Foray into Share Trading

I finally bit the bullet a couple of weeks ago after some months of reading and umming/ahhing.
I thought I might post some of my experiences in starting out active trading, and maybe those more experienced could drop some ideas and opinions along the way.

After looking through a number of trading books and forums for ideas/methods etc, I decided to cut my teeth on a trend trading system and a dividend trading type system. Given my starting capital that I am devoting to this venture ($50,000), I may find that I am undercapitalised to run both systems side by side. Anyway, I imagine I will realise whether this is the case fairly quickly. Each trading system will get $25k, with the maximum position size for each trade being 10% (ie $2500 less brokerage of $74.85 - being brokerage on buy, sell, and stop loss order). The initial objective is to a) stay alive/keep trading, and b) learn as much as I can until I get the confidence to allocate more substantial amounts to the process.
A stop loss is set at buy price less 10%, this is done at entry, giving a risk per position of 1% of capital.
I am in the process of moving my trading over to Suncorp, which should save about $20 brokerage on each trade.

As always, my timing was impeccable, having had my first open positions only a few days before last weeks dodginess. I got stopped out on 2 of my open positions (IRE & SSX). I also made the mistake of throwing my own (extremely ametuerish) discretion into the mix, and passed when the system thew up an entry signal for JBH. The other positions are down still mostly due to brokerage.

I think the key at the start is to just trust the system and ensure the exits and position sizes are always in place. It is definitely an enjoyable learning experience though and im looking forward to seeing it all unfold as the months go by.

Books read recently that I have found helpful:
The Art of Trading - Chris Tate
Trade Your Way To Financial Freedom - Van Tharp
Trading For a Living - Alexander Elder
The Business of Share Trading - Leon Wilson
The Way of the Turtle - Curtis Faith

At this stage I am purely taking long positions in ASX shares, although as time goes by I am definitely interested in exploring the futures markets as well.
Once I have some confidence I will slowly start moving funds out of my underperforming managed funds (Platinum and property securities funds) into the share trading account.

 

coopranos,

Well done !!
As long as you are not trading for a living $50K is enough to start ... sweating and crying (sometimes)
The trading system you are going to trade is entire up to you. I would concentrate on one system only. Do not try trade few different systems in the different time frames. It may take time to master this skill.

Position size and stop loss are fully related. Before you engage the market you must know how much $ you are going / willing to lose if something goes wrong. I would say that 1% stop loss is too tight. Shares need a bit of room to move (I used 2%). Too tight stop my kick you out too often !!
Chris Tate + A. Elder + Guppy are talking about stop loss / money management in details. You may re-read their comments.

I would say that no matter what system you are going to trade, good risk /money management system in place is a must !!
You may survive trading the worst system ever invented, but ignoring risk/money management will make you just another statistic !!.

Below is link to trading rules which may help you in your venture !!.

http://www.invested.com.au/79/trading-rules-366/?highlight=trading+rules

Happy Trading !!

 

Thanks for that Tropo, appreciate your comments.
Although making a living from trading is a hugely attractive idea, I am nowhere near even considering that at this stage. I first have to work out whether I am cut out to handle the ups & downs, and then I think your trading account would need to be 10 times what mine is to even be a possibility!

I will take your suggestion of sticking to one system on board for sure, there are some major benefits to doing so not least of which is the smaller brokerage per dollar. Also like you say until some skill and experience is gained, following a couple of systems may prove a bit much.

As for the stop losses, I understand what you are saying as well. 1% is a bit tight, I guess my thinking at this stage to to survive, and I can always re-enter again if need be (and maybe get death by 1,000,000 cuts brokerage style). If I find I am stopped out a bit too much (and then the shares move in my direction after I exit) I will look at loosening this up.

It is definitely exciting learning all the ideas etc that are around, there are some smart people out there!
Cheers mate

 

One more....
Try do not over trading !!!. I tried couple of times and I was sorry!!
Take one step at the time.
You may find that it is not easy to manage few open positions at the same time.
Sure there is nothing wrong to enter the same trade (buy back) if needed.
I tried to trade a lot of different systems and ideas.
Believe me... the best way to go is to develop your own system. This may take some time but you'll fully understand how your system works!
PS - Always stay ....
Good Trading.

 

All the best with your new venture Chris, it'll be interesting to see your posts here

I know what you mean regarding the Market as I picked up a few direct shares of late as well (ASX,CBA,MBL) and a speccy in PKT with the recent correction/breather (whatever) in the Market

Just spent the last 15 minutes looking at the ASX Top 20 (by Market Cap) nothing appears to be tracking along to well there, with all coming off recent highs over the last few Months, who knows; there may be some value in there somewhere though ?

 

All the best dude, keep us updated. You're doing what I want to do when I'm no longer a renter or mortgage'er!

 

I would say that time is money...

 

You want to lose money as well?!

I think the hardest parts will be:
1) Coping with drawdowns - its easy to say trust the system, treat it like an unemotional business transaction, dont get excited but make sure you learn, but probably a whole other story when you have dollars on the line. I guess the other side of the coin is that with dollars on the line you want to learn from your mistakes asap!

