the near future.

I think the thought of using fundamentals to pick your relevant stocks is very good but even >7 days is not really long-term unleass you really mean >70 days or something. Something like the debt/profit ratio probably won't mean much for a companys share price over the next fourteen days, although a horrible d/p ratio will mean that a disaster may be looming, a very good d/p ratio won't tell you much about the markets appreciation of the stock.

A thought of course could be to have a watchlist of stocks you find fundamentally solid and then trade them when the technicals come in play.

I'm interested to hear more about your approach to selecting stocks and what actually triggers your long-term trades.

Thanks for following! Yeah, I agree my time scales need to be modified a little. The debt/profit ratio was more at looking for solid, long term holds - I don't want to be putting a long bet on something in enormous debts that they'll never pay off!

What I have done so far is make 3xwatchlists = Long term, Short term and Pennies.

So far, I have selected them based on a wide variety of factors, mostly taken from AFVDN top lists/my previous demo account watchlists/general reading around. Over the next few weeks I'm gonna look to narrow/expand this list as required by gathering more information.

I think the beauty of spread betting is that you can just have 20-30 shares (maybe less) that you know really well, and can bet on time and time again. At least that is my impression, and my pllaann! I'm no longer putting any bets on anything until I've got fully researched shares. I have 2 fully researched at the moment.

My entry/exit strategy is my real weakpoint at the moment.... I can't decide how's best. I think it must be pretty pure Technical analysis based tbh, I've heard a fair few ideas of how to time it, but i'm undecided!!

What sort of shares did you trade? Good luck getting back into it!

 

[Dogtrade]

Thanks for following!

...

What sort of shares did you trade? Good luck getting back into it!

I used to trade(mostly paper trade, really) the Oslo Stock Exchange. Mainly the OBX index which is widely traded in Norway. Several ETF's track the index and it is possible to trade it through futures, options and warrants.

Following such a small index is very helpful(only 25 shares). Getting intimate with the various stocks making up the index helps pinpointing the best opportunities when several stocks in the same market gives you similar set-ups.

I also maintained a list of fundamentally interesting stocks on the same exchange and entered on technicals. I followed international stock indices for some time as well, but only as part of my market analysis preparing for the opening in Oslo.

Looking forward to seeing your progress! I find it very interesting that you come from a poker background. I'd be very interested to read some sort of write-up on how that helps you in your trading(knowing this has been done before, a new perspective is always helpful).

Good trading!

 

[Caledonianbu]

Well, I'm yet to be ACTUALLY successful in real life. Paper trading, it seems I'm quite good at spread betting, but we'll have to see how it goes! Ahh I don't know the OBX, i'm purely trading UK shares at present.

Yep choose with fundamentals, and eneter on technicals.... but I need to get my technique a little finer....
I will write something about my poker background. I think it's mainly beneficial because of money management/detachment and application of odds etc. I shall have a think. I feel maintaining your 'cool' is massively important in all things like poker, trading, spread betting etc.etc.

anyway, got a meeting with a research tutor tomorrow, so i'll be looking into my shares more closely tomorrow morning for an hour or two. Haven't played any poker recently.... must play some, feel i'm getting a touch rusty!!

 

[Pazienza]

It's entirely possible i mean liquid yeah , sorry my techno lingo isnt very good. I simply mean that the share price seems to have been moving around a fair bit!

Hi Caledonian,

Interesting journal. You've obviously got a long way to go but you are approaching things in the right manner. Your idea of investigation, note-keeping and gaining cheap experience via small bets is an excellent one. You seem to be determined to figure things out through your own effort and research, and trust me when I say that you are way ahead of the pack of retail punters by virtue of this attitude alone.

Your "technical" approach of price action, S/R etc is a good one and is worth pursuing further.

If I can offer a suggestion , get yourself copies of How to Trade in Stocks and Reminiscences of a Stock Operator. Both are excellent and the former in particular might also furnish you with some practical techniques that might compliment what you are working on.

