Best Thread The Basics of Trading

Hi all

Thank you for your suggestions. :)

Here's the plan for the weeks to come.

Time-frames
Pivot points
Supporting cast - MA's, MACD, RSI, CCI, Stochastics

In the mean time, if there is anything else you would like me to talk about then feel free to contact me. :)


Hi SoldierOfOne

I'm going to have to pass on doing something about Volume, because I have no idea how volume works, and how you can use it to trade.

Sorry :(
 
techcherry said:
hi all#
I would appreciate if you would explain all the differentt indicators, I mean the ones you can really use for day to day analysis where it can help for decision making...
I feel there is so many, and to be honest in the level I am I know nobody use them all , you elect the ones you prefer according to your strategie, but anyway I am a bit lost which are the best , what they reaaly reflect, etc...
Thx!!!

Why do you feel that you need to use indicators? learn how to use the price action first, then worry about indicators, you will soon find that they are a waste of time.
 
TBS (and any others who have heard me sound off about this)

Please don't take this as a criticism, just an observation.

Like TC and many other newbies I also would no doubt have eventually asked this question. And why not? There is lots of help around these boards (thankfully) BUT, :confused: as we keep hearing more experienced people say 'each to his own style of trading'.

So how does a beginner know where to go and what to read as there is very little direction?

Each experienced trader posting a suggestion to the beginner effectively starts the newbie (and probably several others) off on a new voyage of discovery. Sometimes only to discover that
you will soon find that they are a waste of time

So, ... we ask away in innocence because (some of us) may not know what to ask or what we are asking IMVHO

Cheers
 
Hi NastyItch,

TBS has a way of trading that doesn't use indicators that's all. It works for him. It doens't mean to say it would work for you too, you may not have capital or the risk tolerance he has.

Finding your own methods is part of the fun of this. Start by first deciding what sort of trading you want to do and then look at what others trading the same sorts of instruments use.

But ultimately you find your own path, one your are comfortable on.
 
Hi NI,

Firstly, apologies for sounding too high-handed, it wasn't intended.

The use of indicators is a personal thing - as Helen has said. BUT unless you have some decent knowledge of how the underlying price action works then I doubt if you would be able to get even close to being able to use an indicator correctly.

Unfortunately too many people decide that as soon as you mention 'TA' it is about the application of mathematical models across a set of price/time/volume data. It is not.

If you cannot trade from the price action alone you will have no chance with indicators. This is (supposedly) a beginners thread to start talking about indicators at this point is like trying to drive a high performance car the day after you pass your drivng test - destined for a big crash!

There is a completely natural cycle that all traders/wannabe traders go through. They start with simple, find it boring and then decide to add the racey bits. After changing the racey bits a few times - having lost cash on all of them, they give up - or go back to basics and learn what they missed out on in the first place.

Everyone goes through it - I'm certainly no exception, I spent a long tme messing about with all sorts of indicators - and you will too.

What should also be remembered is that every indicator itself is different, and that with most indicators the settings can be altered - these react differently to every product traded - down to individual stocks requiring completely different settings.

It is a mine field, without the basics, you are liable to lose a leg.
 
TBS and HQ

OK, so we all agree ' each to his/her ( ;) ) own. I appreciate your comments re indicators.

The point you both may have missed is this.
As beginners it is difficult to know what advice/books/site references/...whatever to follow. There is so much advice on these boards (and others) given freely by well meaning people but no direction.

Let me give you an example of the sort of 'dilema!' I am in. As I am very new to trading (in general, not just TA) I am not sure of:
a) what I need to do this trading stuff?
b) the market I would trade in
c) the tools I would use
d) the knowledge (theoretical or practical) that I would need to gain
e) the techniques (strategy and trade plan stuff) I would have to put together
f) what trading platform do I need/want

This may be sounding as if I don't know nuffink :D about what I want. Not so (TBS you know I have help in the shape of a hairy relative :D ), but imagine a beginner who is thrown into all this trying to find the wherewithall to trade. You will probably get the point. I would like to investigate this trading thing, and particularly TA. From this I would like to make a reasonably informed decision re the above list to go about trading successfully with the right 'tools for the trade'

So as a newbie what are the basics and where to start?
a) what do I need to learn first
b) where would I go for these references/books etc
c) what comes next?
d) what do I need for the next step
and so on...


