Shares were something you bought and watched go up and collected some nice dividends along the way.  Most of these dividends were reinvested using DRIP (Dividend Reinvestment Plan) which seemed like a good idea at the time but is the most tedious admin task ever if you need to work out CGT  .  To this day I don’t think my father has ever sold a share and he has watched a lot go up and come back down and some even disappear.  During the global financial crisis I sat paralysed and watched the value of my portfolio halve, like father like son I guess and after it had recovered somewhat, in March 2010, I decided I would never be a passive investor again.

I bought lots of books (and read them) and set about coming up with a strategy or strategies that would suit different market conditions.  The key to this strategy was to engage the market over different time frames.  Over the course of the last few years I have set about re-training my poor brain to become a trader.  I have studied different approaches and tried them out in the market to see if I can work out what sort of trading best suits me.  Whilst doing this I have set up a SMSF, been helping my father finally SELL and buy a few things, been investing some spare company money in shares and working on day trading.  Oh, and running my “other” business in manufacturing/printing.  I have never been so busy but I have also never been happier in my work.

Now, however, I want to really improve my performance and start making consistent income from the trading part of this work.  Some of the issues I am facing which perhaps could be split out of this post as separate questions are:

Position sizing:  Mostly I am using a local brokerage account for long positions and when I see an entry I calculate the number of shares to buy based on my risk but I often halve that as an initial position and then end up with an account full of part positions that are sitting somewhere between my entry and my stop (sometimes a bit below , I know, I know).  Then I tend to rationalise holding them because the $ at risk doesn’t seem to matter so much.  Do the traders here use some sort of time stop that keeps their capital turning over?  Is it better to add to starter positions or is this something for the more proficient traders here and I would be better just taking the position?

Time frame:  Some of my best trading I did sometime ago using Mini warrants where I would go long or short ASX50 stocks knowing that it was most likely I wouldn’t hold the position overnight.  In the last 30mins of trading I would analyse my open positions and decide what proportion, if any, I would hold.  I think this approach enabled me to take what the market offered in the day and be much more ruthless with stops.  The $ loss was real and I got out and I could also measure my results on a daily basis.  Do you guys have a rule that says I have made x$ from this trade today I will bank that?  Do you have profit targets and if so in what time frames?

Platforms:  When I was exploring different markets to trade I opened an InterTrader account so I could look at indices, forex and gold etc.  Now I am using CFD’s through InterTrader to short stocks and make use of leverage.  My discipline is probably at the stage where I could just use CFD’s for all my short term trading but maybe not. Is it even realistic to think a regular income can be made without using CFDs/spreadbets and going long and short stocks?  To have the opportunity to make a regular income (assuming I can be skilled enough) is it better to focus on trading long/short one or two stocks or indices and short term invest in other stocks?

I have reached this point in my post and re-read it and I am thinking hmm what a mess.  There are so many points that would need more elaboration if anyone was going to respond sensibly.  Some of the questions are more rhetorical than direct but I will post it anyway and maybe it will lead to other people talking about their road to trading, how long it took before they could really say I am a good trader, what is key in their trading plan etc.

For next time,

Dave

The post My Trading Journey first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

So I’m learning more about RSI, MACD, Stochastic Oscillator and volume.

The worst thing is that I’ve realised that I’ve been overlooking important information that would have affected my success rates since I started.

I’ve dismissed potential trades because I didn’t understand how to use the indicators to support my decision making and I’ve entered trades that the indicators would have suggested were too risky.

The outcome is that the number of trades I open might go down but my success rates are quite likely to go up.

Don’t want to boast since I’m far from financially independent (yet) as a result of my spread betting but today I increased my trading fund by 4.5% – my boggest single day gain.

Picked out a couple of descending triangle trades (Genel) and Ladbrokes was a short reversal play from about a week ago. They’ve all gone south today (especially Genel) and have all picked up some tidy gains between them.

