Advice on appropriate funding to start trading and timing a trade

1st Feb '18 by pjk15

14 comments 5098 reads

Hello all,

I'm new here having signed up a few days ago and also quite new to trading. I've spent the last two nights browsing the discussion boards and since this seems like an enlightened place to discuss ideas, i was just hoping for some general advise.

A bit of background info: I'm not a professional trader, I started with a general interest in trading and ended up reading the ''Naked trader''.
Over the Christmas holidays i had the opportunity to put into practice what i had learnt, i opened a trading account with Barclays and bought my first shares.
My first was Berkeley Homes (Because i work there and was confident in performance)
Second was Foot asylum (I made a mistake and got excited buying a share. Luckily i bought at 225p and put a 10% stop loss when it hit 260p. I've since seen it drop to 215p)
My third i started with a more logical and systematic approach and did thorough research, after going through 20 companies i was finally comfortable with buying into Dominos Pizza)

My reason for starting to trade was having a substantial amount of savings in a bank and receiving 0.5% interest. This frustrated me and I wanted to see if i could make my money work harder and earn more £'s a month than i received in interest. A small goal but one i believe is very achievable. Overall I find trading fascinating and want to learn more.

Since i'm not trading on leverage I've started with small amounts to test the waters and now understand i need to trade with more money if i want to see any significant gain.
My question is, what do you think is an appropriate amount of money to start trading with for a complete beginner to achieve my simple goals. I figured £5k and split it into £500 trades to diversify. Or spending £500 a month on a new share allowing me to build up a portfolio slowly.

Since i work full time, research must be done in the evenings and weekends and i have to set up automatic buys and stops. I've also seen mention of timing a trade and when to buy in, can anyone recommend any further reading? Or any material in…

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PhilHofGrowYourDough

1st Feb '18

Hi pjk and welcome to Stockopedia.

This article might help you ... https://www.stockopedia.com/content/how-many-stocks-should-you-own-in-your-portfolio-86323/

Best of luck
Phil

and this ... https://www.stockopedia.com/content/when-does-it-pay-to-be-your-own-fund-manager-70557/

Taff6

Welcome aboard

If you prefer video try these and also look up u tube channel
https://www.stockopedia.com/co...

All the best

jonesj

Do you want to trade or invest ? Long term investing has a higher probability of success than short term trading.

Buying one stock each month should work just fine. If you're going for £500, just make sure your dealing costs are not much more than £5. Also try to choose a broker with no recurring monthly fees.

After you have about 6~8 stocks, start increasing your deal size, so the trading costs are a smaller proportion of the deal.

Ignore all the statistical nonsense about how many share you need. You will be diversified within 12 months AND you are diversifying over time as well this way.

When I started the current portfolios 19 years ago, I just bought one stock, then another a couple of months later. At one point, 3 out of 6 stocks were breweries. Since none of them were over valued dot.com rubbish, this all worked out just fine.

gus 1065

Possibly a heretical view here, but depending on your objectives and risk appetite you may want to consider putting a fair bit of your capital into low cost funds or ETFs (to get hopefully more than the 0.5% interest from your bank while spreading your risk over a wide pool of assets) while you cut your teeth investing in individual shares in small sums that you are comfortable losing (maybe even trading a phantom account to start with although I tend to think until there is real money at risk it’s debatable how realistic the lesson will be).

I suspect many of us learned the hard way by jumping straight in at the deep end flushed with a few successes and ended up making many of the mistakes that Robbie Burns talks about in his book. Avoiding leverage is a good start, but even then how would it affect you if your £5,000 stake money became £2,000 overnight? Try and avoid letting ego overrule good judgement (even if you have Stocko on your side).

Good luck.

Gus.

MiserableJacktPotato

I'm no expert but...
I used to deal in £500 chunks but using Halifax my trading fees would end up being £27.50 (buy, sell, stamp), so my shares would need to see 6% before I broke even. I still just about managed a profit because, as Naked Trader advises, dividends covered a chunk of the fees. I now won't go less than 1k on extreme punt (usually 1.5k like my Sosandar (LON:SOS) punt) and my normal starter purchase of something I'm keen on is £2k.
Also, like NT advises, I get up and check the news. If nothing is happening I'm generally comfortable watching the opening bell for 15 minutes before heading to work, then checking in on my phone around 10, lunchtime and again about 2ish. I go for a "comfort break" when I can near the closing bell in case of late release profit warnings but tbh it's never happened to me and if it did it's prob too late at that point so this is more for piece of mind.
I usually find time to read the SCVR over lunch, especially if one of my picks is likely to get a mention.

