Ways of trading - Need advice.

[andrewh25]

Hi all,

I have a system which has worked very well for months now (paper) but I need to be able to use this system in a real trading situation.

The problem is I am placing tight stops on profit and loss for which spreadbetting (well, finspreads actually) does not seem to be suited. i.e. If I sold the Dow at 9,300 and over the next few days it fell to 9,100 I would then like to say I'd take 150pts and put an actual price stop on 9,150. The next day, if the futures show a big gain it is usually reflected in the spread. So when the market opens it may go up to 9,200 in the first 5 mins but I will get hit for an extra 50pts (take only 100pts instead of 150pts).

What I am really saying is I need a way of trading whereby I can place stops (trigger, profit and loss) on the actual price and for them to get me out of the market at those points, not what the spread says at the point when the actual price stop gets hit.

This only affects big moves but is annoying, is spreadbetting what I am looking for or are there other trading areas I can look into for my problem?


B.Regards
Andrew.

 

[ChartMan]

Well, with Fins, the only stops you can put in at the moment is by telephone, but I think that will change in the next couple of weeks. Can you not close at the end of day and kiss goodbye to the overnight volatility and uncertainty?

 

[ihickling]

Trading an index is usualy through futures, which the spreadbet companies base ther price on, and the DOW futures are often 10 or more points from the cash anticipating the index moving there.

You could try the QQQ or other index tracking stocks.

 

[andrewh25]

I like staying in the index up to a week to catch the bigger trend. I do not really have enough time to look at things on an intraday.

I used to close the positions the same day but I more often than not lost out on the bigger picture.

I understand the spreads before open usually mirror the futures of the indicies but it seems like a losing position either way. If I put stops around the actual price then I can get hit the next day if the futures moves are big as I am forced to take the spread given to me even though my stop was actioned on the actual price.
If however I do it the other way and place stops based on fins quoted spreads then I may get hit due to erratic movements in the spread when in actual fact the actual stop was not hit.

This second scenario voids my paper trading system to some degree as I have traded (in testing) on actual values not on what fins would quote in relation to the actual price (which could be +/-10 or more of the actual price).

I understand that the spreads are up to 10pts on indicies and I have calculated that hit in my sytem profit figures, what I really want is a way of trading that can get me in and out of the actual price.

All I know is SpreadBetting and buying shares via a broker, is there anything that can help me or are these problems just something you have to deal with?

Andrew.

 

[JonnyT]

Hi Andrew,

You have a problem here to which I beleive there may not be an answer.

Taking Deal4Free as an example the Dow can only be traded between 08:00 and 21:30 UK time.

That means during those hours your stops will be in place and will work.

However large moves can and do happen sometimes out of these hours, so therefor you could get stopped out like you say 50 or more points from where the stop was placed when trading commences at 08:00.

The other consideration is that the time between 08:00 and 14:30 the cash index price follows the futures. This is often a very volatile time and you can find yourself being stopped out when the actual market never trades there when it opens.

Any backtested method that doesn't take into account these time's will not return anything near your results in reality.

However it can be swings and roundabouts so the only real test is to trade with real money and see what happens.

There is one alternative using Guarenteed stops with Deal4Free but the stop cannot be changed once the trade has been set-up. I often use these when going on an interday long as downside shock protection though you pay a spread of 8 instead of 4.

JonnyT

 

[dsmodi]

you may want to try cantor index - when you put in a stop, they ask you whether its a stop based on their price or on the "screen" price. I know that on the "Daily Dow" the screen price refers to the price of the cash. If they have the same system for futures, then your question is answered. However, it may be that the "screen" price for a futures trade may refer to the price of the future and not the cash index, in which case your system can't be implemented there as futures trade and fluctuate outside market hours.

If your system works on an intraday basis, then I'm sure these people will be able to help you regarding stop losses.....

Bear in mind, a daily futures quote is different to a daily index quote.

 

[andrewh25]

Thx for all the responses.

I want to place stops based on the actual "screen" price, so when I view an intraday graph I can say "I got out here" or whatever. The problem is I am in and out of the market based on fins spreads.

Thx anyway, I'll just give it a go I suppose.

Rgds
Andrew.

 

[Bankbuster]

JonnyT

The DOW can be traded 24 hours a day on D4F, except of course when the futures are closed over the weekend.

Regards, BB

 

[JonnyT]

Not with stops though as they are not automatic but done by dealers during the hours I stated. Unless of course this has recently changed!

JonnyT

 

[andrewh25]

What is wrong with random trading BTW?

for example if I were to say at 17:00 (GMT) everyday I sold the DOW and put a very tight stop (say 5pts) on the other direction I would only need 50pts to have an 8:1 reward to risk ratio. (spread taking 10pts)

Creating a profit would of course need me to get it right more than 12.5% of the time. Is this possible or am I looking at it too simply?