I know that going short on trades is politically unpopular these days but until they make it illegal I’m going to keep on profiting from this downward trend.

So, to maximise my profits I’ve moved my stop-loss points very close because it’s always possible that the price action will bounce in the morning.

What’s very interesting is that I mentioned the fact that I’ve mentioned spread betting to my pension adviser today and even he’s interested in the idea as a wealth creation tool.

The post Better start paying more attention to Indicators first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

So wife and I went to Birmingham to a free seminar about spread betting and we decided that I should take the training that was being sold at the seminar.

The seminar was over 2 days on a cold weekend in February close to Earls Court in London. It was very intense and there was more information than I knew what to do with. I came home excited and exhausted.

Since then I’ve increased my trading fund by 13% and, like many novices, it’s been very up and down. However, I’ve been told, by someone who now makes a living from spread betting, that I’m already ahead of many novices who normally lose money for the first few months.

At first I didn’t really know what I was doing apart from how to limit my risk to no more than 1% of my trading fund.

Most of the time I only do trades called power play, which is a simple reversal patter. It’s proven to be a good trading strategy and I’m getting better at it.

As my confidence improves I’m beginning to look at more complex pattern trades. And I’m sure I’ll explain as I go along.

I use a charting package called Sharescope, which provides me with good charts and supporting indicators. I use a filter for power plays and they help me identify potential trades.

A reader asked me:

I would really appreciate it if you could explain to me what is power play. I always hear in being mentioned on the web. Is it difficult to grasp?

A power play is a 7 day spread betting tactic.

In effect it’s a reversal pattern based on the 3 day movement of a trending share price. It’s ideal for ‘end of day’ traders.

I’ll do my best to explain it:

Let’s look at ABC stock today today (9th Sep 2016).

Yesterday (Sep 8th) the stock was up for the 3rd day running but the longer term trend is downwards.

Because of the trend we’d expect that the share price will continue downwards at some point soon.

So, the trade is set up like this:

The sign is: a stock that moves 2 days in a row against its general trend. The last day’s close needs to be higher than the previous day’s high if the trend is downwards.

We place a trade order, going with the trend (sell if downward, buy if upward) to activate only on the following day (if it doesn’t activate then the order is cancelled).

If we’re going short (a downward sell trade) then the open price needs to be one trade increment below the low of the last day.

The stop-loss would be placed one increment above the day’s high.

In the case of ABC stock the order would be to open a sell trade if the price hits 135.25 on the following day (9th Sep 2016).

The stop-loss would be placed one increment above the day’s high at 151.75.

We follow the trend for the next 4 days and look to trail the stop-loss at the end of the 4 day after the trade opened. It’s trailed until the trade closes by hitting the stop-loss.

The post Sharescope and Power Plays first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

So, what do you look for?

Daily Bar Charts

Daily charts are one of the first steps of analysing market trends. They offer you the opportunity to look for patterns within the market and give you a vague understanding of where the market is moving. The two most common charts are the bar chart and the candlestick chart.

Candlestick Charts

A typical candle represents one day’s action. The top indicates the highest price for the day whilst the lower part of the stick shows the lowest price achieved on the day. The width of the charts however indicates the range of the price on the given day. A white candle stick indicates that the security closed higher than the open and vice versa.

The above chart shows a monthly chart of daily bars for the stock “Anglo American”. The chart is a typically very easy to follow and learn, as to the plain eyes it shows a security going through a rise in price and steady up trend.

Moving Averages

This is another tool that offers indications as to where the market is pulling towards. An uptrend can be spotted when

• Prices being above the Moving Average (MA)
• The Moving average is upward sloping
• When a shorter MA is above the longer term Moving Average e.g. 50 days above a 100 day Moving average

The reversal of the above criteria can also be used when looking at a downtrend.

Once a possible trend has been detected, you then start considering ways of getting into the market.

