I've shown below the current charts for the FTSE and the German DAX which highlight the sharp move downwards this week so far.
Showing posts with label spreadbetting. Show all posts
Showing posts with label spreadbetting. Show all posts
Tuesday, July 24, 2012
Sunday, July 08, 2012
Calling my own trades on Twitter
As from Monday 09 July I will be calling any new positions or set ups via a new protected Twitter feed @TraderSteveUK. These will be called in 'real time' and will give entry price, initial stop levels, and what expiry spreadbet I am taking.
Wednesday, June 27, 2012
Proper stop placement
An important thing to remember when placing your stops based on the charts is that these are a solely a guide to the stop placement that you should use. You will see on plenty of charts where price has just touched the exit signals or pierced them very slightly, before price reverts to going in the direction of the trend. This can be frustrating, however what the chart shows may not necessarily mean that you have been stopped out.
Monday, June 04, 2012
Logica, and the use of guaranteed stops
Earlier this year I was long UK stock Logica CMG, and profited from the uptrend that ran until I was stopped out in early April. This then quickly reverted to a possible short position, and although I did not trade the short, it was generating a nice profit, until late last week when a possible takover was announced, which sent the share price soaring. As the chart below shows, this created a massive gap up through the intended trailing stop level, surpassing the intial entry price and even that of the intial stop level, which would have resulted in a loss larger than the original amount risked.
These kind of events can cause significant damage to a trader's equity if robust controls, along with sensible position sizing, are not in place.
I risk 2% of my current equity on each trade, which some people may regard as an agresssive level. However, as my trading is carried out using spreadbetting via IG Index, I would have avoided such an event as on all my positions I use the 'controlled risk' option which acts as a guaranteed stop level. This means that, in the event of a significant gap like that as seen on the Logica chart, my stop level is adhered to and I am stopped out at that level. In this particular example, this would have still enable saved me the majority of the profits earned on the short trade. Some points to note regarding the guaranteed stop facility:
These kind of events can cause significant damage to a trader's equity if robust controls, along with sensible position sizing, are not in place.
I risk 2% of my current equity on each trade, which some people may regard as an agresssive level. However, as my trading is carried out using spreadbetting via IG Index, I would have avoided such an event as on all my positions I use the 'controlled risk' option which acts as a guaranteed stop level. This means that, in the event of a significant gap like that as seen on the Logica chart, my stop level is adhered to and I am stopped out at that level. In this particular example, this would have still enable saved me the majority of the profits earned on the short trade. Some points to note regarding the guaranteed stop facility:
- Guaranteed stops are not available on all stocks - if they are not available, I do not trade that stock;
- The stops have to be placed a minimum distance away from the current market price (e.g. for the majority of US stocks that arev available to trade, the minium stop distance is 10% of the current market price);
- There is a small premium to pay when opening a position, which is paid for via a small adjustment to the entry price.
Monday, May 28, 2012
Hargreaves Services
Another winner today on the short side is UK stock Hargreaves Services. The chart shows a nice consolidation with a failed breakout to the upside in April, before starting a new downtrend early in May, as a prelude to a sharp fall on a trading update released this morning. Again, the system scans I use identified this when the intial downtrend was signalled, and you would be sitting in a nice profit.
Wednesday, April 18, 2012
For new and/or unsuccessful traders - a blueprint to follow
In my e-book I talk about the three areas that you need to consider when trading. All three are linked, and if you are lacking in one of those three areas, you will struggle to make money. Think of it as a three-legged stool - if you are missing one of the legs it will fall over. These areas are:
I always have placed the greatest importance on money mangement, and here's why:
It is far easier to ingrain good trading habits when you are trading at your smallest. As Market Wizard Larry Hite says, you can have an 'emotional indifference' towards a position when your risk is under control. If you are trading too large a position relative to your equity, the mind can make you do funny things, such as exiting a trade when you should be staying in, or not closing a position when you get an exit signal.
Even the greatest traders (including some Market Wizards) cut back a ridiculous amount on their trading size after making a mistake (usually resulting in a significant loss), until they have re-ingrained good habits.
For anyone starting out trading, or those who have struggled to make money, I would suggest this approach:
1) Decide on a preferred methodology for your trading, that fits in with your personality and the amount of time required in front of a PC each day that suits you. If this is something you have devised yourself, you should have done some form of testing to ensure that it has a postive expectancy. If you are following somebody else's method, you should follow and log down some example trades WITHOUT committing any money, to ensure that you fully understand the method, and are following the entry and exit signals as required.
