Guide T2W First Steps Guide

rossored

Senior member
2,103 56
T2W First Steps Guide
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Edited by rossored - Last Updated: 12th July, 04

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Editor's Message:
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Welcome to the T2W First Steps Guide. We hope that this new initiative will over the next few months develop into a valuable resource for both new and experienced traders alike. The guides will always be a work in progress - there's plenty of gaps that need to be filled - but hopefully through the collective collaboration of the site's members we'll quickly fill them.

If you'd like to volunteer as a particular forum editor please email us at [email protected] with a description of your trading experience and the reasons why you think you'd make a good editor.

rossored
1st Feb, 04

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How does it work?
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  • Each forum will have a guide which will act a digest of information concerning the subject of that forum
  • The guide will always be the top thread in the forum
  • Each guide will have an editor whose job it will be to update the guide
  • Please contribute to the guide in any way you can. The editor will integrate your suggestions, feedback and text into the guide - whereupon your post will be removed.
  • For a full description and to discuss the guides further please use this thread
First Steps Guide
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1. The Guide





2. FAQs 3.Recommended Forum Topics

4. Glossary




5. Further Resources
1. The Guide
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1.1 Introduction

Well, as the name suggests, this is First Steps. Hopefully there will be items of interest in here whether you're a total newbie or an experienced trader.

If you have information that you feel would be beneficial to the T2W community, please add it onto the thread and I'll take the suggestions on board and add them into the guide (assuming that they are relevant to the Forum)

1.2 The First Steps Outline

This is intended to be an introduction to trading - where to find information on XYZ topic, and what does ABC mean, with (hopefully) plenty of links, good books to read, and plenty of free, useful information.

1.3 The Other T2W Guides

Here is a list of links to all the guides that T2W runs.

T2W Software Guide
T2W Data Feeds Guide
T2W Options Guide
T2W Forex Guide
T2W First Steps Guide
T2W Techies Corner Guide
T2W Indices Guide





2. FAQs
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  • How do I trade?
  • What do I need to get started?
  • Where do I go from here?
How do I trade?
There are several methods. By far the most common has to be Spread Betting, followed by Contracts For Difference (CFD's), Options, Futures and so on. Each trading instrument has advantages and disadvantages, depending on your capital, your experience and knowledge of the industry, and so on. You can find out more about all of these instruments by visiting the relevant forum.

I’m an index futures trader myself, so initially a lot of the links, etc, will be biased in that direction until other members begin to contribute additional items. That way, hopefully I can increase my trading knowledge too!!

What do I need to get started?
You'll typically need a fairly good PC - a lot of SB companies and certainly DA brokers will require in the region of P3 (or equivalent) 500-750Mhz processors, 128Mb RAM, and probably a fairly decent graphics capability if you want to run more than one or two charts at once. It can be done with less than the above, of course, but newer and faster is almost always better.

You will also need either a charting package, some form of data supplier (often but not always supplied with the charting package), and of course an account with a broker of some sort.

On the broker note, most people recommend that a margin account is better than a credit account. The reason behind this is that you should only trade with money you can afford to lose. When you start out, it’s more than likely that you will have some losses, and it’s best not to be in a situation when a broker is in a position to continue lending you money - you don’t want to let it get out of control. Margin accounts simply stop operating once your capital falls below a certain level, and it’s up to you to fund it again. Hence, you are in control, not them.

Where do I go from here?
Simple; you're already in the First Steps Forum, so continue to read the recommendations made by myself and other traders on the site further down this page, and try and fathom out which style, instrument (are you going to trade indices, stocks etc?) is for you. From then on, you can hopefully utilise the other “T2W Guide To….” Forums to increase your knowledge and improve your trading.


What is Spreadbetting?
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Spreadbets are the simplest form of trading. The most commonly traded spreadbets are probably those relating to the major market indices - in the UK, this is of course the FTSE100. Other major indices are the American Standard and Poors 500, the Dow Jones, the Nasdaq and some of the other, lesser-known indicies like the Russel. On the German market, you can Spreadbet the Dax, in France the CAC.

However, spreadbets are not limited to indicies by any stretch of the imagination. They can also be applied to stocks, sports - you name it, you can bet on it. However they tend to be less popular for stocks because there are better ways to trade stocks - using a DA broker, for example.

So, how does a spreadbet work? Well, at the time of writing, the Dow Jones, for example, is trading in the 10,400 point range. A typical spreadbet company would offer a spread of around 10396-10404.

How this works is simple. If you think the market will rise, you "buy" the market, or go "long". If you're correct, once the Dow rises past the 10404 level, you will begin to make money, at, say £2 per point (assuming that is your wager). Likewise, if you think the market will fall, you "sell" or go "short" the market, and once it falls through the 10396 level, you will start to make money at your bet size.

