Help needed for a beginner trader

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6th Jan '16 by stasam

19 comments 6967 reads

Hi all,

I've just created a subscription with Stockopedia after searching the web continuously for the past few days trying to find some good information and tutorials on learning to trade.

I am creating this post in the hope that someone could answer a few questions that I have.

1) If any, which software is best to use for analysing graphs and actually placing bets (buying, shorting) as i'm not sure if you can on Stockopedia?

2) Can someone point me in the right direction for some reading material to understand the basics and fundamentals of trading. I'm looking to trade fast passed and make small daily investments as I do not want to be waiting months/years for a stock I have invested on to actually make money.

Any help/advice would be greatly appreciated.

Thanks

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About the Author

Stasam

Premium Member

19 comments

Blissgull

6th Jan '16

Hi Stasam,
I can't answer your first question, but as far as reading material is concerned I would suggest "Come Into My Trading Room" by Dr. Alexander Elder.

I know it's not what you want to hear but I feel I should point out that you are asking for trouble. Nearly all short term traders lose money - lots of it.

I'm also rather alarmed by your mention of "placing bets." If you are considering short term or day trading on a margined basis I hope you will think again. That way lies ruin. Unfortunately many of us have found this out the hard way.

I think the best advice was given by Dr Elder in the book I mentioned. Take your money and visit the casino's in Las Vegas. The end result will be exactly the same, but the entertainment in Las Vegas is far better.

Edward Croft

6th Jan '16

Stasam...

I'm looking to trade fast passed and make small daily investments as I do not want to be waiting months/years for a stock I have invested on to actually make money.

I don't mean to knock your confidence, but that kind of attitude is bread and butter to City dealing floors. They will eat you up. Loads of trading == loads of commission for dealers. Short term trading is a tough game to beat. You've got HFTs, algo traders and all the spreads - low odds.

The way to beat the market is to not play the game the City wants you to play. Lengthening your holding periods is the way forwards. Doesn't need to be years.... it can be months.

The Naked Trader is a great getting started book - and written by a Brit. :-)

troytea

6th Jan '16

There's plenty of books and material on investing - take a look at the inspirations for the Guru screens; these are some of the top investors the world has seen and most have either written books or have had books written about their investing style. I enjoyed reading Lord Lee's book on getting rich slowly!

Stockopedia isn't an investing platform nor does it give tips. It gives information and aggregates data which can then form part of your investing strategy.

shipoffrogs

6th Jan '16

"I do not want to be waiting months/years for a stock I have invested on to actually make money".

The trouble is, to quote Warren Buffett: "the stock market is a device for transferring money from the impatient to the patient".

DJLJ23

6th Jan '16

Have to agree with Ed, The naked trader books are really easy to read and give good examples of mistakes that many people make, unfortunately It probably won't stop you making them, but you find yourself thinking opps he warned me about that.

I did attend a course he (Naked Trader) ran, which I found useful as it also gave an insight into level 2 trading. Level 2 is useful if your pursuing a very active trading policy.

Beware of small daily investments have a problem as the buying costs and the spread (especially on smaller companies), will mean that you need a much larger increase in the share price to break even.

pka

6th Jan '16

Here is an example of the cumulative effect of transaction costs using simple arithmetic.

Suppose that you start off with a certain amount of money that you want to use for day trading. Each morning you sell all the stocks that you have in your portfolio, then you use the cash proceeds to buy a new portfolio of stocks which you hold until the following morning, and so on. In other words, the average holding period of stocks in your portfolio is one day. So after the approximately 250 stock trading days in a year, you would have completely turned over your portfolio 250 times. Let us also assume that the average bid-offer spread on each stock you purchase is 0.5%, that you pay 0.5% stamp duty on each purchase, and 0.2% stockbroker's commission on each sale and another 0.2% on each purchase, making an average total transaction cost of 1.4% each time you turn over your portfolio. Let's be very optimistic and assume an average transaction cost of just 1.0%. Then each time you turn over your portfolio you will have reduced its value by a factor of 0.99 due to transaction costs. Turning over your portfolio once a day or 250 times a year would therefore result in the your portfolio's total value being multiplied by a factor of 0.99 to the power of 250 (i.e. 0.99 multiplied by itself 250 times), which equals a factor of 0.081, due to the cumulative effect of transaction costs. So if there is no average growth over the year in the value of your investments, an initial £100,000 of cash would have turned into rougly £8,100. Let us also assume that you are an extremely skilful and an extremely lucky day trader, so that there is an average of 100% growth in the value of your investments over a year ignoring transaction costs, which means an initial £100,000 of cash would have grown into £200,000 in the absence of transaction costs. However, even with that very optimistic assumption, the final value of your portfolio would be £200,000 x 0.081 = £16,212 after transaction costs, i.e. a loss of £73,788 or 74% of your initial cash pot.