Sorry this has been a bit lengthy. I have been mailing several new starters who all seem to have this common 'problem'.

It is great that several experienced traders are willing to give their time and effort to help beginners, I am sure we are all very grateful. But we may need some guidance through this maze to start off with.

Hope this clarifies some of the needs out there.
 
Ok some basic questions.

How much time do you have to spend on this?
How much money are you prepared to lose learning?
What is your level of risk tolerance?
Can you monitor prices during the day?
Do you want to trade and fit it in round a job?

Those should help you start to narrow it down a bit :)

Fun isn't it?
 
Helenqu said:
Ok some basic questions.

How much time do you have to spend on this?
A few hours each day, some of it during the day.

How much money are you prepared to lose learning?
Once I get past the paper trading stage I anticipate putting aside £1000 for trading. Possibly a bit more for s/w, data feeds, more books, etc.
But herein starts my first question. What do I need to get first? As a newbie do I need to lose money from the first day I start learning about this TA trading malarky???

What is your level of risk tolerance?
Yep, got me there again :)

Can you monitor prices during the day?
Sure can, been doing it for the T2W competition...

Do you want to trade and fit it in round a job?
Now this is the $64K question. Ultimate aim is to replace the job with full-time trading. BUT, need to get to grips with this lot first though, so the full-time job has to stay for the time being.

Those should help you start to narrow it down a bit :)

Fun isn't it?

Helen, thanks for this, I have gone through much of this personally, but from the sounds of it each new beginner asks the same questions in one form or another. The answers tend to differ slightly depending on who answers them.

You are right, tis fun, and somewhat cerebrally :confused: stimulating!!
Thanks
 
Good questions, perhaps this is really where this thread should have started for the absolute beginner.

Helen has given you the first set of questions that need to be answered before you go anywhere near a trade or a chart or anything else.

May I suggest writing them down - your hairy relative (LOL - wait til he rings me :) - BTW Helen knows him as well - has been through some of this, the first set of answers are never enough, hence writing them down.

Some other questions:

1. What do you want to get out of this? - I know you have a target of replacing the day job, but in purely physical terms, how much hard cash do you have to make per year?

2. Time/risk/reward - Understanding this ratio is part of the mey to deciding what markets you can trade (rather than want to trade). This includes the physical time you can spend in front of the screen and the specific hours of the day that you have available. It would be no use trading fast moving Dax futures if all you have is an hour at lunchtime. Helen has already mentioned risk levels. With £1000 you would not be able to trade futures, but would be able to use a spreadbetting firm - which has its own pitfalls.

These are really the absolute basics, but you have to clearly define them for you own sake - and that of your family/friends etc trading can be a very fraught business.

Once you have come back with those answers then you can start to put together a plan of action which will start to form around these sorts of questions:

a. why have I decided to play the markets?
b. why have I chosen specific markets?
c. what tools do I need to participate successfully?
d. what should I buy?
e. when should I buy?
f. when should I sell?
g. how can I reduce my risk?
h. can I psychologically carry out this strategy?

.. which Helen and many others that frequented TMF should recognise as the handywork of Plastic Tortoise (RIP).

This is probably the first step on a journey that will probably take the thick end of 4 years to get even close to making a decent return.
 
May I suggest writing them down - your hairy relative (LOL - wait til he rings me - BTW Helen knows him as well - has been through some of this, the first set of answers are never enough, hence writing them down.

Now listen here - just because i'm genetically related to NI is no reason to to embarrass the guy by pointing this out! :rolleyes: After all he's only going to eventually blame me for getting him into this malarkey in the first place.

On a more serious note: I believe i've really cracked it on the psychological level with trading. The past few weeks i've been able to win, lose or stay flat and be totally calm about it. Quite an experience. Quite amazing to be able to trade and then take a significant loss, and then just shrug it off and make the next trade as if nothing happened. Capital account is beginning to recover. I'm still making TA mistakes and sometimes losing too much, but i seem now to correct these very quickly and without hassle. Beginners won't properly take this in, because they have to be engaged with all the other stuff first, but i now really appreciate from the inside why so many pros say that trading is 80% discipline.