The downside, of course, is the spread. If you're playing at £2/point, using the above 8-point spread as an example, you will be £8 down as soon as you open the bet. If the market moves 3 points in your favour, then reverses away and falls 20 points, you'll be down £34. But of course if you get it right, and the market races up 20 points, you'll be up £32.

This is how a "spread" works on any instrument. The only thing that differs from broker to broker and stock to stock is the "spread" itself. Some brokers might offer a 8-point spread on Daily Dow, others might offer a 10-point spread. The trick is to find the right broker for you.

There is no tax to pay on spreadbets, because under current UK tax legislation, they are classed as gambling and therefore exempt from CGT.


What are Options?
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To view the T2W Guide to Options, click the link.


What are Futures?
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Futures are a commonly used way of profiting from moves in the markets, normally traded by those who have some degree of experience. They are not really suitable for beginners.

A "future" is a contract which contains an agreement to buy or sell a specific amount of a commodity (for example - corn, crude oil, silver) or a financial instrument (for example, emini S&P500, Eurodollar, US T-bonds) at a particular price on a particular date. It obligates the buyer to purchase & the seller to sell, unless the contract is offset before settlement date (which it is, 99% of the time!!). They are sometimes called "commodities", but with the introduction of financial futures in addition to physical commodities, futures is the preferred term nowadays.

The advantage of futures over, say, a spreadbet, is that there really is no spread. In the above example for the spreadbet, where the Dow is at 10396-10404, a futures contract would be 10399-10400. The spread is eliminated. However, there is always a commission to pay to your broker, and you will pay tax on any profits.


What are CFD's?
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Many people liken CFDs to trading shares on margin - buying shares and only using a small deposit which is typically between 10% - 20%.

In fact it is an agreement between two parties agreeing to settle at the close of the contract, the difference between the opening price and closing price of the contract - multiplied by the number of shares specified in the contract.

For example, in June you might agree to buy 5000 shares of ABC Limited at, say £6.00 (total value of £30,000). You lodge a 10% margin deposit of £3,000. In September the price of ABC Limited shares moves to £8.00, and you decide to sell at this price. You receive a gross profit of £10,000 (£40,000 less £30,000) and your deposit is returned.

Using CFDs you can control up to 10 times the stock compared with an outright purchase. This higher gearing creates greater profits assuming you correctly anticipate movements in price, but the risk of loss also increases by the same amount should the price move against you.

Again, one of the attractions of CFD's is that because no physical transaction takes place there is no stamp duty payable under current UK legislation, although this of course can change at any time.


3. Recommended Forum Topics
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Trading the Dow Summary
Started by Newtron Bomb

An excellent weekly Technical Analysis summary on the Dow Jones Industrial Average.

Dow Jones Trading Strategy
Started by Newtron Bomb

A downloadable strategy formulated by T2W's very own Chartman for traders beginning to day trade the Dow via SB.

No Indicators Revisited
Started by Ford

A guide to trading without indicators, using price and volume action only.

The Basics Of Trading
Started by FTSE Beaterhttp://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=786http://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=786

A great introduction to the basics of trading, using trendlines, and support and resistance.

Money Management
Started by HornedGodhttp://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=2725http://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=2725

A brief chat about basic money management and strategies.

Basic Trading Strategy
Started by FTSE Beaterhttp://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=786http://www.trade2win.co.uk/boards/member.php?s=&action=getinfo&userid=786

A simple trading strategy.


4. Glossary
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CAC
The leading French stock index.

DA
Direct Access. DA allows a client to trade directly with another client, for example, a market maker on NASDAQ, or a specialist on the floor of an exchange without broker interference. DA is the preferred trading system for day traders, where success is dependent upon speed of execution.

DAX
The German stock index.

For more information on the Dax, click here.

Dow
A common abbreviation for the Dow Jones Industrial Average - one of the major US indices, comprising 30 blue chip stocks in the USA. Also known as DJIA, US30 or Dow30. Futures traders refer to the Dow as YM.

For more information on the Dow, click here.

Elliot Wave Theory
A well known and fairly commonly used method of anticipating the way the market moves. Further information on Elliot is available here

Eurostoxx
A Dow Jones index of the top European stocks.

For more information on Eurostoxx, click here.

Fibonacci
A method of determining likely turning points within the market based on a series of Fibonacci numbers. For some basic details, click here

Flag
A chart pattern, useful for determining either continuation or reversal of price.

FTSE
The index of the UK’s top 100 companies. When traders refer to the FTSE, they are normally talking about the FTSE100 Index, but there are other FTSE indices also – FTSE250, FTSE350, FTSE All-Share etc

For more information on the FTSE, click here.

Hang Seng
The Hong Kong index. Referred to by futures traders as either HSI or MHI, depending on the size of the contract.

