The Trials and Tribulations of a Trainee Trader

[richy96]

And what I would like to know is: Is this skill or beginners luck? That's actually a serious question about my first experiences of trading on a paper account

I'm using Plus500 in demo mode to trade CFDs and I find it pretty simple to understand and use. Here is an explanation of my trades so far, and my reasoning as I understand it

I started out by looking for companies on the US stock market who were big movers on the day, and selected a couple whose share wobbled around around quite a bit (say a dollar or so a day) but also were showing a steady longer term trend

The two I selected were Ctrip (Chinese tour operator) and Pandora (jewelery)

My first attempt went bad as I selected Ctrip which was showing a intraday downward move (as well as a downwards trend over several weeks) and as soon as I placed my short position of 300 shares (about £500 worth before leverage) it moved against me. I watched what was happening and eventually closed out with £151 loss once i figured the market was not gonna move in my favour.

I had a think about what had gone wrong, and the next day after looking at the chart over a period of days rather than minutes I realised I had made the mistake of placing a short position at a price which was at the support level of intraday swings.

Profits/Loss are after commision charges

Opened Long $55.49 08/04 @ 19.54
Closed $54.66 09/04 @ 14.35
Loss = £151.56
OK so one lesson I learnt straight away - look at what is happening 'now' in terms of what has been happening over a longer time frame - and know where the support and resistance levels are likely to be! DOH!

OK so armed with that lesson in mind I tried again.

My next attempt was a short position of 300 shares on Pandora (about £220 worth before leverage). This time looking for an intraday downward move (again in the direction of the longer term trend) and taking note of where support levels appeared to be

Opened Short $26.58 10/04 @ 19:10
Closed $26.25 10/04 @ 19:48
Profit = £58.95

My following trades over the next few days: all are for 300 share positions
Ctrip
Open Short $53.99 10/04 @18:40
Closed $53.45 11/04 @18:28
Profit £96.76


Pandora (I left this one open over the weekend and the market opened considerably against me by approx £180, but fell steadily so I waited all a day and eventually closed with a small profit)
Open Short $25:08 11/04 @19:46
Close $25:00 14/04 $25:00 @20:34
Profit £14.34

Ctrip (did this one while waiting for the above Pandora position to move in my favour)
Open Short $54.71 14/04 @ 17:49
Closed $54.36 14/04 @18.47
Profit £62.77

Pandora - This one was closed on a Profit Call as I had to go out take the missus to the gym
Open Short $25.21 15/04 @ 17:31
Closed $24.92 15/04 @ 17:48
Profit £52.00

Thought I was getting this all figured out now but the next one went bad. Having returned from taking the missus to the gym, I saw my profit call had been made, noticed the downward trend was still advancing and simply jumped in for another bite. The market trended strongly against me.
Lessons from this one -

1. The lesson I should have learnt from the first trade!!! (again) - I should have looked at the longer term picture as well as what is happening 'now'. I had entered short pretty much on the support line (lowest price for several month). When will I learn this lesson!!

2. I Should have got out of the trade much sooner. I was thinking the price would fall again late in the day as traders were oing to be 'profit taking'. Which leads to...

3. Trade what you see not what you think (I read that one here, now I believe it!)

The only thing I did have the sense to do was eventually realise this was a not a 'blip' but a bullish trend likely to extend into the following day and so got out before markets closed, licking my wounds. That at least I was correct about, prices opend up next day and have risen further since!

OK here is the trade:
Pandora
Open Short $24.58 15/04 18:03
Closed $26.26 15/04 20:35
Loss : £301.35

Now around the time of the last few trades I was watching the news and on Monday (14th) I thought to myself hmmmm with all this trouble kicking off in Ukraine and seemingly getting more fractious by the day, I wouldn't be suprised if the price of Natural Gas went up. What with Russia being a major supplier to Europe, and the pipelines running through Ukraine. I thought probably something wouldn't have to 'happen' just the possibility of it happening - or media hysteria - could cause a rise.