I'm trying to keep a log of the psychological processes i've been thro with the 5th July in mind. Needless to say, i've a horrible thought that i might be eating these words in a few weeks. Still i know positive psychological change when i see it, so we'll see.

Sorry if this is a bit OT, but i had to tell you guys!
 
Dave,

Suggest you print off Sandy's post and commit to memory. Present yourself in 10 days at my house and recite...

WRT Sandy's reference to PT. Plastic Tortoise was the handle of a much loved moderator of a Board on TMF, called Inside Plastic Tortoise. Sadly PT died last year after a long illness. He was in his early 70's and a very experinced and successful trader. He used a combination of FA and TA. He was particularly good at getting peple to define their goals, trading and risk-managment strategies.

His message board is now defunct, ie cannot be posted to, but it has been archived at:

http://boards.fool.co.uk/Messages.asp?mid=6197846&bid=51108&days=7

Its lengthy, going back a few years, but well worth the read, even if some of the stuff is advanced. There's a lot there for beginners at your stage, especially around what Sandy was saying you need to do. You will see lots of exchanges with PT where beginners are getting feedback with their learning and devlopment.

HTH,

Bruv
 
Hullo NastyItch and TBS

Some excellent posts here. Encapsulates my thoughts exactly (I’ve printed off NastyItch’s and TBS replies for my notice board at home).

Without regurgitating my NastyItch has eloquently stated, I see myself at (or just behind) NI in terms of researching trading and TA and am struggling to filter so much information out there. Basically, am looking to find my own path in terms of

The psychological bit – emotions, discipline, money management techniques et al. I will pop back over to TMF (which, to be honest, I have forsaken since finding this website) and visit the PT board (if anybody knows of any pertinent threads to look out – many thanks)

The technical bit – TA and using a ‘system’ and that you have to find one that ‘works for you’

I had assumed that one need a combination of patterns AND indicators, in that indicators are of secondary importance but back up initial thoughts from patterns.

TBS – do I read correctly that you restrict yourself pretty much to trend patterns only. If not, when would you look at indicators?

Also, as you know, I very new to this and knowing a general path to begin down is difficult to find, but are you saying we should be practising more and more and more what FTSE Beater has showed so far and leave indicators for the time being?

I would look forward to more on this at your day in May, and also if you could touch on Helen’s mention (to NI) that “you make not capital or the risk tolerance he has”

From Helen’s post – who/what is “Oonagh's website ?”

Sharescope and Pfscan? I am looking at the analytical toys on FT.com and ADVFN. What can this software (I assume this is what is) offer?

Cheers

SoldierofOne
 
To illustrate a point about trading.

34mabounce.gif



This is lunchtime on todays Eurostoxx50.


I used MA bounces and CCI. You could equally have used just the price action. I feel more secure with the indicators so I use them :)

It's personal preference.
 
Hi SoO

TBS – do I read correctly that you restrict yourself pretty much to trend patterns only. If not, when would you look at indicators?

Yes, most of my trading is done against pure price action alone. The only indicator I have running is an RSI which I check to make sure I'm not buying/selling at an absolute extreme. Other than that I don't have time for anyother indicators.

Also, as you know, I very new to this and knowing a general path to begin down is difficult to find, but are you saying we should be practising more and more and more what FTSE Beater has showed so far and leave indicators for the time being?


Actually I would say forget what FB has shown you (for the moment) and go back to the original questions of what do you want, what time have you got etc, spend a bit of time on that. Then move on to what products you are able to trade - then start looking at charts etc......


I would look forward to more on this at your day in May, and also if you could touch on Helen’s mention (to NI) that “you may not have capital or the risk tolerance he has”

Some of the accounts I am involved with are quite large in monetary terms, and have some fairly large positions which can produce big P&L swings. At the end of the day this hasn't got any bearing on how you decide to trade, it is purley a factor of scale.

Risk tolerance depends to a certain degree on the amount of cash you are prepared to lose on each trade - again a function of scale, but a limited cash pile does affect the way in which you can trade and what products you can trade - you have to give any market 'room to breathe' if you find you aren't prepared to do that you will just get stopped out on most of your trades and end up losing a lot of cash very quickly.
 