pjk15

2nd Feb '18

Thankyou all for the advice, the links have provided an interesting read.
I'm looking to invest, not trade, perhaps a poor choice of words on my part.
I tried a phantom account but knowing there was no risk involved and no gain made it seem pointless to me, it's just not the same.
I'm currently in a fortunate position where i have no debt and low monthly outgoings. Basically i can afford to loose my capital if the worst should happen and my quality of life would not be affected.
When it came to using a broker i was already banking with Barclays so i just went with them, i'm currently being charged £6 a transaction plus stamp duty - i thought that was quite reasonable although i do have reoccurring monthly fees which are very small.

jjis

You really should be paying into and doing this in a Stocks & Shares ISA as you will then not have to worry about tax on your gains or income along the way.

Hi pjk15.

Sounds like you’re in a good position to start investing. Not least, asking for advice suggests you recognise there’s a lot to learn - we’re all still learning and an early lesson is that there’s no such thing as a dumb question (I think that is also one of Robbie Burns’ adages).

One additional thought. If you’re looking to deal in relatively small amounts while you find your feet, you may want to consider using a Spread Betting account to complement your broker based investments. It sometimes gets a bad press - quite rightly - if it’s used inappropriately as a vehicle for punting, but to a judicious investor it has the advantages of:- no flat dealer commission, no stamp duty on stock purchases and no CGT (although also no relief for offsetting losses). The transaction cost is wrapped up in the wider bid/ask spread and a running interest cost on overnight open positions but for small trades in value blocks of say less than £500 I think it is worth considering. Bear in mind, however, that it does involve the introduction of leverage which needs understanding and watching carefully.

Going back to Robbie Burns, if this is of interest read the chapter in the book on Spread Betting and maybe also his (now slightly dated follow up) book specifically on the subject. I think a new edition of this is imminent according to Robbie’s latest bi-weekly blog.

http://nakedtrader.co.uk

Gus.

weycome45

I think you are near the money at £500 per stock . I personally go for approx £800 per stock in about 25 holdings , then cut losers if they drop anywhere near 12 to 14 %. The big money is to be made in probably 6 x £3500 positions but at the moment my gains , which are ok apart from the recent pullback , haven't given me the confidence to trade this way . I think timing is critical and although Buffett says hold the stocks forever etc , a good profit over say 2/3 months is worth taking and thus exiting the stock . If I dont see upward momentum in 3 months I'm out . .

Carey Blunt

Great post, welcome to the community.

I think with £5000 I would start with 5 x £1000 position sizes or at least £500 seems too low given your trading costs (which are very reasonable btw).
Agree with making sure you are in an ISA tax wrapper if you aren't already.

I notice you are buying quite big cap stocks compared with a normal Naked Trader approach would be something like between £50M and £950M market cap. This is normal when you start as it makes you feel you are getting some security from the size of the business. However, you may want to consider diversifying by industry, and by size as well as just using the number of Stocks.
Read the NAPS articles if you haven't already.

Good luck, keep posting.

john652

I’d agree on 5 * £1000 and have a tight stop of 15-20%, protects capital and sets you up for the principle of asymmetric risk/reward.

Small or large cap little safety, just look at the amount of ftse 100 stocks that have lost 50% in last year. Mitigate the risk by having a set of rules (this will probably take a few years to settle on, just does), avoid excessive debt.

Read a lot, get confused as every strategy has its day, work on your rules. One of the best books I’ve read is ‘the art of execution’ lee freeman shor, short but excellent.

And trade, see what happens, and read more, adjust them there rules!

snickers

And keep a diary noting all your thoughts, moods, reactions, rationalisations, no matter how nutty they are. The greed and the fear. The decision to buy or sell has (for me it has anyhow) a strong mood component and is always surrounded by a cloud of extraneous thoughts and post-hoc justifications. "Felt like it" is a note I make too frequently. You may not be vulnerable here, but it's worth keeping an eye on what your "elephant" is up to, as well as what you, the rider are intending.

Nursemaid

Welcome, I agree with all of the above but would just add that we are (possibly) in the late stages of a bull market so be very selective with your picks, I personally, would wait for any (possible) market correction and spend the interim learning/reading all I can. It is impossible to time perfect entry into the market and one has to start somewhere I guess. I am in no way meaning to discourage you just my personal view and I know from experience how much it stings when you enter a market in the late stages of a bull market!! Best of luck with your choices.

Advice on appropriate funding to start trading and timing a trade

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