This is not my trading style BTW

Just thought I'd ask you ppl who are "in the know" about such matters.

I am of course assuming the DOW (or any index) can move in either direction a reasonable amount with a % chance nearer 50/50 than 12.5%. i.e. the market being random up to a point.


Thx for reading
Andrew.

 

[JonnyT]

Hi Andrew,

You would lose using such a strategy as the spread being 4 of Deal4Free means the market could only move 1 point against you before you had a losing trade.

The Dow isn't really random either!

JonnyT

 

[Bankbuster]

JonnyT

Yes, dealers are now available 24 hours a day, except over the weekend. I use stops overnight and they have been triggered in the early hours.

BB

 

[Splitlink]

Does "screen" mean different things to different spreadbetters?
City Index meant, in addition to being midprice, that you would not get stopped out in after hours trading because the screen was switched off until opening next day. Of course, this means that you could be faced with an opening gap.

CI also allows you to move guaranteed stops as much as you like.

The downside is that the spreads seem to be a couple of points more than Fins and minimum trade is five quid per point

Split

 

[Tony_B]

How about simply trading the quarterly index as opposed to the daily ?
You'll have to cater for a wider initial spread because of the longer time frame, but it would allow you to take advantage of the opening gaps.
However, you'll need to modify your system a little ... use smaller trades & perhaps wider stops to compensate.
As always, test it out on paper first ...
Tony

 

[Miki]

Trade 4 free? Yeh right

Anyone who is prepared to bet against a broker that fixes the prices artificially and takes the other side of your bet needs to have his / her head examined.

You place a stop – you tell them about it – they move prices – THINK ABOUT IT!

Find a broker who will give you true market prices and low commissions (www.interactivebrokers.com springs to mind).

Good trading

 

[Naz]

You got it Miki, why cant others see it.

If you want a tight stop why not trade it yourself in a true market place.I've borrowed this screen shot from the market depth thread.

Look below at all those market makers and ecns who are making slightly different quotes.Why would you only want to deal with just one of them who knew he had a monopoly on your trades?

Why would you also want to pay a spread? Here the prints show trades are mainly going off at the bid.Islands best price is 17.02 with 9594 shares wanted.Put an order in at $17.029 and hide it on the screen so no one can see it.You've just jumped to the front of the queue.Any more selling and youve just been filled.If GSCO,SBSH and FBCO are on the bid buying with you, youre in good company because they are major players in this stock.between them they trade about 17% of the stock.Congratulations you've just traded like a market maker,saved the spread and bought when the public were selling.

Now for the tight stop use the depth of market to enable yourself to transact against anyone in who's in there.Its not one large order but made up of many players.If you have different oders that allow you to trade with anyone at any level who's in that support you can have complete confidence in having a small stop without having to worry about only dealing with one company and worried about them moving their quote and hitting your stop.Plus you can get a better feel for how the stock is being played and with a bit of practice feel the momentum of a move before the public see it in their charts and start buying or selling.

Put your self ahead of the game and not behind it.

 

[rejji]

I agree with Naz and Miki, there are plenty of futures brokers who are just interested in you trading and have no interest in fixing prices/spreads. The best place to see them for UK trading is www.liffe.com

 

[DAVIEGRANT]

Hi Naz and Miki,
I agree as well. But I think the overiding factor with the people who use Spreadbetting is that it only takes a small deposit to open an account and you are up and running. This enables under funded traders to at least Trade (all be it at a disadvantage), which I think they are not always aware of. But this excellant thread I hope is showing some spreadbettors that they should move on and get trading ahead of the game.

Do either of you know any Direct Access brokers who only require a small deposit to open an account ie. £1000 etc.

DavieGrant

 

[Miki]

IB (www.interactivebrokers.com) and Global Futures (www.daytrade4less.com/) allow very small deposits - $2000.

A word of warning if you are a newbie - trading futures with $2000 is a “mission impossible” – you’ll lose it in a blink of an eye.

Starting with $5000 will give you at least a chance to get some education (if you are good) before you lose the lot.

It’s tough game, guys, cut your teeth on something slower first - like stocks, slow stocks.

Then pick up faster stocks – once you master fast moving monster like NVDA – you are ready for futures.

Wish you a lot of luck (it’s easier to come by than a trading skill)!

 

[andrewh25]

please explain

I currently use fins but have been looking at IB.

All I currently do is trade quarterly futures on the DOW and NDX. I have trigger orders and stop losses in place on each position. Can I do a similar thing with IB? I am pretty new to this but am obviously aware of how tough it is to earn money with fins or the like when the spreads are large.

Thx

Andrew.