Which time-frame

Hi all

Thanks to NastyItch for suggesting this subject.

Knowing your time-frame that your trading in is of paramount importance, as it has side effects on how your going to be trading (including stop-loss placement and target setting.) This table is a good outline for which chart to use.

<table border=”1”><tr><td>Type of Trader </td><td>Holding Period</td><td>Chart to trade off </td></tr><tr><td>Tick Trader</td><td>Minutes</td><td>Tick / 1 min </td></tr><tr><td>Day Trader</td><td>Less than a day</td><td>1-5 Min </td></tr><tr><td>Position Trader</td><td>Hours / Days</td><td>15-60 Min </td></tr><tr><td>EOD trader</td><td>Weeks / Months</td><td>Daily </td></tr><tr><td>Long-term</td><td>Years</td><td>Weekly / Monthly / Yearly </td></tr></table>

As TBS has already mentioned, even if your trading off a 5 minute chart, you still have to check the long-term charts occasionally to make sure there isn’t any old support or resistance that is going to effect the trade.

The above table is only a rough guide, and depending on your personal preference you might want to change your style. Getting the right time-frame can take a long time and you will no doubt try several different styles before finally settling for one that suits your own personality.

HTH :)
 
FB
Sorry, this may be a bit OT. There does not seem to be another place to post this stuff. Please continue your thread as it is still proving very helpful. :cheesy:



Helenqu and TBS
(and of course anyone else who wishes to join in)


Firstly thanks for the references to PT thread. I have been working through it, it’s good stuff and just the sort of thing I need right now.

I have been thinking long and hard over these questions. Here is my first stab at defining what I wish to do with trading. Sorry it is a bit long :)


How much time do you have to spend on this?
At present a few hours a day, medium-term I expect to have about one hour a day during the week and a few more hours over the w/e.

How much money are you prepared to lose learning?
If this is for learning purposes only (i.e not trading for a living) then I would guess around £1000 for the trading account. If a few hundred more will allow me to use a different trading method/style then I am open to suggestions. I do not envisage earning a living from such a small capital base and would look to start ‘real’ trading with several thou.

What is your level of risk tolerance?
I am not sure what you mean by this. The amount I am prepared to lose on a trade, on setting up trading as a business, etc :?: :?:

Can you monitor prices during the day?
I could, but to be practical not constantly with a full-time day job. So this would have to be a no during the day but yes in the early evening.
This question may be leading on to day-trading, which I am not sure I am ready for, or indeed would suit me. Then again does one learn/train into the desired trading style you intend to go for :?: :?: :?:
At my stage, as I am not certain of the trading style, I would rather get to know the ins and outs of the various styles, methods and markets and what is required to trade in these circumstances before I make this decision

Do you want to trade and fit it in round a job?
Initially yes. Ultimately, once trading proves it has the potential to replace the day job (this sounds terrible,-so you have a NIGHT job, really now, what can THAT be I imagine :eek: ), this will hopefully become the day job.

And more to the topic, looks to me like Spreadbetting UK stocks with a D4F account and a swing trading strategy would stand you in good stead. A subscription to Sharescope and later on Pfscan would be all your would need to do a good job, you can monitor prices for free on ADVFN.

How does that sound?
Mostly sounds OK. I know what SB is now, I have a good idea what D4F is, although I have yet to look at the site, but PLEASE what is a swing trading strategy when it's at home :?:


Some other questions:

1. What do you want to get out of this? - I know you have a target of replacing the day job, but in purely physical terms, how much hard cash do you have to make per year?
I reckon as a minimum I need to earn about £150 per day on average. This would sustain an existing lifstyle and anything more than this would not go amiss, I assure you!!

2. Time/risk/reward - Understanding this ratio is part of the mey to deciding what markets you can trade (rather than want to trade). This includes the physical time you can spend in front of the screen and the specific hours of the day that you have available. It would be no use trading fast moving Dax futures if all you have is an hour at lunchtime. Helen has already mentioned risk levels. With £1000 you would not be able to trade futures, but would be able to use a spreadbetting firm - which has its own pitfalls.
I now realise the risk/reward/time dynamics as even spending a few hours here and there on the T2W competition have proven frustrating. There are several other factors, I guess :idea: , which come into play here. Not least of all family pressure for time and reliance on steady income.