Never take tips, because to do that is disastrous. However, I'd buy Old Mutual when it crosses 147 and pick up a bit more when it breaks 150. Watch it at that area - if it doesn't get through convincingly, I wouldn't waste any time in getting out. If it does break, it could be very strong indeed.

One last thing - with reference to your quote above, the word you want is just "active" . Liquid is something else.

Good luck with it, it sounds like you've made a cracking start.

 

[Caledonianbu]

Hi Caledonian,

Interesting journal. You've obviously got a long way to go but you are approaching things in the right manner. Your idea of investigation, note-keeping and gaining cheap experience via small bets is an excellent one. You seem to be determined to figure things out through your own effort and research, and trust me when I say that you are way ahead of the pack of retail punters by virtue of this attitude alone.

Your "technical" approach of price action, S/R etc is a good one and is worth pursuing further.

If I can offer a suggestion , get yourself copies of How to Trade in Stocks and Reminiscences of a Stock Operator. Both are excellent and the former in particular might also furnish you with some practical techniques that might compliment what you are working on.

Never take tips, because to do that is disastrous. However, I'd buy Old Mutual when it crosses 147 and pick up a bit more when it breaks 150. Watch it at that area - if it doesn't get through convincingly, I wouldn't waste any time in getting out. If it does break, it could be very strong indeed.

One last thing - with reference to your quote above, the word you want is just "active" . Liquid is something else.

Good luck with it, it sounds like you've made a cracking start.

Thank you for your kind words. I'm just working through it methodically, I think this is the only way I'm going to see long term return on my investment. I also quite enjoy it so it's nice!
Making a word document of all the technical analysis thing's i've come across recently, so i'm going to try and condense these into a series of strategies for different scenarios etc. Gonna take some fine tuning as always! Old mutual has taken a right hit recently... think it'll be coming back up after a quick look at the graph, but i'll paper it for a little while.

thank you for the recommendations, I'll look into them now! Good luck all. More to follow tomorrow, should have some solid stocks and explanations then!

 

[Caledonianbu]

PLEASE NOTE, this is something written by me and is no means comprehensive/entirely correct!!

Technical analysis techniques:
1) Trending.
So using a 4H graph (I use the IG INDEX ones), choose two points, either two highs or two lows. Draw a line between them – this is the ‘trendline’ of the graph. Now, when the line touches that line again, buy/sell depending on the direction of the trend. I.E. If it is a downward sloping trend line, then sell when the line of the graph touches your trend line, if it is an upward sloping trend line, buy when the line of the graph touches your trend line.
This is very basic, beware of breakthroughs, I would set tight stop losses.

2) Support and Resistance.
This is another basic technique, using simple lines drawn onto charts. Use any scale of chart, depending on the timescale you wish to trade on. My example is WSP group and a 4hr chart. The bottom line, where the price gets to, but bounces off is the support line – this is a price that traders feel is good value for this company at this moment, hence buying. The top line is resistance – almost like a ceiling, where the price seems reluctant to go above. This graph is NOT the best example. As you can see on the 20th, we had a breakthrough where the line of the graph broke through the initial resistance point. I like to look for these when selecting shares.

3) Moving averages trending.
Using MA (moving averages) you can compare the average share prices over the last few days/weeks/years. I use MA 20 (20 days), 50 (50 days) and occasionally 100 (100 days). I have been using Daily share prices when paper trading with this technique, It’s more for your long term holds. In my graph, MA20 is blue, MA50 is purple/pink.
In effect: When blue (the shorter term) crosses over/above the pink line (longer term) = BUY.
When the Blue falls below the pink line = SELL
The graph for this shows how fickle this system can be. This is another from WSP. As you can see, if you had used this technique between late January and mid February, you would have lost pips. However, later in the graph (the lower line indicates the Blue over pink = buy) would have seen a return and the top line (@256.9) would have shown a significant return. As you can see, since the blue line fell beneath the pink – the price has dipped almost 100 pips – a significant gain!