So I went in long for about £650 worth of natural gas (35000 contracts which is about £96000 after leverage)

I also came to another thought as well. Correct me if I am wrong, but I have reasoned that a 'black swan' type of event, if one occurs is likely if anything to cause a big jump upwards in commodities like wheat, gas, oil etc and a big jump down in shares (apart from maybe defence companies and that sort of thing)

At least I figure that more times than not, that would be the effect. I have honestly not looked at historic data to see if this is true it just feels logical

Anyway, I made mistake number 1 again Aarghh!!! Look at the current price compared to recent prices before placing a position. So I went long on an upward 'wobble' when the price was near the resistance level

10 mins later I was £240 up. Another few mins I was £480 up. Did I take it? No. Here I am thinking I am right - trouble in Ukraine on the news tihis morning means gas prices will go up

Anyway i went shopping, got back and I am about £1300 down

I watched the prices all day and they did not really rally.

The next day I was about £900 down in the morning and while out at work I noticed prices were rising strongly. For a couple of hours I could have taken a profit between £400 and £800 but I didn't have the Plus500 app on my smartphone! Dispite a good friend who is also learning to trade telling me to do so. Infact we are having a bit of a competition between us to see who can make the most (or more likely lose the least) Gues what - I've installed the App on my phone now!

So by the time i get back to the office I am about £100 down and didn't close

10 mins later I am £1500 down

Next morning (yesterday) it's about this same. This time once again the price rallies in the middle of the day but only gets to about £170 loss on my original position so I didn't close

So over lunch my friend and I dicsuss this and by now I have figured roughly where the support and resistance levels are. He says 'hey Rich, why don't you open another position when the price is low and use it to 'average down' the original position. Hmmm I thought, seems like a good idea.

I also discuss with him that once i get out of this averaged down position I am gonna place some more trades when the gas price is near it's support level and get out when it has a little price rally.

So I set an alert at a low price which is on the support level. Before the price gets that low I see it looks pretty promising so place another long position. My friend does the same (for about 10000 contracts opposed to my 35000)

10 mins later he is out with £60. I refuse to take a profit, though the price rose to about £390 profit before falling back again.

Later the same day he goes long again, grabs a £45 profit and again I refuse to take my possible £212 before the price falls back again.

So now I have to start questioning my own psychology. I have missed out on about £600 of profits because I am waiting to average down my original position.

So last night I open a third position of 35000 contracts as the market has fell lower still. It is showing a definite downward drift.

Now this third positions i started to use to grab small profits from interim upward shifts, even though i am in a bear market (price has gradually drifted dwon by about a percent or so since Monday)

So I am trading against the market becaue I have a conviction that the situation in Ukraine is likely to push natural gas prices up

Therefore I did the foloowing trades. (I've started to use Profit calls now based just below the peaks of previous 'blips') because i realise I have a possible greed issue that I need to deal with

And I start making money from Natural Gas at last

And I am only going long, (against the market trand) because of my Ukraine conviciton

Open Long $4.533 16/04 19:02
Close $4.550 17/04 05:38 (profit call)
Profit £339.35

and simultaneously on another contract
Open Long $4.542 16/04 18:46
Close $4.560 17/04 08.40 (profit call)
Profit £360.00

Open Long $4.544 17/04 11:27
Close $4.546 17/04 11:47 (user closed)
Profit £41.62 (was double that when i hit 'close' but price slipped on me slightly)

This is the one I originally intended to average down the first one but it had been steadily moving away from me as the market dropped so closed it on a small profit when I had chance and opened a new one to average down the first one even stronger as the bottom of the dips was now lower by about £500 on a similar sized contract.
Open Long $4.550 16/04 14:29
Close $4.554 17/04 12:45 (user closed)
Profit £70.04

Open Long $4.528 17/04 13:23
Close $4.537 17/04 14:00 (user closed)
Profit £184.68

Then the proce fell steadily and seemed to bottom out a bit so I opened another postion at the current low and then desided to go the gym.