The odds are stacked against day traders, so they are almost certain to end up losing money.

gus 1065

7th Jan '16

I'm not often one to quote Tony Blair, but the best investment advice I was given was the importance of "Education, education, education". Learn as much as you can before jumping in. Try and learn from everyone else's mistakes before you inevitably make your own by reading around the subject, looking at the Guru screens etc. If you've not already read it, the recent post on "how I beat the market by 33% ...." is a good start as it shows the importance of researching and developing an investing strategy before you go near your first trade.

Shadow trading with your own fantasy portfolio (i.e. not using real cash) can give you a sense of what might or might not work, but don't get sucked in after any early success into thinking it's time to go live. Always be realistic about fully transaction costing your positions and don't get sucked into playing the game of "if only I'd made that investment" with the benefit of hindsight. As and when you do start investing start slowly and above all only ever invest what you can happily afford to lose.

Above all - good luck. We all need that with our investing.

Gus.

Mark Simpson

7th Jan '16

Hi stasam,

If you take up short term trading you are almost certain to lose money. The reason is that you have no competitive advantage and are unlikely to develop one from reading books since anyone can read books. That's what happens in a competitive market - those without competitive advantage generate no long term returns.

The good news is that there are areas that as a private investor you can have a competitive advantage:

1. You can think longer term than the market since you don't have to report quarterly/yearly performance figures.

2. You can invest in smaller companies that professional investors can't own and work hard to be the most knowledgable person about those companies.

3. You can develop a mindset that is prepared to stick with periods of underperformance because you know that pays off in the market. e.g. Value, Quality, Momentum, Low Volatility, Special Situations.

But you see that these are the polar opposite to your current mindset of short term betting based on charts.

Warren Buffett once said:

“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”

At the moment you are the patsy (at least if you start trading.) If you want to be successful you need to change your mindset and find a game (like long term small cap value investing) where some other novice short term chart trader is the patsy.

Mark

jonny71

7th Jan '16

I agree with all of the comments above, however there is something you can do different, focus on a handful of companies, really understand the sector they play in and how news influences the price of your selected companies.

I work in retail and I focus mainly on retail shares, after 20 years in the industry I know how certain news will affect certain shares. So whilst most of my portfolio are long term holds, I am able to risk some short term 'bets' on companies who I know well and how news will affect them.

If you do this be prepared to get it wrong, which will either tie up your liquidity of cash or force you sell at a loss. However it is possible to get it right, but that takes time and experience.

tomomo

7th Jan '16

Hi stasam

You talk about "placing bets" so you may have spread betting particularly in mind.

IG Index offers a good spread betting platform (I use several and it is by some way my preferred platform for most purposes). You can trade through the charts, and if you subscribe to the ProRealTime charts package these are of high quality. (IG require you to do 4 transactions per month, I think, to get free access to this charting package: that could be, e.g., opening 2 bets and closing 2 bets.)

Malcolm Pryor's The Financial Spread Betting Handbook, 2nd edition, 2011, is imo a moderately good all-round introduction to spread betting.

http://www.amazon.co.uk/Financial-Spread-Betting-H...

My personal advice, for what it's worth, would be to focus on not losing much money as you learn the ropes and develop your approach. You need to try to make sure you keep most of your capital intact for when you become a more experienced and capable investor/bettor.

Rusty2

7th Jan '16

I agree with much of the above. To start with I would start with a dummy portfolio, it takes about 2 years to learn how to invest. As Edward said short term trading the odds are stacked against and most traders lose money. I used to do a few day trades but for the risks, costs and stress for the small gain it was not worth it for me. I believe you are better off tucking away quality shares for reasonable cost for the long term, similar to Lord Lee or Warren Buffet. Stockopedia is not really the place for short term trading. Robbie Burns (Naked Trader) books or his blog are worth looking into. Jim Slater also well worth reading. I would also advise avoiding Bulletin Boards these can lose you serious money, in fact if a share has a noisy bb I would avoid although if you are shorting they maybe the ones to pick.

stasam

7th Jan '16

Hi all,

Firstly, thank you all for replying, seems to be a very helpful community here and thats something you don't usually find on forums!

I'm going to take a look at buy the books mentioned in all of your comments as well as take all info on board.

Thanks for advising me against these small term investments. The only reason I had a mindset as if this was all 'betting' is because theres so many websites online talking about 60 second trades and binary options trading etc which i'm guessing are great ways of loosing your money or being scammed.

Again, thank you all for replying to me and I will research a lot more into the market and strategies before advancing!

Thanks again!

TangoDoc

7th Jan '16

One big message I learned was never, ever believe that whatever books I read or however lucky I was with the timing of any particular purchase or sale, I could not know as much as those who spend all day working in this business and they certainly don't know that much. The reason is "sentiment" which will change like the wind from moment to moment on a shred of fact. Cash is king but once you have it, you have to find a place to store it.