The above chart shows Anglo American’s monthy market numbers, with a fifty day Moving average added, notice that the moving average points updwards and that prices stay well above it. The resistance to the moving average would have been the best time to enter the market.

Relative Strength Index (RSI)

This simply shows how an instrument has been performing relative to another. Let’s say a stock has been underperforming an index by 20% to 30% over a 3 months period, while it is not guaranteed that the instrument is in a downtrend, it gives you a possible indication of where the trend lies.

Attention to Market

Keeping a close eye to daily market news is a key part of being a successful spread better. The current climate hovering around the market means that any good or bad news in the market moves very fast and triggers a whole wave of sell off or sudden up turn in the market.  So you want to be in a position where you can capitalize on any climate you find yourself.

The post Spread Betters Investment Strategy first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

How do you define Financial Spread betting? Spread betting is an art of outperforming the market through the use of well calculated and precise strategy.

Spread Betting Mechanics:-The mechanics of entering and exiting bets are very straight forward.

Typically, when you want to buy a traditional share, you contact a stock broker who will then issue you with a two way price for the underlying security you wish to buy. The lower of the two prices, which is the one you will get if you are selling the share, is called the bid price. The higher quoted price is what you will have to pay if you are buying shares, and is the offer price.

The difference between the two prices is called the ‘Spread‘.

In principle, this is very parallel with how the spread betters deal with their transactions, where you are offered to way price Offer/Bid.

Why Spread Betting:- The risk involved in financial spread betting is high indeed; however I’m a firm believer in using well calculated and precise strategy to beat the financial markets as I believe it generates better returns than a standard stock purchase. The pros are thus numerous and abundant.

Trading Example

Opening a Long Position:- If you get a quote of 640-645p for shares in company X. You then place a buy trade after your research, the finding will be thus

Using a rate of £10 per point, you bought the shares at 645, and then sold them back at 665, the spread is 20 points.

20 x £10 = £200 profit

Understanding Short Positions:-“Shorting” the market is terms most people use too often but don’t know how it works.

Going short on a share is where you agree to sell shares without actually buying them from the market. The expectation is that the share will soon fall in value below the price you have agreed to sell the shares in the first place.

Shorting the market is not a strategy that most private investors normally use, but it is a major option available to betters in the market. By ordering a “SELL” bet on a stock, you can make a lot more money but you could also face more risk than if you go long

Example – Opening a short position

Just like the previous example the spread betting company will quote you a spread of 640-645 for shares in company X. The sell price here will be 640p, the buy is 645p. You then place a sell trade based on your research and findings that the share price will fall, it might happen like this

Still using a rate of £10 per point, you sold the shares at 640, and then bought them back at 610, the spread is 30 points.

30 x £10 = £300

You will make a profit of £300. Isn’t that great!!!

The post SPREADBETTER: The Complete Guide To Financial Spread Betting first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

Leverage or gearing means that using a small stake, can lead to relatively large profits (or losses). As opposed to margin trading, conventional share dealing, does not use leverage and requires the investor to lay out 100 percent of the cash to acquire the physical assets.

Basically the spread betting providers are lending you money to invest with. But you need to place a deposit, normally 10 percent of your position in your spread betting account.

For example, if I want to buy 1,000 shares in Barclays Bank at 100 pence a share, you would have to stump up £1,000.

However, if I wanted to buy the same position through spread betting, than I would place an order for £10 per point. You will need to outlay some margin (usually 10%), so in effect your capital outlay is a tenth of the sum needed compared to purchasing the physical assets with same exposure – let me demonstrate continuing with example above:

Conventional Cash trading –
Purchase 1000 shares at 100pence each, with a capital outlay of £1000. If the stock increases from 100p to 200p, then the profit will be £1000 (200p-100p x 1000 shares)

Spread betting –
Buy £10 per point, with a capital outlay of £100 (margin at 10%). If the stock increases from 100p to 200p, then the profit would also equal £1000 (£10per point x 100 point increase in price)

As you can see, the same exposure and profit is made on both methods, but with spread betting only a tenth of the capital is outlaid.