So I set a profit call on this new long position to close at about £450 profit (just below previous blip peak)

I also set my 'averaging down' postion which was now about £500 down on open price to close at about £800 profit, and my original position from monday to close at about £700 loss on the same price - the idea being they would effectively cancel each other out if the market blipped strongly upwards as it had done a couple of times the previous days. I realised that any 'blip' would likely be weaker than the previous day as the market was gradually moving down, so thought this price was a good compromise (it had peaked about £500 higher than that the previous day)

After I had a good workout and got home I found all my positions had closed. And the reults were a bit 'odd' seemingly missing my Profit Calls!

So I had

My original position that I had mistakenly opened near the resistance level (the one I been trying to get out of by averaging down)

Open Long $4.606 14/04 10:28
Close $4.632 17/04 15:30
Profit £498.18

My position I used as a second attempt to average down the first one

Open Long $4.537 17/04 @ 13:04
Close $4.632 17/04 @ 15:30
Profit £1977.99

My third position
Open Long $4.520 17/04 @ 14:08
Close $4.632 17/04 @ 15:30
Prpfit £2,331.95

So I calls my mate and asks if he got on that big hike on gass prices as I just made about £4800 in one go. He said it wasn't quite so much good fun if you were short at the time!! He's £4000 down. Says it just happend BAM just like that - no indication, no warning just a sequence of 1 min candles going down then the next candle starts way way up.

I had a look, and the chart is exactly like that. I asked him what the hell he was doing in a short position, I thought we had discussed this yesterday. He says the gas market has been so predictable today he had been taking long and short positions one after another and creaming off small profits playing the market both ways. His previous position had been long. Also this explained why my trades didn't close out on the profit calls - they never had chance because one price was well below those levels and the next was way above.

I was going long against the trend all day because of my Ukraine prediction but still getting some profits from the predictable blips. Then I started to wonder is it a fluke and nothing to do with Ukraine. I honestly don't know the answer

However I put Sky News on and on the ticker tape

Breaking News: Rueter - US Defense Secretary announces that the US will extend 'non lethal' support to Ukraine

Sorry it's been a long read - but here is the question I really need to understand

I made about £6000 on my £20,000 paper account in a week with a max exposure of about £5000 and usually much much less than that.

Was this luck or was it skill?

Rich

 

[mike.]

Well done Rich, at least its lifted your eyebrows as to what money can be earned and more importantly lost !!
But basically, if you are trading from gut feeling as opposed to a set strategy than its just luck rather than skill, Believe me, everyone has been there. Develop a strategy and paper trade it for 6 months. Dont even think about going live before that.

 

[richy96]

I don't Mike - a week is not a very long time

I'm just trying to get my head around whether I used judgment (I was - rightly or wrongly - making choices according to what I was seeing in the news and what effects I thought it may have on certain markets) or was it a fluke?

I mean, I was definitely using a conviction based on facts as I interpreted them - but were they misfounded?

Problem is I guess, In the case of the sudden Natural Gas price jump at 3:30 today, I don't actually know whether the effect I expected was actually a result of the causes I based that decision on. Or even how to prove or disprove whether that was the case.

If that makes sense.

I only know why I placed myself into that position

Rich

 

[NVP]

Trading is a game of Luck

the more experienced you are the luckier you get

N

 

[richy96]

@NVP that sounds almost like a proverb

OK guys for what it is worth, I'm gonna keep my Trials and Tribulations thread going

I'll post like above listing what I have been trading and why I was doing it

Maybe this will serve a few purposes like:

* Possibly being useful to other Trainee Traders

* Helping me to rationalise what I am doing and why

* Giving you all a good laugh when it all goes tits up for some totally predictable reason

* Maybe one of you will eventually advise that I am ready for the next step (or that I really should go find something more productive to do)

Anyway I'm sure it will be fun. I won't post every day in minute detail, that would be boring

Oh on that sudden jump in gas prices yesterday. Though I thought it was a massive jump I had a look back at charts and saw that is was only a 'significant' one. Most of these looking back seem to be sudden jumps up after a steady decline. The big surge in February must have been down to the unusually severe weather in USA?

That sudden jump scared me too. How do you even prepare this sort of event happening. In reality it was a jump of about 20 cent What if it had been a jump of $2 ??