However, one of the questions I have for full-time traders relates to the point at which you gave up your day jobs. At that moment did going full-time expand the market, your trading strategies, your methods and trading styles at all???

Ignore for now the £1000 for trading. As I’ve said, I would view this as money spent on setting up a business (training, equipment, etc), or as Les would say on ‘education’ costs.


Now, I can answer what I regard IMHO as the most significant question. Reason being is that I feel if I am not sufficiently motivated enough I will not see out a 2 – 4 year learning period. And, I guess, this may be a main reason why 95% of traders give it up.

Once you have come back with those answers then you can start to put together a plan of action which will start to form around these sorts of questions:

a. why have I decided to play the markets?

For several years I have been trying to find the opportunity to start my own business. One in which I am my own boss and the success or failure of the business is down to me and me alone. My current profession has been a mix of boring, stressful (NOT due to hard work) in terms of being away from family for long periods of time, and not least the type of shysters that I have had to deal with. (Yes, I know they are in all traits of life, but with particular concentrations in my industry ;) ).

So, it is like having an itch in the middle of your back. One you cannot reach and one that is intensely annoying, a Nasty Itch if you will.

Dear Bruv :rolleyes: had been fiddling around in trading for some time and it got me thinking. I had always had shares using the LTBH method, but this was not mentally very stimulating, certainly very little fun and did not yield enough income (unless of course you had £0.5 M++ to play with). I have always been curious, and perhaps a little afraid of the markets (still am !), and have shied away from anything more than shares, unit trust, PEPS and the like. Hence my ‘investigation’ into more serious trading.

If you have reached this point, well done and thank you for persevering this far.

Cheers
 
Hi NI,

A swing trading strategy usually involves holding stocks for 2-3 days but you do get some strategies both longer and shorter term than this. Basically you are looking for stocks on pullbacks or those which have gone too far too fast and are due to retrace. It's a good way of learning the skills that you cna use in shorter timeframes at a low cost and risk exposure.
The advantage of using D4F is that you can set stops and limits and move them as much you like. No costs and spreads as long as you don't trade first thing in the morning are generally the market spread for FTSE100 stocks. Winnings are not taxable and you can open an account with £1000K.

Try the following sites for swing trading stuff:

www.mrswing.com
www.hardrightedge.com

HTH
 
Hi Ni, some good thoughts:


NastyItch said:
FB




At present a few hours a day, medium-term I expect to have about one hour a day during the week and a few more hours over the w/e.



This immediately limits the markets you can safely trade with, unless you are prapared to take some very long term views - and be prepared to fund an account to cope with moves against you.

I would suggest that futures/indices are out, an hour a day doesn't give you time to get a handle on what the market has been up to during your absence, and trade successfully.

This leaves you with stocks or options, as Helen has suggested maybe swing trading, where positions are kept for a couple of days and traded to a specific set-up. Options are another way of trading either stocks or indices, again they tend to be 'longer term trades', not dissimilar to swing or trend trading... unless of course yu want to go back to longer term share holdings (which shuld be considered)


If this is for learning purposes only (i.e not trading for a living) then I would guess around £1000 for the trading account. If a few hundred more will allow me to use a different trading method/style then I am open to suggestions. I do not envisage earning a living from such a small capital base and would look to start ‘real’ trading with several thou.


Sensible to have a learning 'pot', with the time constraints it should be enough to start with until you decide what kind of trading 'style' suits you.


I am not sure what you mean by this. The amount I am prepared to lose on a trade, on setting up trading as a business, etc


Basically how much you are prepared to lose in a trade - this determines what size of positions you are able to hold, and ultimately how long you will be 'in the game' - either positively or negatively.

Monotoring prices:

I could, but to be practical not constantly with a full-time day job. So this would have to be a no during the day but yes in the early evening.

This question may be leading on to day-trading, which I am not sure I am ready for, or indeed would suit me. Then again does one learn/train into the desired trading style you intend to go for.