The advantages of leverage are therefore obvious – a smaller capital outlay can lead to relatively larger returns than traditional non-leveraged products, but it is stressed that losses are also magnified.

Carefully leveraged investors, who take advantage of stops and limit orders and make sure their capital float is not too large a percent of their total capital available- should be able to enjoy this method of investing. Caution however is always advisable.

In general, less liquid stocks require more margins to trade than more volatile or heavily traded stocks.

Opening a Share Trade

Opening a Long Position:-If you get a quote of 640-645p for shares in company X. You then place a buy trade after your research, the finding will be thus

Using a rate of £10 per point, you bought the shares at 645, and then sold them back at 665, the spread is 20 points.

20 x £10 = £200 profit

Understanding Short Positions:-“Shorting” the market is terms most people use too often but don’t know how it works.

Going short on a share is where you agree to sell shares without actually buying them from the market. The expectation is that the share will soon fall in value below the price you have agreed to sell the shares in the first place.

Shorting the market is not a strategy that most private investors normally use, but it is a major option available to betters in the market. By ordering a “SELL” bet on a stock, you can make a lot more money but you could also face more risk than if you go long

Example – Opening a short position

Just like the previous example the spread betting company will quote you a spread of 640-645 for shares in company X. The sell price here will be 640p, the buy is 645p. You then place a sell trade based on your research and findings that the share price will fall, it might happen like this

Still using a rate of £10 per point, you sold the shares at 640, and then bought them back at 610, the spread is 30 points.

30 x £10 = £300

You will make a profit of £300. Isn’t that great!!!

The post The Workings of Leverage first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

In this short article we will look at some of the obvious and not so obvious factors that would be spread betters should look out for when deciding which trading platform to choose.

Firstly, and very importantly, budding traders should always choose an FCA-regulated platform. Regulation ensures that client monies (monies held by firms in trust) are protected and also provides spread betters with the peace of mind that they have a legal right to their winnings.

Firms complying with FCA regulation are also likely to be more robust, with a strong underlying capital base and therefore less likely to fold – taking your money with it.

A number of other factors, more integral to the service that spread betting firms provide should also give clues as to the right platform for you. Some of these factors include:

• Although spreads have generally tightened over time due to increased competition in the sector, some companies offer tighter spreads than others so it is a good idea to research different firm’s spreads.
• Speed of execution of the trade is also crucial when spread betting so familiarising yourself with a platform’s trading interface is also important. Some spread betting sites allow you to trial a demo of the interface before going live. However, it should be noted that some demo interfaces do not reflect the execution speed of the live interface so new users should be cautious about placing large bets before they are fully acquainted with the live interfaces.
• In the fast paced and volatile environment of spread betting time is literally money and you could be very frustrated watching profits turn to losses because your trading interface is too slow or crashes too frequently.
• You should also make sure that the lists of instruments that you are trading, known as watchlists, is easy to access and clearly presented.
• Most well known instruments should be available to trade on most platforms but if you are interested in trading more exotic instruments such as certain currencies you should check their availability first on the platform before opening your account.
• Most spread betting firms nowadays also offer you an email and telephone support service. It is a good idea when deciding which platform to use to call their traders customer service lines to see how helpful they really are. In the event of an emergency this support will be crucial.
• Another thing to look for is trading times. For the intraday trader this should not be a problem but if you are holding positions over-night or long-term then out-of-hours functionality is key so that you can adjust stops and limits after markets close.
• Financing charges also apply for longer-term positions, which can add up particularly with larger trade portfolios.
• Finally, charting packages can differ from platform to platform. Most platforms offer charting tools which is generally adequate for ordinary investors. However, one way around this is to set up an account with a firm that uses metatrader, which is probably the most sophisticated package on the market, and some spread beting firms offer this free with their platform.

For myself I’m mainly trading with Trade Nation these days.