I havent worked out how much I would have made.... hmm let's see.... ohh my, that would be a nice sum indeed!! But for my mate on the wrong end of it, he'd end up living in my spare room.

And he's not that good a mate! lol

How on earth do you defend against that eventuality?

Rich

 

[mike.]

ok Rich, start developing a strategy, This will be the key point to your trading. So, going off a chart, Were the shares you chose to trade in a up-trend or down trend ? Did you pick a specific entry point that you would enter the market ? If the price was to go against you, where would you place your stop loss ? i.e. how much are you comfortable loosing without causing to much harm to your trading capital.

and last but not least, where would you exit the market. Once you can over come the greed, fear and any other emotions when in a live trade, Stick religiously to your trading plan, then you are well on your way .

 

[SlowlyButSurely]

If I could put out a few pointers for you to help you when getting started:

If you want to trade successfully you should focus on a limited number of products all in a specific group. By this I mean choose either Metals, Energy, FX, EU stocks or US stocks etc. If you try to juggle too much at once you will get in a right mess and just end up confusing yourself as every market acts differently. I started out the same way and eventually settled to focusing on Gold and FX as I get the most exposure and chart time on these products and as a retail investor these come with the lowest spreads.

I see you have traded Nat Gas. Perhaps then focus on the Energy markets, but be warned, they are very very volatile. Just bring up a chart for Crude and you can see how much it moves around each day. Really you need to develop a strategy but IMO the most important thing to do is get in as much screen time as possible. Just demo trade for a year testing things out and seeing if you can get the knack of your chosen market, see if you recognise patterns in price behavior etc.

I noticed as well that you mentioned switching on Sky News and seeing the story on the Ukraine situation. With Russia one of the world's largest suppliers you should be wary of the current instability in the region. Honestly I would stay out of it as it simply isn't worth it except if you fancy a punt. You will never know what is going to happen next, especially with war games ongoing so best to sit and watch.

Finally Risk Management. I noticed you said you went offside by £180 then took a £14 profit. This is bad RM. You need to at least be making as much as you are willing to risk. As soon as it crosses that line, exit and take the loss! Something I do is set TPs and SLs and then just logout and walk away. Come back in an hour and either my trade worked or it didn't. Watching it creates so much temptation to meddle that it just hindered me.

Hope this helps somewhat.

SBS

 

[richy96]

@slowlybutsurely

It helps a lot mate, as does much of the advice I have read on this site. I just wish sometimes I remember to follow it... like making the same mistake several times over, as mentioned in the opening post - even though i knew what I was doing wrong!

At the moment I am just finding my feet on my paper account, which I think excuses me for trying different markets (shares, commodities) as I guess the only way I will decide on where I should focus is by testing out different ideas on different devices.

In other words it is hard to find somewhere to focus until you have looked around at what is out there??

Regards the energy market volatility I imagine it is very easy to get your fngers burnt, playing around with gas (pun definitely intended!!)

It is that very uncertainty you mention, and Russia being a huge supplier of natural gas) that made me want to test out if my convictions were correct, that instability would cause a rise in prices. This time either I was right, or something coincidental came along that made it look like I was right

But as I say I am just finding my feet... whilst trying to hold on to my head and keep my shirt on my back at the same time!

OK gotta do a bit of work then I'll come back and say a bit more about myself and what I would like to achieve from all this, plus reply to some of your other comments

cheers
Rich

 

[Splitlink]

Finally Risk Management. I noticed you said you went offside by £180 then took a £14 profit. This is bad RM. You need to at least be making as much as you are willing to risk. As soon as it crosses that line, exit and take the loss! Something I do is set TPs and SLs and then just logout and walk away. Come back in an hour and either my trade worked or it didn't. Watching it creates so much temptation to meddle that it just hindered me.

Hope this helps somewhat.

SBS

It seems to be the way to do this. I've moved the SL to breakeven many times, the satisfaction of doing that, for me is, that I get stopped without loss! Big deal.

Now, I am inclined to accept the risk and take the SL all the way. if I do not like the distance away, I don't take that trade unless price goes nearer-- or can reduce trade size.