As I write, the world stockmarket is going down the pan quite rapidly. I feel sorry for those who have no choice but to sell and rather less sorry for the thousands of those who only bought with cash they did not own. I often wonder what those who have just panicked and sold will now do with the cash in their hands. Sooner or later, they will have to buy something with it. Perhaps those who do best out of this rolling neurotic mess are those who hold shares in companies that will continue to make money whether the market loves them or not and, particularly, companies that pay sensible, reliable dividends whatever the SP.

Gambling may not survive a financial crash but food and water, shelter, energy, alcohol and tobacco and, of course, above all, sex, always will! This may sound a bit defensive but I feel a lot better for having written it.

Patxi

7th Jan '16

At your own risk (you should have had enough warnings above already!), for research purposes only, take a look at https://futures.io/traders-hideout/ where you will find an active forum for traders as opposed to investors who congregate here.
(I hope Ed doesn't mind me posting a link - please remove if it breaks any forum rules)

Mohammed Malik

4th Jan '19

Lots of negativity here on Short Term Trading.
I would agree and disagree - one needs to be on top of the market - know all the major news that comes out - Interest rates / jobs / inflation / Factory output , etc..
Use stop losses - but you will need to be in front of screen all day.

I ve tried short term trading and invariably I have lost money - reason - you make decisions based on the situation on the day and 9 / 10 is always a wrong decision.

I would have to agree with Ed - long term strategy with discipline is the way forward.

mmarkkj777

5th Jan '19

Hi Stasam.

Unlike many on here, I sometimes trade. I mainly invest longer term (with the lions share of my capital), but if I see an opportunity for a trade, I will.

I don't mean day trading, as this is far to risky for me as I prefer to at least see a trend (as apposed to just noise and random volativity). The only time I ever trade intraday is if it has gone wrong and I close the position or get stopped out!!

I would say Mark Minervini is closer to a trader (in execution methods) than Jim Slater (med-long term growth approach), and Robbie Burns is somewhere in between. I would recommend his books for a trader element to investing (but all the above previously recommended books are good).

When I trade I don't listen to anyone else at all. I look for small inefficiencies in the market, e.g. when I think the has been an overreaction or over-correction, to some event or other, then trade on the delta between this extreme and the reversion to the final market consensus mean or level. This can be in an individual share or in a market.

But, it is risky, it obviously doesn't always work to plan and I only do it with a very small percent of my capital, but my singe most successful return in 2018 came from a trade.

Learn all you can, manage your risk, don't listen to bulletin boards, start slowly with small amounts you can afford and you have half a chance. But the sentiment in this thread is correct, long term investing in the main works better and is the method that has made most wealthy investors successful.

mrpbennett

5th Jan '19

I agree with the Naked Trader books also, I have his 2010 spread betting one as well as the standard stock one. They're easy to read and understand, as he speaks to you like someone on the street and not a Wall Street high flyer.

aflash

5th Jan '19

Short-term trading is safer!!!

The holy grail here is buying and holding the one exceptional stock in any given cycle. In practice very few can single out just this one and the right time to own it.

Everything that others have written about transaction costs is excellent. Leverage dangers need to be underlined too.

For most of the 1970s I was paid to trade, hence my sympathy. I had few qualifications and knew less than now but these institutions are looking for people with reflexes. They told me to try something else but kept me on the payroll because Foreign Exchange departments make so much money. This was before retail F.X. contracts became prevalent and web sites multiplied.

I subscribe to Steve Nisson's candlestick charting site and it offers a 'Morning Trade Set Up' but for U.S. markets only. It appears stasam is U.K. based. There is a user group for another service I subscribe to but I never go because they are heavily biased towards options.

My points here are:

1) Stockopedia presents fundamental information better than any other site I subscribe to.

2) The community is more articulate than any other site I subscribe to.

3) However there are services concentrated on technical analysis run by traders.

4) Arguments can be made for short-term buying and selling.

5) Leverage is lethal.

6) Traders cannot breathe at critical times, let alone go to the bathroom.

7) Find the services that suit you and spend the money on them before the brokers.

7a) stasam may be like Khalid the Day Trader who used a Bloomberg terminal in 'Free Capital' by Guy Thomas. Read it.

8) Read the 'Psychology of Trading' by Brett N. Steenbarger, PHD. He is sensitive and full of insights about the disappointment of hope.

skinner66

5th Jan '19

ive been trading ftse,dow in the last 5 weeks, watched the trends via graphs and jump in for small profits, 12% up,,but this is a side line while i watch my portfolio.. you do need nerves to watch markets go against you stick with it till up turn, or sell at small loss or run profits but as stats says 80% of people who trade this lose, i use the dont be greedy strategy, i do many trades a day sometimes very small profit, but if its a profit thats what im after. it has helped me claw back losses on this years shares. but as going short on stocks naked trader robbie says and good advice get to know a few stocks well and how they perform also waiting for bad profit warning etc, im no expert but this is how i do.

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Help needed for a beginner trader

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Stasam

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