2) Once you have passed this stage, you can now start to think about committing money in the markets. As we all know, when 'real' money is on the line, the psychological aspect of trading comes to the fore. Because of this, you need to start trading using the absolute minimum required to trade that instrument. If you happen to spreadbet, for example, you can trade foreign exchange pairs from 50p per pip with IG Index, or stocks from £1 per point on UK stocks (This part is where a lot of people who try and trend follow struggle, closing trades when no exit signal has been given is a popular mistake - trading a very small position will help you stay in a position until that exit signal is given).
3) Only when you are happy that you are following your trading rules TO THE LETTER should you consider increasing your trading size to a more realistic level. What is that level? Well, the general rule of thumb is to risk no more than 1%-2% on each trade. I know of some very successful day traders who risk less than 0.5% of their equity on each position.
4) Maintain a detailed trading log recording all your trades, paying particular attention to any trades whereby you did not (for whatever reason) adhere to your rules.
If you have a day (we all have them) where we make a stupid mistake, or risk goes out of the window, cut right back again so that you regain your poise and start to see more black, rather than red, ink. For those who have read it, Marty Schwartz's story in his book Pit Bull of the day his wife was out of the office buying a mink coat highlights this very well. I also have read of day traders who, after having a bad day, will simply watch the following days market action all the way through WITHOUT placing a trade. Would you be able to do that?
In my opinion, money management has a direct effect on your self management. There are plenty of methods for trading successfully in the markets. I passionately believe in trend following, as this suits my personality best, coupled with the amount of time I want to spend in front of a screen all day. However everything stems from your approach to risk management.
If you can follow the basic blueprint outlined above, you have an excellent chance of becoming successful.
- Money management;
- Self management;
- System management.
I always have placed the greatest importance on money mangement, and here's why:
It is far easier to ingrain good trading habits when you are trading at your smallest. As Market Wizard Larry Hite says, you can have an 'emotional indifference' towards a position when your risk is under control. If you are trading too large a position relative to your equity, the mind can make you do funny things, such as exiting a trade when you should be staying in, or not closing a position when you get an exit signal.
Even the greatest traders (including some Market Wizards) cut back a ridiculous amount on their trading size after making a mistake (usually resulting in a significant loss), until they have re-ingrained good habits.
For anyone starting out trading, or those who have struggled to make money, I would suggest this approach:
1) Decide on a preferred methodology for your trading, that fits in with your personality and the amount of time required in front of a PC each day that suits you. If this is something you have devised yourself, you should have done some form of testing to ensure that it has a postive expectancy. If you are following somebody else's method, you should follow and log down some example trades WITHOUT committing any money, to ensure that you fully understand the method, and are following the entry and exit signals as required.
2) Once you have passed this stage, you can now start to think about committing money in the markets. As we all know, when 'real' money is on the line, the psychological aspect of trading comes to the fore. Because of this, you need to start trading using the absolute minimum required to trade that instrument. If you happen to spreadbet, for example, you can trade foreign exchange pairs from 50p per pip with IG Index, or stocks from £1 per point on UK stocks (This part is where a lot of people who try and trend follow struggle, closing trades when no exit signal has been given is a popular mistake - trading a very small position will help you stay in a position until that exit signal is given).
3) Only when you are happy that you are following your trading rules TO THE LETTER should you consider increasing your trading size to a more realistic level. What is that level? Well, the general rule of thumb is to risk no more than 1%-2% on each trade. I know of some very successful day traders who risk less than 0.5% of their equity on each position.
4) Maintain a detailed trading log recording all your trades, paying particular attention to any trades whereby you did not (for whatever reason) adhere to your rules.
If you have a day (we all have them) where we make a stupid mistake, or risk goes out of the window, cut right back again so that you regain your poise and start to see more black, rather than red, ink. For those who have read it, Marty Schwartz's story in his book Pit Bull of the day his wife was out of the office buying a mink coat highlights this very well. I also have read of day traders who, after having a bad day, will simply watch the following days market action all the way through WITHOUT placing a trade. Would you be able to do that?
In my opinion, money management has a direct effect on your self management. There are plenty of methods for trading successfully in the markets. I passionately believe in trend following, as this suits my personality best, coupled with the amount of time I want to spend in front of a screen all day. However everything stems from your approach to risk management.
If you can follow the basic blueprint outlined above, you have an excellent chance of becoming successful.
Tuesday, February 07, 2012
Act accordingly on a proper change of trend
"Every truth passes through three stages before it is recognized: In the first it is ridiculed; in the second it is opposed; in the third it is regarded as self-evident.”
I came across this quotation today which sums up very well the stages that the majority of investors and traders go through, particularly with regard to a change in trend.
This can be seen very clearly where investors are discussing a stock in which they have invested heavily. The fundamental story may be compelling, but if the stock continues to fall in price after they have bought in, then they are losing money - fact.