There are some simples to get us started. PLEASE comment – I want this to be useful for everyone, not just me . I’ve got two or three more that I will write up/put up in the next few days. I’m quite busy with research-y stuff for my tutor, but I’ll try and get more research into companies done!

As with all these tools, I'm trying to integrate them all together, using fundamentals AND TA to find the best spots to get my money in - as it were. Quite enjoying the learning tbh!

Happy trading y’all

 

[Pazienza]

You've got some great ideas .

Just to expand a little on support and resistance. Look at s / r flips, is where one becomes the other. These are great areas to look for trades, although I always need a confirmation signal.

If you haven't already, try to think what the underlying process is as support shifts to resistance and vice versa, and you can then begin to understand what is actually happening in the market, rather than just looking at a picture, which is all a chart is. I find it helps to think literally - prices do not move because of earnings, economic data, Bernanke saying something etc. Try to understand what actually moves price, and what this means for you as a trader. Working out what is happening in the market and thinking literally will help you to focus on what is important and filter out what is not.

Once again, you're doing some really good stuff here. It's very unusual to see someone so new taking this approach.

 

[Caledonianbu]

You've got some great ideas .

Just to expand a little on support and resistance. Look at s / r flips, is where one becomes the other. These are great areas to look for trades, although I always need a confirmation signal.

If you haven't already, try to think what the underlying process is as support shifts to resistance and vice versa, and you can then begin to understand what is actually happening in the market, rather than just looking at a picture, which is all a chart is. I find it helps to think literally - prices do not move because of earnings, economic data, Bernanke saying something etc. Try to understand what actually moves price, and what this means for you as a trader. Working out what is happening in the market and thinking literally will help you to focus on what is important and filter out what is not.

Once again, you're doing some really good stuff here. It's very unusual to see someone so new taking this approach.

I've been reading into S/R flips. Interesting idea, where the former resistance/support level becomes the new support/resistance level respectively. In terms of confirmation signals, I need to have more of a read/think about it before I really understand that.

With S/R points in general, I believe that it's to do with what the market (as a whole, people buying and selling) see as a good price, or an expensive price for a share. Obviously, prices are driven as with anything by supply and demand, the more demand for a share (eg. if people think it's good value and will increase in price), the more the price will increase. Resistance seems to be the price that people think, Hmmm. is it worth more than this? and so start selling - selling > price drop.

I don't know if anyone here has read the naked trader books? I'm using his traffic light system to assess company reports- absolutely fantastic tool, and it's free . Might pop up my crib sheet for company assessment if anyone is interested!

 

[SanMiguel]

I've been reading into S/R flips. Interesting idea, where the former resistance/support level becomes the new support/resistance level respectively. In terms of confirmation signals, I need to have more of a read/think about it before I really understand that.

With S/R points in general, I believe that it's to do with what the market (as a whole, people buying and selling) see as a good price, or an expensive price for a share. Obviously, prices are driven as with anything by supply and demand, the more demand for a share (eg. if people think it's good value and will increase in price), the more the price will increase. Resistance seems to be the price that people think, Hmmm. is it worth more than this? and so start selling - selling > price drop.

I don't know if anyone here has read the naked trader books? I'm using his traffic light system to assess company reports- absolutely fantastic tool, and it's free . Might pop up my crib sheet for company assessment if anyone is interested!

Company assessment is a difficult one as there are so many out there and news can come out very quickly. You have to decide whether you are using a value approach (buying unloved companies with good balance sheets) or using a momentum approach (buying companies that seem to be being bid upwards).
I usually use a filter for either of those and then look into the balance sheets.
Basically they need, good dividends, cash in the bank not leveraged debt, low PE ratios, etc.

 

[Caledonianbu]

Yeah, well, I'll be looking into both kinds of company, betting on both longer term undervalued companies and then betting shorter term on companies with momentum!
What would you say is a good dividend? Is there a specific ratio with the share price or is it more about if the dividend is rising?