The post Choosing a Spread Betting firm – What to look for? first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

We will assess some of the main advantages of spread betting first, and then take a look at the possible disadvantages spread betting can bring.

Advantages of spread betting

Tax Free Gains – yes you read right, TAX FREE. While we don’t suggest you enter into the spread betting game simply to avoid the tax man, spread betting can be a bit of a tax sweetener. The gains you get out of your spread betting will not attract capital gains tax (CGT) or income tax. This differs to normal stock market trading, where all profits will be taxed under CGT laws relevant to your jurisdiction. Unfortunately, any capital losses can not be used as a deduction from other capital gains.

No Stamp Duty – Stamp duty does apply to traditionally stock trading, so if you’re spread betting you will currently be stamp duty free.

Leverage – the potential to turn a low amount of cash into a lot is potentially much higher in a spread betting environment than a traditional stock trading, due to the leverage employed. With spread betting you are trading on margin, which basically means you don’t have to fork out for the full cost of the investment upfront, you pay a deposit. Trading on a margin is great when you wish to make a large investment without having the entire amount of capital injection required upfront, but while the potential gains are higher, so are the potential losses.

Buys/Sells trades can be staggered – brokerage fees can be expensive in traditional stock trading and it can be costly making staggered exits from your investments without paying brokerage fees each time. Within a spread betting scenario, you can exit the investment in phases without paying duplicate brokerage. Why? The costs of spread betting is built into the price/spread at the outset, this means if there are buy and sell transaction at certain phases throughout, you will only pay once, not each time you trade.

Stop Loss and Limit Order – It’s impossible for a trader to watch every price tick and close their trade once it hits a specific price, so both Stop Loss and Limit Orders are used to automatically close a trade once it hits the investors target price. For many investors, stop loss and limit orders provide some sense of “security” and avoids you needing to be glued to the screen 24/7.

Open 24/7 – As the trading platforms are accessible online, you can generally place orders 24/7, to be executed when the exchanges open.

Minimise currency risk – Many spread betting firms allow you to choose a currency which you can trade in, which eliminates the hassle of settling a trade in another currency and having to hedge the FX risk. If you work in £’s you can bet in per point in sterling on international shares denominated in another currency – your spread betting company will take care of all of the messy currency conversions.

Easy sign-up – Signing up with spread betting companies is usually done with ease online and takes about 15 minutes to complete. You are also required to send in a few forms of ID, before you can start spread betting.

Disadvantages of spread betting

Leverage – As it has been mentioned in the advantages, leverage can work against you. A spread bettor can lose more than their initial capital injection. Often than not, when first placing a spread bet it is likely you will underestimate the impact of your losses. While most spread betting compatriots only make this mistake once, most do make this mistake when starting out. It’s important that all the risks are understood before placing a trade. There are tools which can be used to minimise the downside risk such as Stop Losses.

Generally not a long term trading option – traditional stock trading is more of a long term strategy than spread betting. Spread betting investors can roll over their spread betting investment, but they have to pay costs to enter in a new spread betting at each expiry date. The costs of rolling these bets can add up over time and erode profits.

The post Advantages and Disadvantages first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

2. Money management
One of the important things to learn about investing is how to manage risk. Anyone who has no respect for risk is on the road to complete financial disaster. You often hear these great stories about the guy who turned a small amount of money into a million dollars. But what you don’t hear is that, years down the road, these same people are often wiped out as a result of not respecting the risks that go with investing.

Learning how to pick investments that can appreciate in both good and bad times is the key to successful investing. Keep your reward-to-risk ratio at a minimum of 2:1, or higher. In other words, if you are risking 1 point on each trade, you should be making, on average, at least 2 points.