For more information on the Hang Seng, click here.

Head & Shoulders
Another chart pattern. H&S can signify either a market top or bottom, or a continuation of the current price action, depending upon where it occurs.

Indicators
Customisable displays on a chart that indicate where possible turning points may occur within the market. They can be based on price action, momentum and moving average prices, amongst others.

MIB
The Italian market of leading shares.

For more information on the MIB, click here.

NASDAQ
The third of the most commonly traded indices in the US. Also known as the Nas, and known by futures traders as NQ.

For more information on the NASDAQ, click here.

Nikkei
The Japanese stock index.

For more information on the Nikkei, click here.

Pennant
A chart pattern which normally suggests continuation of a particular trend.

Pullback
Another chart pattern, which usually suggests that price will shortly continue in its original direction.

SB
Spreadbet. A form of trading where you bet on £ per point moves.

SMI
The Swiss market of leading shares

For more information on the SMI, click here.

S&P
Another common abbreviation, this time for the Standard & Poors 500 Stock Index. Also known by some as "Spoos" or "Spooz", and by futures traders as ES.

For more information on the S&P, click here.

Tick / Tic
A tick is usually the smallest increment that a price can rise or fall, so 1p, as it is on CKSN and BARC. In the US it is usually one cent.

However, for stocks which are only pennies each the increments are in fractions of a penny, so the price will go from 1.9p to 2.0p to 2.1p etc. On some it can be 1.90 to 1.95 to 2.00 etc.

For example, on the emini S&P futures, it is 0.25 point, on mini Dow it is 1.0 point.



Volume
A measurement of how many trades are run during a specific period of time. Volume can be useful for determining potential turning points within the market, and also for indicating if price action may continue in the same direction.



Editors’ Note on Chart Patterns and Indicators
Please be aware that no chart patterns or indicators are guaranteed to perform in either one way or another, as they depend on a variety of circumstances which can change at every moment. Hence, none of the patterns or indicators mentioned above should be considered as totally reliable and neither any contributors to this thread or T2W would advocate specific trading advice or techniques, and these should not be treated as such.



5. Further Resources
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a) RELATED LINKS
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Basic Trading Information
An introduction to Spread Betting
Financial Spread Betting and CFD's - A Traders' Guide - NEW!

Technical Analysis
Decision Point – TA Basics
Incredible Charts – Chart School
Stockcharts – TA Education
Voodoo Trader

Charting Software and Data Providers
Sierra Charts
FutureSource
MyTrack

PC Help
PC Pitstop – Help with all kinds of PC Problems
Gibson Research – Internet Security Site
Internet Parasite Remedies
Zonelabs - Excellent Free Firewall Software
Ad Aware – Free Spyware Detector
Spybot - Spyware Detector
Black Viper - Virus/Internet Information
AVG - Free Anti-Virus Software
AntiVir Virus Software - better than AVG, and also FREE
Online PC Virus Scanning

News Sites
Briefing.com – Market news (Delayed)
RJ O’Brien – Economic Calendar for the US Calendar links on right of page
GNI Touch – Daily Reports (by free subscription) for all major markets
CBS MarketWatch
Yahoo Finance News

General Trading Information
Investment Questions
Pristine – Further web based research
Elite Trader – Primarily US-based Website
Linda Bradford-Raschke – Market Analysis
Commitments Of Traders - Market Analysis
Financial Spread Betting and CFD's - A Traders' Guide - NEW!

Other Useful Web Sites
Download.com – Free trials of all kinds of useful software
Snapfiles - Additional Software Downloads



b) FURTHER READING
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Tech. Analysis of the Financial Markets
By John. J. Murphy
Amazon

The Disciplined Trader
by Mark Douglas
Amazon

Trade2Win Bookstore



c) BROKERS
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Spread Bet Companies

There are several spread bet companies, offering all kinds of products and spreads, varying from “Binary Bets” on FTSE or Daily Dow, through to futures spreads on the indices for several months ahead. Due to the nature of taxation laws in the UK, you are currently not taxed on any profits your make (tax legislation in the UK can of course change without notice).

IG Index
Deal4Free
Finspreads
Capital Spreads
TradIndex
City Index

Direct Access Brokers

Direct Access brokers cut out the middle man, and allow you to deal more closely with your chosen exchange, speeding up trade execution times and opening up a wider variety of products to trade. The downside is that you will pay commission and taxes on your profits - unlike Spread betting - although there is no spread involved.

Interactive Brokers
GNI Touch
 
Last edited:

james_hb

Newbie
4 0
I've found that “Technical Analysis from A to Z”by Steven B. Achelis (Amazon) has been an invaluable resource suitable for both learning and reference.