At my stage, as I am not certain of the trading style, I would rather get to know the ins and outs of the various styles, methods and markets and what is required to trade in these circumstances before I make this decision


Again this is the time constraints coming into play, plus, if you cannot monitor prices successfully during the day it means that you trade plans have to be right, physically and mentally, before you go anywhere near the actual trade - hence much of your time during the week or weekend will be spent preparing scenarios and picking the trades.



Mostly sounds OK. I know what SB is now, I have a good idea what D4F is, although I have yet to look at the site, but PLEASE what is a swing trading strategy when it's at home


Swing trading is a methodology of selecting trades that are liable to move in the same direction for a couple of days. There are various set-ups that are described as 'swing strategies' - basicaly they are TA strats that have been re-highlighted, a re-invention of the wheel!



I reckon as a minimum I need to earn about £150 per day on average. This would sustain an existing lifstyle and anything more than this would not go amiss, I assure you!!



So c£37k p.a. - bearing in mind that you may get away with less if you can mitigate some or part of the tax burden


I now realise the risk/reward/time dynamics as even spending a few hours here and there on the T2W competition have proven frustrating. There are several other factors, I guess , which come into play here. Not least of all family pressure for time and reliance on steady income.


Family pressure could be huge, especialy if you have a young family to chase after, and they start to cut inot your alloted 'trading time'.


However, one of the questions I have for full-time traders relates to the point at which you gave up your day jobs. At that moment did going full-time expand the market, your trading strategies, your methods and trading styles at all???


For me, the amount of markets I traded expanded - and eventually completely changed, although the overall methodology didn't. (The markets I trade continues to change even now)


Ignore for now the £1000 for trading. As I’ve said, I would view this as money spent on setting up a business (training, equipment, etc), or as Les would say on ‘education’ costs.


I suspect that you limiting factor is not going to be the money per se, but the time constraints - from the 'profile' the immediate thing that springs to mind is options trading, but that is just an initial thought.


Now, I can answer what I regard IMHO as the most significant question. Reason being is that I feel if I am not sufficiently motivated enough I will not see out a 2 – 4 year learning period. And, I guess, this may be a main reason why 95% of traders give it up.


It certainly is - rushing in unprepared is also the main reason that they get hammered too.



For several years I have been trying to find the opportunity to start my own business. One in which I am my own boss and the success or failure of the business is down to me and me alone. My current profession has been a mix of boring, stressful (NOT due to hard work) in terms of being away from family for long periods of time, and not least the type of shysters that I have had to deal with. (Yes, I know they are in all traits of life, but with particular concentrations in my industry ;) ).



Personally, I think you should always treat trading as a business - whether you do it 'for fun' or full time. If you get up and running you may wish that the family were elsewhere! Trading is also a mixture of boring and stressful (not due to physical work, but mentally) - and believe me, anyone who takes your money on a losing trade is always a shyster :)


So, it is like having an itch in the middle of your back. One you cannot reach and one that is intensely annoying, a Nasty Itch if you will.


This was basically the exact reason I gave when I left 'gainful' employment!


Dear Bruv :rolleyes: had been fiddling around in trading for some time and it got me thinking. I had always had shares using the LTBH method, but this was not mentally very stimulating, certainly very little fun and did not yield enough income (unless of course you had £0.5 M++ to play with). I have always been curious, and perhaps a little afraid of the markets (still am !), and have shied away from anything more than shares, unit trust, PEPS and the like. Hence my ‘investigation’ into more serious trading.


The hairy one should have had a good day today (he was going long SP's at c835 when I spoke to him earlier) - but then anyone should have had a good day today - even if you started out short of the market.
 
I think Options are way too complicated for a beginner. Not only have you got the chart stuff but you also have the added time factor and all the silly language that goes with it. KISS.
 
Helenqu said:
I think Options are way too complicated for a beginner. Not only have you got the chart stuff but you also have the added time factor and all the silly language that goes with it. KISS.

Have you actually spent any time looking at them?

It is only a suggestion that springs immediately to mind given the time constraints that NI has. The languabe is a lot eaier than some of the flowery 'swing' trading set-ups.

Better to leave no avenue un-explored at this point.
 
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