In the past I have exited positions in a stock (for a profit) only to be ridiculed by investors holding onto a position, however the charts gave me a clear exit signal. In the months following my exit, those that have held on end up having to resign themselves to sitting in a loss for a while - the easy 'ten bagger' they were banking on is in a clear downtrend and, rather than cut their losses, they are now sitting on huge paper losses (which incidentally I consider to be a very real loss).
After a while, they then resign themselves to the fact that there is no future prospects for the stock, so they either a) leave the position open but try and forget about it or b) sell up. Even then, they normally try to see the positive side of this by saying the capital losses incurred can be offset against profits made elsewhere, thereby reducing any tax liability. Quite often they exit the position right around the time when the trend reverses back to the direction they originally wanted.
Just on this issue (which is slightly off at a tangent) I'm not sure what others think, but if I was trading shares in the traditional sense then I'd be more than happy to pay any tax on profits - like a trend follower suffering losing trades (which are restricted as exits are made strictly in accordance with exit signals), tax should be considered a cost of doing business. Particularly in the current economic climate, paying tax means you are making profits - what's so bad about that? Of course, I trade using spread bets (available to UK residents) which are tax exempt :)
Anyway, to get back to the main topic here, to me it seems that a lot of investors suffer a period of self denial when a stock goes against them - "I am right, the market is wrong - I will be proved right" - that kind of thing. There is an emotional attachment which is poison - the market doesn't care whether you are long or short a particular stock - it responds to ALL participants. It should be remembered that the market, and the price fluctuations are the sum of ALL market participants, and you have no idea of anybody else's trading timeframes, the reason they have put their positions on etc., so if the price goes against you, then you are on the wrong side of the trade.
As a trend follower, you simply follow price, so you are automatically taking every market participant's opinion into account. If a price is trending up, you should be long, and if its trending down, you should be short. Simple.
I went long on a particular UK stock yesterday, only to be 'advised' on a bulletin board that "I can tell you this one is still down nearly 50% with little hope of recovery whatever charts you are reading". Well, if I am wrong (which I frequently am) then a 1R loss is simply a cost of doing business, and I will move on to the next candidate. Why did I buy this stock? Because it is breaking out to new highs, signalling a potential new uptrend and satisifed the criteria for my stock selections. What else can a trend follower do? So I've been ridiculed for taking the trade - time will tell if price moves in my favour or not.
Counter trend traders, and those who like to call market tops and bottoms, also go through this three stage process. Some of these traders I have read about seem to do well for a while calling market turns, gaining a following, and then, as so often happens, make some pronouncement about a big market turn - only for the trade to go against them, and their followers, who like a herd of sheep have blindly followed into the same trade. Even worse, the trader with the following does not even use stops, and preaches patience before the trade will come good. Well, as this particular trader I'm thinking of trades ETF's and indices, he is massively underwater, and no doubt some of his followers have blown their accounts.
Trend following is considered a boring, not very glamorous way of participating in the markets. I don't trade for excitement, I trade to make money. The whole purpose of trading such a system is that it gives you very clear guidelines of when to get in a trade, and more importantly, when to get out of a trade - if it means taking a loss, so be it. Move on. However, a trend follower, if they have set up a proper system including approporiate risk management parameters, will avoid these massive blow ups, as well avoiding the issue of holding onto massive losses in the hope that they will turn round - someday. The first loss is your best loss. Of course, we cannot avoid a drawdown from a series of losing traders, but that is part of the process of finding the big winners. Every losing trade brings me closer to a winning trade.
A trend follower will therefore avoid having to go through those three stages mentioned at the beginning of this post. The truth is in the price, and we act accordingly upon what price is saying. We control our losses and do not restrict our profits. So we never get in at the absolute bottom or top of the previous price move - so what? Price is the only thing a trend follower needs to worry about.
I came across this quotation today which sums up very well the stages that the majority of investors and traders go through, particularly with regard to a change in trend.
This can be seen very clearly where investors are discussing a stock in which they have invested heavily. The fundamental story may be compelling, but if the stock continues to fall in price after they have bought in, then they are losing money - fact.
In the past I have exited positions in a stock (for a profit) only to be ridiculed by investors holding onto a position, however the charts gave me a clear exit signal. In the months following my exit, those that have held on end up having to resign themselves to sitting in a loss for a while - the easy 'ten bagger' they were banking on is in a clear downtrend and, rather than cut their losses, they are now sitting on huge paper losses (which incidentally I consider to be a very real loss).
After a while, they then resign themselves to the fact that there is no future prospects for the stock, so they either a) leave the position open but try and forget about it or b) sell up. Even then, they normally try to see the positive side of this by saying the capital losses incurred can be offset against profits made elsewhere, thereby reducing any tax liability. Quite often they exit the position right around the time when the trend reverses back to the direction they originally wanted.