I recommend having a look!
 

james_hb

Newbie
4 0
Online Financial Simulation

Also,

I found that practising trading is the best why to learn and keeping up with current events. The problem is that you could lose a lot very quickly if you don't know what you're doing!

I've always recommended my friends who have been interested in getting into day trading to practice on a on-line financial simulator.

A good one is bullbearings.co.uk

Hope this helps!
 

-oo0(GoldTrader)

Well-known member
345 5
Research

Hybrid Thread

Surly there must be other research companies that do work for the exchanges and sell results to the public. In any case if you have a category for research you might want to include.
rossored said:
T2W First Steps Guide
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Edited by rossored - Last Updated: 12th July, 04
5. Further Resources
 

YachtFund

Active member
150 4
Where to start...

A book, which is in the list above, that I would recommend is the 'Technical Analysis of the Financial Markets' by John Murphy. It covers most of what any potential trader requires but most importantly its written in good English. Unlike so many authors who promise so much this book is considered to be 'the bible', and for good reason.
 

edw123

Newbie
1 0
Hello all , first time here, any good suggestion where to start for forex strategy? Thxs!
 

wasp

Legendary member
5,107 879
Hello all , first time here, any good suggestion where to start for forex strategy? Thxs!

The best ever forex strategy, ie the holy grail...........

12 months of a dozen pairs on metatrader watched for every hour you are awake. Preferably on your own with nothing but pencil and a pad of paper.

Serious.
 

sadhiq.trading

Newbie
1 0
Hi Traders!!!!

This is Sadhiq. I'm a day trader. I trade US equities n i'm relatively new to trading. I commit the basic mistakes dat an amatuer does wen he starts off. I overtrade and sometimes get affected emotionally. I started off well a year back. Making 4k-5k a month regularly for abt 5-6 months. Initially i traded only a few stocks like fcx, pcu, nyx, etc. But all off a sudden i started losing money badly. I've been losing money quiet consistently for the past 4 months. Because a trade for another firm, they've reduced my stop loss to $500 a day( the maximum I cud lose in a day).
Now i'v stopped trading particular stocks and started trading earnings and news. But i wud request experienced traders to guide me on the kind of stocks i shud trade everyday, the analysis I should do to find the right stocks and the strategies I shud use to come out of the mistakes that i do. Also guide me on the position size i shud take because often i take a big position and any negative movement triggers my stop. For Eg., I traded WFMI yestersay. I shorted 1500 shares of it at 29.50 because i thought it was very weak on bad earnings report the previous day. I got stopped out wen it went to 29.90. But i was livid with myself wen i saw the stock falling to 29.00 after getting me stopped out. These are the kind of common mistakes dat I do. I wud request traders to help me out wid my mistakes and enable me to become a better and a consistent trader. Thnx.
 

firewalker99

Legendary member
6,655 601
Hi Traders!!!!

This is Sadhiq. I'm a day trader. I trade US equities n i'm relatively new to trading. I commit the basic mistakes dat an amatuer does wen he starts off. I overtrade and sometimes get affected emotionally. I started off well a year back. Making 4k-5k a month regularly for abt 5-6 months. Initially i traded only a few stocks like fcx, pcu, nyx, etc. But all off a sudden i started losing money badly. I've been losing money quiet consistently for the past 4 months. Because a trade for another firm, they've reduced my stop loss to $500 a day( the maximum I cud lose in a day).
Now i'v stopped trading particular stocks and started trading earnings and news. But i wud request experienced traders to guide me on the kind of stocks i shud trade everyday, the analysis I should do to find the right stocks and the strategies I shud use to come out of the mistakes that i do. Also guide me on the position size i shud take because often i take a big position and any negative movement triggers my stop. For Eg., I traded WFMI yestersay. I shorted 1500 shares of it at 29.50 because i thought it was very weak on bad earnings report the previous day. I got stopped out wen it went to 29.90. But i was livid with myself wen i saw the stock falling to 29.00 after getting me stopped out. These are the kind of common mistakes dat I do. I wud request traders to help me out wid my mistakes and enable me to become a better and a consistent trader. Thnx.

If you're going to trade stocks, it might be best to decide first if you want to approach this through a more economic/fundamental approach or through a technical approach.

There are several forums around here which tackle each issue.

See also here http://www.trade2win.com/boards/trading-faq/30635-what-technical-fundamental-analysis.html

Then there are people, like me, who believe the news isn't all that important.
See for example here http://www.trade2win.com/boards/general-trading-chat/31852-all-you-need-chart.html?highlight=chart
 

tradermonkey

Newbie
6 1
I trade the e-mini s&p and use a website to get the free value areas (My Trading Network under free), does anyone else use value areas? I know there are two types vol and tpo. I have read Mind over Markets and it mostly talks about tpo value area. Anyone have any ideas?
 
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