I do not do CFDs, straight spreadbetting, so there is, almost certainly, a big difference. This is just a comment.

 

[richy96]

Finally Risk Management. I noticed you said you went offside by £180 then took a £14 profit. This is bad RM. You need to at least be making as much as you are willing to risk. As soon as it crosses that line, exit and take the loss! Something I do is set TPs and SLs and then just logout and walk away. Come back in an hour and either my trade worked or it didn't. Watching it creates so much temptation to meddle that it just hindered me.

This is something I have not quite figured out yet - where my comfort level of risk lies.

I'm not adverse to taking some risks - being self employed now for over 20 years I believe no one can succeed in any business without taking some risks, and some bigger than others. I am just not sure where my 'accepable' risk level lies with trading

At the moment I am trading with a £20k paper account and until I started trading Nat Gas I was taking positions of around £200 - £500 before leverage. And having only one open position (I did try two positions simultaneously with different stocks a couple of times) That feels 'comfortable' to me at the moment until I prove myself otherwise

On the Nat Gas I was taking positions of about £660 before leverage with only one position open at a time and felt OK with that too, though I definitely noticed the effects (both positive and negative) of the large amount of leverage available to me! It felt a bit more like a roller coaster than the stock I was trading but I was kinda OK with it

Once I was trading three positions simultaneously on Nat Gas (my original one which was badly taken in the first place, another to average that one down, and a third one to grab profits from small rises while waiting for a bigger one), I felt in my own mind I was playing with fire.... however at the same time I started at last to take consistent profits and could not ignore that fact either as, it felt good.

I still think I was playing with fire though and taking a considerable risk as at this time I was commiting about 20% of my available capital on one market.

OK regards the point you mention in the quote above. I didn't actually watch as I went offside by £180. I was in an open position and only £38 offside at the close of the day, and I left the position open thinking it would just keep on going in my favour after the weekend.

When trading opened the price was up and I was £180 out. However the price instantly dropped so I was about £150 after the first few minutes of trading and then started a stready decline in my favour. That is why I did not close the position as all day things steadily improved and eventually I got out with a small profit. Maybe leaving the position open was a mistake? I am not sure I actually made a mistake in the way I reacted once I spotted it had moved so far against me over the weekend. In fact I think I handled the situation with a cool head.

One thing I did do while Pandora was gradually moving in my favour, I went and did a quick trade on Ctrip and grabbed a £62.77 profit. This felt good and the idea was at the time, if Pandora did not move totally in my favour I would use this quick profit to offset or cancel out (in my way of thinking) a possibe loss on Pandora if I ended up closing the position. Is this good psychology? It worked for me. Plus I felt I was doing something positive about the situation.

Regards your mention of you setting up trades, entering stop loss and profit calls, then swithing off the PC and leaving it to it - I can see the merit in this approach myself. I have proved already to my own satisfaction that I have a potential greed issue and a potential issue over taking losses - not an actual fear of losing, it's more of a 'I'll be damned if I am gonna be beaten!' kinda issue.

And I am not to big to admit these are both problems for me either. Heavens this sounds like a meeting of alcoholics anonymous now"

Also as well as a potential greed/not wanting to lose issue i also seem to suffer from indecision and so far have missed taking profits I should have done, and also failed to close bad trades when I should

I recognise these issues so as I mentioned in my opening post I have started setting profit calls and leaving the deal to it's own devices in a way to counteract a problem I admit to having. I wil lsee if that is a better way for me to trade

Oh lastly a bit about myself. Why am I learnign to trade? Well for two reasons. Actually three reasons.

First I have expensive hobbies. In particular I am into classic cars and car shows. This hobby does not come cheap.

Second I feel that although I hav a successful business which keeps me in a decent living, it may not last for ever plus I am not getting younger. I see trading as a potentially very useful skill to learn as it may help me later in life maybe when I retire

Third I see it as a challenge to my own abilities. Plus very interesting, I have learnt loads of stuff I didn't know about how things work already. The wife also wants to try trading and is going down her own learning route too. This makes for plenty of good conversation in the evenings!