2) Getting the wife to cope with drawdowns - could be the toughest of all challenges!!

3) Coping with market fluctuations - when I saw the DOW had closed down this morning again I started to think "why now? how am I supposed to make it work when the market just bends to the whim of the US market? Its not my fault if everything goes down! Should I pull out now before the whole thing tanks?" etc. But that is really a ridiculous line of thought, as that is what the markets are all about. Maybe I will get stopped out on all my first positions today, but if that is the case I simply take a step back and examine what the problem is, make an attempt to correct the problem and then go again. As long as the stops are in place and my position sizes arent overly aggressive, I should have plenty of time to fix any problems.

4) Not constantly changing systems, "tweaking" things etc. Just like when starting out in property, every book you read makes you change your mind "maybe I should be going for +ve cashflow, the author makes a valid argument. oh the next book says its all about growth, that must be the way to go. The perfect way to go is now property renovations" and on it goes.
My theory (and it remains a theory until in the words of Hans Grueber I am "sitting on a beach earning 20%") is that success in any area is about consistency - keep plugging away, learning from mistakes but always taking small steps in the right direction and eventually you will reach your goals.

I am sure that every successful trader faces similar challenges, so I guess it is a matter of constantly working on yourself to ensure you can handle the challenges in the future (and I imagine a drawdown of hundred thousand out of $1M is a lot harder to deal with than a couple of thousand out of $50k!)

 

Well said !!

Ad 1 - The legendary trader Ed Seykota remarked : everybody gets what they want from the markets.
If you want to fail you will. If you want to succeed you will. The choice is yours.
Ad 2 - Yes !!! - this may be a problem.
Ad 3 - That's what psychology in trading is all about.
Ad 4 - Good point - so let me add a few lines to that.
Do not listen to anybody = if your broker, accountant, solicitor, butcher, neighbor or taxi driver knew what they were doing they would be doing it - not you !.
Never average down !!!.
Nick Leeson thought he could average a loss and he managed to destroy a bank. Just imagine what such stupid strategy/approach will do to you.

 

Very interesting re your point 1 - although the obvious response everyone would have is "of course I want success from the market" how do you scratch the surface to see if this is actually the case and get your motives in line with your actions?

That is in line with what a lot of the personal development gurus say - where you are today is exactly where you should be. Some say it is like a success barometer, you kick along until some point where you all of a sudden have "too much success" and start self-sabotaging. You hear about it all the time, people making good amounts of money in perfectly adequate trading systems or investing strategies or businesses and then all of a sudden everything goes to the wall.

Anyone have any thoughts on this?

 

I think it's all come down to believe in yourself and your own ability. In trading there are no rules, only those you create for yourself.
If you believe yourself to be a failure in the market, than market will only help you to become one.
To some extend you must be different from the crowd in the way you think and do your business.
Traders who distinguish themselves from the crowd use different method but they all share an edge.
If you would like to know how they do it so "The New Market Wizards" by J.D.Schwager may give you an answer.
Also, you may consider "Reminiscences of a Stock Operator" by Edwin Lefevre, which accurately capture the mind of a trader (Jesse Livermore), recollections of his mistakes and lessons learned.

"You hear about it all the time, people making good amounts of money in perfectly adequate trading systems or investing strategies or businesses and then all of a sudden everything goes to the wall"

Some time ago Victor Sperandeo almost finished himself off. Why ??
Because he broke his own trading rules.

 

I think you also have to know your own strengths and weaknesses. I know I pushed my safety margin hard and I may pay for it soon lesson learned greed is not always good.

 

Might have been a fantastic time to start a new venture!
Perhaps I will have to up the tempo on educating myself on the downside of the market!
Didnt get stopped out on anything today which is good, hopefully it will be a better night in the US to get us some confidence back.
My thoughts are this is another short term hiccup, the market doesnt seem to be bubble material yet - mind you it is pretty likely that people were saying the same thing before every end of a bull market - and with a vested interest in things going full steam ahead I probably dont have a completely objective look at things!

 

Do not worry what people are saying....Herd is wrong most of the time.
To me market would be still bullish around 6000 level.

Perhaps I will have to up the tempo on educating myself on the downside of the market!

This may well be a good idea - but first try master your skill on the upside.

 

A nice recovery today, hopefully it continues to run through June 30...

 

Stay tune....Tomorrow is Friday

 

DOW up 0.5% so far today, looks like promising signs which should give the asx investors back a little confidence to finish the week off nicely.
Or I could be full of crap...

 

Green Dow looks like kind of promise, but statistically Friday is a very mix day for our market.
So do not be surprised if we close in red. Watch market today 1h before close.
Anyway....Enjoy coming weekend !

 

From anyone's experience, when shares are put on a trading halt due to the release of a "significant announcement" is this usually a good or bad thing?
Specifically Macquarie Airports...

 

This is a normal practice...
If you do have live screen watch market depth. Spread between buy/sell may give you a clue - not necessarily correct.