3. Don’t try to hit the home runs on every pick
Everyone wants to be the one to have their portfolio shoot up 200% in a short amount of time. Fact is, there is no way to achieve this without taking on severe risk. Even if you make 3% – 6% on a stock, it can really add up. One way at looking at this, if you make 5% on one of your stock picks every two weeks. That’s a 10% gain on your investment in a month, do this for twelve months and your looking at a 120% gain a year. Have you ever heard of “The Tortoise and the Hare“? The rabbit has more speed, but the turtle has more determination, stamina, and consistency. The rabbit may get a fast start, but the turtle wins the race.

4. The urge to trade
Emotions work against you in investing and it’s very easy to want constant action. The problem is that great picks don’t come along daily. Idle periods are a natural part of business. You should never force yourself to find stocks to invest in, because it may go against you at the worst possible time. You need to be emotionally clean and ready to take on a new investment, rather than get caught in a deteriorating position. As a rule: the more you trade, the more risk you take.

5. All stocks can crash
This is a hard lesson to learn for new investors who ride out a single stock only to see it crash later on. As we have seen recently, even great stocks like Microsoft, Cisco, Citigroup and Home Depot have all crashed. While these stocks are likely to hit their highs again in the future, they, just like any other stock, are bound to crash sometime, no matter how great the company is.

6. Avoid stocks that everybody is talking about.
Most people get interested in stocks when everybody else is. The time to get interested is when no one else is. If you buy a stock because of news that just came out, you’re too late. You can’t buy what is popular and expect to do well.

7. Never chase a stock.
When a stock pick is hot and takes off leaving you behind, let it go. If it doesn’t pull back, move on to the next stock pick. There are always more stocks to buy.

8. When entering or exiting a stock at the market open, be patient.
Notice how a lot of stocks open strongly, gapping up and move up strongly for the first 30 minutes, then start to turn. After the first 30 – 60 minutes things start to stabilize. After the market has been open for an hour or two, use this period to enter or exit your positions, especially if you missed it at the open because of a volatile open.

9. Never fall in love with a stock.
Stick to a plan. If one of your stock picks hit your target price, lock in some profits by using a stop loss, trailing stop loss orders. If the stock continues to climb, move up your stop loss up. Don’t let a profit turn into a loss.

10. Keep the winners and let the losers go.
Both experienced and new stock market investors find it very hard to let a loosing stock go. We all hope that with a little more time it will turn around. No one wants to sell at a loss. What commonly happens because of this human nature is a tendency to sell the winners and keep the losers, hoping for a stock turn-around. The investor ends up with a bagful of lousy performing stock picks and no winners in the portfolio to balance it out. Unless there is a compelling and valid reason to hold on to a loosing stock, just cut your losses short and exit it.

The post Trading Tips first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.

Rather than do things half arsed I made the decision to wait until I could give trading the full attention if not only deserves, but also requires.

One of the hardest things I’ve found is actually committing the time and effort needed to do things properly. Like a lot of you out there I suffer from having the attention span of a goldfish and procrastination is my arch nemesis. Now obviously this has to change, and it most certainly will, but I’m not naive enough to think it will happen overnight.

Replacing bad habits with good ones

I’ve recently read a book called “Think and Grow Rich” by Napoleon Hill, first published way back in 1937 which has changed my perspective on a thing or two, most notably around forcing yourself to do things until they become your natural habits. For anyone out there that has the same issue I strongly recommend you read this literary marvel. You won’t be disappointed. I’ll cover off a little more about this little gem of a book in a future post, but suffice to say, given the importance of discipline and commitment when attempting to make some serious money through spread betting, you can see why doing this is well worth the effort.

Weekly trade posts

Another way I’ve thought up to keep me engaged and committed is to post my weekly trades on here for all to see. No sugar coating or covering up bad trades.

I’ll be sharing my successes and failures for all to see…one thing not many people in the online trading community seem overly keen on doing.
Obviously feel free to comment and share any advice you might have. Sharing is caring after all.

The post Spread betting hiatus: Time to get back on it first appeared on Trading Simply: The Ramblings of a Newbie Spreadbet Trader.