My ambitions: OK I would like to earn £40 a day from trading. Doesn't sound a lot but that's £200 a week, or £10k a year, or lots of bits and upgrades for my moneypit.... err I mean my classic car!

My wifes ambitions: much the same. But she want's us to take exotic holidays. And shoes. The latter for her though not me.

My available capital if I switch to live trading. I could easily start with £4k and if it goes down the pan it would not cause me too much distress. There have been times in business I have lost much more (not nice) but I get over it and wait for the times I earn much more

I think from that I am trying to return 1% per day of my working capital.... sounds realistic but is it?

My wife - if she does then she would probably start with the same but that's her choice


If I can become successful at trading then I have the ability to put more funds into the kitty but really would only do so if I felt I had a good chance not to lose it all!

Hope that tells you a bit more about me and my thoughts and aspirations.

Rich

 

[SlowlyButSurely]

Richy,

It depends on most people but I would say that risking 1% of total equity on each trade is about as much as you want to go. This is because in trading you are likely to hit periods where you win consistently but also lose consistently...it is the nature of the game and you will never be 100% sure on the success of a trade. With that said risking £200 on a £20k account seems fine.

Therefore when setting your sights on a trade, you need to be absolutely sure that you will exit the trade if your P&L reaches -£200. This must be your maximum, no ifs or buts, no 'but it will come back any minute I know it' bs. With that in mind, you are going to want to make more than £200 or what is the purpose of the investment? Why not put it in an ISA and make a small return on interest instead? At least that way you're guaranteed a profit.
Point is, you have to see the potential to make back more than you invest to make it worthwhile. If you see a trading opportunity where you can make £180, but you need to risk £200 in case of pullbacks/volatility etc, then skip the trade. It isn't worth it. In fact why not wait for the potential pullback where you can get in at a better price, therefore risking say £150 now to make potentially £230?

 

[richy96]

@SBS
Thanks again for your reply

Some of what you say is what I am trying to figure out

Regards risk levels I see take on board your point of setting a certain amount of loss at which to get out of a trade

When you talk about figuring out my potential gains form a trade this is where i am a bit confused as so far I haven't really been able to quantify what my gain will be

Basically as you know I have tried trading US shares and also trading Nat Gas. I chose US shares as I am more available in the afternoons and evenings to concentrate on trading.

With the shares I made seven trades (five winning and two losing) and a net loss of £168.09

With the Nat Gas I made 8 trades (all winning) and a net gain of £5803.81

Looking at the shares first, though i made a net loss, I don't consider this result to be a disaster by any means. As these were the first seven trades I have ever made in my life I feel the result is fairly encouraging. Maybe I am bigging myself up too much by saying that. but I do feel I understand what went wrong with the two losing trades and I am not put off from trying similar trades on similar shares.

For my style of trading, I think I am most comfortable as a kind of cross between a day trader and a swing trader. I am not looking to make lots and lots of very short term trades in one day and grabbing a small profit from each. I feel more comfortable with making a few trades a day (or maybe just one good one!) and so far I have held on to trades for periods between about 15 mins and 24 hours and feel happy with those sort of time frame. As I have mentioned before I looked for shares that were 'waggling around' by maybe $1 a day but had a slow longer term trend over the previous days or weeks. So if not a Day Trader or a Swing Trader what does that make me? A Sway Trader?? lol

To pursue this avenue of trading further I now intend to look for some more shares that exhibit this kind of behaviour (as sometimes the two I have been trading so far don't do move on some days)

If i can find maybe half a dozen or ten of these types of shares (so I am looking for particular types of charts rather than specific types of companies) then I am going to concentrate my share trading just on those for a while and see if I can make steady profits.


At the same time I can't ignore the results I had from Nat Gas trading. I made a total of 8 trades (all winning) and netted a profit of £5803.81. As with the shares above I traded positions over periods as short as 12 mins and as long as 40hrs. So once again for want of a better word I am a 'Sway' trader. Same methodolgy as the shares and for now I am comfortable with it.

Though I suspect I had an element of luck here, I would be foolish not to try and replicate my success.