Just on this issue (which is slightly off at a tangent) I'm not sure what others think, but if I was trading shares in the traditional sense then I'd be more than happy to pay any tax on profits - like a trend follower suffering losing trades (which are restricted as exits are made strictly in accordance with exit signals), tax should be considered a cost of doing business. Particularly in the current economic climate, paying tax means you are making profits - what's so bad about that? Of course, I trade using spread bets (available to UK residents) which are tax exempt :)
Anyway, to get back to the main topic here, to me it seems that a lot of investors suffer a period of self denial when a stock goes against them - "I am right, the market is wrong - I will be proved right" - that kind of thing. There is an emotional attachment which is poison - the market doesn't care whether you are long or short a particular stock - it responds to ALL participants. It should be remembered that the market, and the price fluctuations are the sum of ALL market participants, and you have no idea of anybody else's trading timeframes, the reason they have put their positions on etc., so if the price goes against you, then you are on the wrong side of the trade.
As a trend follower, you simply follow price, so you are automatically taking every market participant's opinion into account. If a price is trending up, you should be long, and if its trending down, you should be short. Simple.
I went long on a particular UK stock yesterday, only to be 'advised' on a bulletin board that "I can tell you this one is still down nearly 50% with little hope of recovery whatever charts you are reading". Well, if I am wrong (which I frequently am) then a 1R loss is simply a cost of doing business, and I will move on to the next candidate. Why did I buy this stock? Because it is breaking out to new highs, signalling a potential new uptrend and satisifed the criteria for my stock selections. What else can a trend follower do? So I've been ridiculed for taking the trade - time will tell if price moves in my favour or not.
Counter trend traders, and those who like to call market tops and bottoms, also go through this three stage process. Some of these traders I have read about seem to do well for a while calling market turns, gaining a following, and then, as so often happens, make some pronouncement about a big market turn - only for the trade to go against them, and their followers, who like a herd of sheep have blindly followed into the same trade. Even worse, the trader with the following does not even use stops, and preaches patience before the trade will come good. Well, as this particular trader I'm thinking of trades ETF's and indices, he is massively underwater, and no doubt some of his followers have blown their accounts.
Trend following is considered a boring, not very glamorous way of participating in the markets. I don't trade for excitement, I trade to make money. The whole purpose of trading such a system is that it gives you very clear guidelines of when to get in a trade, and more importantly, when to get out of a trade - if it means taking a loss, so be it. Move on. However, a trend follower, if they have set up a proper system including approporiate risk management parameters, will avoid these massive blow ups, as well avoiding the issue of holding onto massive losses in the hope that they will turn round - someday. The first loss is your best loss. Of course, we cannot avoid a drawdown from a series of losing traders, but that is part of the process of finding the big winners. Every losing trade brings me closer to a winning trade.
A trend follower will therefore avoid having to go through those three stages mentioned at the beginning of this post. The truth is in the price, and we act accordingly upon what price is saying. We control our losses and do not restrict our profits. So we never get in at the absolute bottom or top of the previous price move - so what? Price is the only thing a trend follower needs to worry about.
Wednesday, September 07, 2011
Recommended platform - IG Index
As I have mentioned here on more than one occasion, I use the IG Index platform to carry out my trading. Trading in this manner via spreadbetting has the advantage, under current UK tax laws, of being exempt for Capital Gains Tax purposes on profits generated.
The combination of the range of available markets to trade, ease of execution, trading platform stabililty and the charting package mean that I highly recommend their platform to anyone thinking of trading in this manner. On the majority of markets you can also use guaranteed stops on your positions, thereby enabling you to quantify your exact risk in the market, without having to worry about overnight gaps, for example.
I am delighted to be acting as an introducer on behalf of IG Index. Opening an account is easy, and usually can be completed in a matter of minutes.
To have Trader Steve identified as the account introducer, and for more details, please follow this link.
IMPORTANT: Applying for an account via the link above does not increase the level of any commissions or dealing spreads that you may incur.
The combination of the range of available markets to trade, ease of execution, trading platform stabililty and the charting package mean that I highly recommend their platform to anyone thinking of trading in this manner. On the majority of markets you can also use guaranteed stops on your positions, thereby enabling you to quantify your exact risk in the market, without having to worry about overnight gaps, for example.
I am delighted to be acting as an introducer on behalf of IG Index. Opening an account is easy, and usually can be completed in a matter of minutes.
To have Trader Steve identified as the account introducer, and for more details, please follow this link.
IMPORTANT: Applying for an account via the link above does not increase the level of any commissions or dealing spreads that you may incur.
Friday, August 21, 2009
My US stocks performance - UPDATED
Since last December, I have been recording some of my trades on the MarketGuru website. Although this is a 'virtual' portfolio, the trades and exits can only be posted real-time, meaning that no subsequent 'doctoring' of your performance can be made.
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