Also although you say the energy markets are very volitile I actually found the charts easier to read and predict than I did with the shares. At leas I did before that sudden jump whic I benifitted from, though it mas my convictions this would happen that led me to the Nat Gas market and trade long, grabbing profits from short term rises in a swithin lowly downward trend, in the first place

So when the markets open after easter I'm going to wait a little while to see if another general trend shows itself (prices rose gently since the big rise) see what sky news ae saying and then I will have another go at Nat Gas. But my conviction is the prices will jump again sometime next week

On thing really I do want to ask - as i can't get my head around this at all. I can understand what my potential losses are (as I can use stop orders) but I can't figure out how I calculate my potential gains. I'm just trading price 'blips' when I see them or think one is coming, but how do I calculate the size of that blip and therefore my potential gain?


Oh here is a chart of the Nat Gas. You can see the upward moves I was trading as well as the steady downward trend plus the final sudden leap in price that blew out my Profit Calls and handed me a nice return.

Rich

 

[SlowlyButSurely]

If you can only really trade in the evening then you will still have probably missed most of the action on US stocks (This is presuming you mean after work UK time at around 7pm?). If you choose to swing trade then a good idea may be to look each evening at potential areas of interest in your charts and write down some notes for the morning. Whatever you do though, ensure you have enough time to study your chosen market.

As for understanding and predicting Risk:Reward (R:R) ratio and potential profit I will give a simplified example using your chart you provided.

I presume this is a 4h chart. If you look at the two lines I have added we can imagine that these have acted as previous levels of support and resistance, keeping price in a small range before an event moves price outside of this range (the event was the situation in Russia/Ukraine).

So, ideally what you might say to yourself is, "If I buy near the black line at 4.520 then I know that there is a higher probability price will rise from this point. I presume this from the previous times it has bounced from this level". So, you would then need to think about where your upside potential is. Now depending where you enter, it will either be 4.580 or 4.680 (blue line). These are the two points where price reached before coming back off again so this is where our potential target should be.

So, taking the most conservative trade, we have a entry price of 4.520, and a target of 4.580 = 60 points. Looking at the chart, being conservative we could set our stop at 4.500 but really I would set it at 4.480 for more comfort. This would mean a potential loss of 40 points.This could be considered a good R:R (40:60) ratio and you might choose to enter. Then again, if you were patient and waited to enter later your upside potential could have been even greater at 160 points (blue line).

This is a very basic example based off of one snipet of a chart you provided, but I hope it gives you an idea of how to approach thinking about R:R.

 

[kimo'sabby]

If you can only really trade in the evening then you will still have probably missed most of the action on US stocks (This is presuming you mean after work UK time at around 7pm?). If you choose to swing trade then a good idea may be to look each evening at potential areas of interest in your charts and write down some notes for the morning. Whatever you do though, ensure you have enough time to study your chosen market.

As for understanding and predicting Risk:Reward (R:R) ratio and potential profit I will give a simplified example using your chart you provided.

I presume this is a 4h chart. If you look at the two lines I have added we can imagine that these have acted as previous levels of support and resistance, keeping price in a small range before an event moves price outside of this range (the event was the situation in Russia/Ukraine).

So, ideally what you might say to yourself is, "If I buy near the black line at 4.520 then I know that there is a higher probability price will rise from this point. I presume this from the previous times it has bounced from this level". So, you would then need to think about where your upside potential is. Now depending where you enter, it will either be 4.580 or 4.680 (blue line). These are the two points where price reached before coming back off again so this is where our potential target should be.

So, taking the most conservative trade, we have a entry price of 4.520, and a target of 4.580 = 60 points. Looking at the chart, being conservative we could set our stop at 4.500 but really I would set it at 4.480 for more comfort. This would mean a potential loss of 40 points.This could be considered a good R:R (40:60) ratio and you might choose to enter. Then again, if you were patient and waited to enter later your upside potential could have been even greater at 160 points (blue line).

This is a very basic example based off of one snipet of a chart you provided, but I hope it gives you an idea of how to approach thinking about R:R.

Linear type modelling is a better approach for this type of annotation. Think in terms of having to code it.

 

[richy96]

HI SBS

Thanks for that succinct description. What I will do now is to place my previous trades on the same chart using vertical lines from the entry to exit point and see how they all compare to your suggested black and blue lines

I think I got most of the opening positions in the right sort of area - apart from the first one where i just 'jumped in' excited by the news storis

I too calculated the support level was around $4.520 though it was hard sometimes to catch the market at exactly that point so I 'compromised'

I think this could be a worthwhile exercise. I'll post back when i have done that

Cheers for your time and efforts

@kimo'sabby - I canlt quite understand the lines on your chart, could you elaborate?

Rich

 

[richy96]

@SBS
Oh forgot to mention

As I am self employed, for a couple months a year I have to work flat out.... for about two months a year in the summer I pretty much don't have to do anything (apart from live off the earnings from those few busy months) and the rest of the year I have to work a varying amount

So regards the US shares, I am genearally finished work by 3 or 4pm then have free time till 8pm or so when we eat dinner and settle down - apart from those couple of busy months of course when god (if one actually existed) knows what time i finish work!!

Oh and I never work Mondays. This is because when I worked for a salary I hated Mondays so once I went self employed I changed to a Tues-Sat working week.

Despite that choice, somehow, Tuesdays never seem quite as bad as Mondays did

So given that work pattern, this is why I think the US market and maybe commodities is a good place for me to trade

Oh had agood chat with the wife tonight. She's a couple of weeks behind my path with this.... but she sees herself as an 'in - grab - out.... repeat' sort of trader. Many trades, multiple small profits (or losses) per day. I guess that puts her as a classic wannabee 'day trader'?

Who am I to disagree with that? Thought it does not sound my cup of tea, I hardly know what I am talking about myself yet, but I did say to her - if that is where you feel your abilities lie then you should go for it. On paper of course

I really should get her to open a profile here. I know she has been reading up in her own way on her own time though I don't know and didn't ask where, so maybe she did come here.

IMHO I must not interfere with her journey, she's a canny lass so has to find her own feet.... and hang on to her own head and own blouse of course (though she does look rather nice without it lol)

Damn it she will probably do better than me 'cause she's a smart one

Rich

 

[mike.]

Little something for you and the wife to watch Rich.

Dont start watching them tonight or the wife will kill me. ( once you start, its hard to stop )

 

[kimo'sabby]

@kimo'sabby - I canlt quite understand the lines on your chart, could you elaborate?

Rich

The lines could have any meaning or value within the system concept spectrum, ranging from the simplistic to the complex, they are abstract.

 

[richy96]

OK I have analyzed my performance based on the suggestions SBS gave me regards entry and exit points

The magenta lines represent my trades from open to close.

You can clearly see my first entry point X was badly timed as I went long at much too high a spot on the chart

This trade eventually netted me £498.18 but could have been so much better exectued

My next set of trades all started around line A which seems to be pretty close to the earlier support level of$4.540 (one is very hard to see on this graph is it is within one of the green candles) and I terminated themin the region of C

This batch of trades netted me a total of £995.69 and looking at the chart in retrospct I feel I exectuted these reasonably well for a beginner. Is that a fair assessment of my own performance?

The last two trades were opened around what looked to me at the time the new support level of about $4.526 though in actual fact the market moved against me for 30 mins - 1hr before rallying strongly. These all closed at position D after blowing out my profit calls at $4.632, together with my original trade which I started at point X, much too high, but then held on to on the conviction there would be a sudden surge in price following events in Ukraine. These three trades netted me £4808.12

I'd welcome comments, and yes, criticism of my performance, as this will hopefully help me learn to be a better trader, which after all is what we are all here for?

cheers
Rich

PS I obviously know my original position X was badly placed. I should have looked at the bigger picture before placing it, so you don't need to tell me that lol

PPS The Nat Gas market is open today but I am waiting to see if I can spot any trend before trading again.

 

[kimo'sabby]

The lines could have any meaning or value within the system concept spectrum, ranging from the simplistic to the complex, they are abstract.

http://en.wikipedia.org/wiki/Decision_theory