Off Topic -amateur Stock Market Investment

[Reraise]

Can a complete amateur learn about stock markets and make good investments? A lot of people on these forums seem to do it. Is it possible to pick up a few books and start making good investments? I wouldn't have a lot of time to invest and would be looking at making a few long term picks a few times a month.

[Doctor Dick]

I had always thought about investing in stock, money permitting. I remember back when cadbury had a sammonella scare their shares dropped and I wanted to invest £1000 but being a complete novice, as I am now, I was told not to bother as the traders take big percentages and set fees for investing your money - is this true?

Northern Rock was another potential investment when they first colapsed.

[Tiger Woods?]

Can a complete amateur learn about stock markets and make good investments? A lot of people on these forums seem to do it. Is it possible to pick up a few books and start making good investments? I wouldn't have a lot of time to invest and would be looking at making a few long term picks a few times a month.

Now is probably not the time to start investing in the stock market if you haven't a lot of time to devote to it, in my opinion. I was very lucky with my initial investments. It wasn't until later, when I actually began to learn something that I realised how lucky I had been.

I would suggest subscribing to an investment magazine, such as Moneyweek - which is very cheap at about £15 a quarter, and perhaps read a book such as The Naked Trader. Then, if you still think it is for you, get into it slowly. Because of transaction costs (dealer charges are about £10 per transaction), you should expect to invest at least £1000 in each share. If that is too much, you could consider spread betting, but if you do so, make sure you use guaranteed stops initially, otherwise you might find yourself in for a nasty bill.

[BelfastVI]

Can a complete amateur learn about stock markets and make good investments? A lot of people on these forums seem to do it. Is it possible to pick up a few books and start making good investments? I wouldn't have a lot of time to invest and would be looking at making a few long term picks a few times a month.

Experts have lost fortunes over the last 2 years, and perhaps again over the following 2. To me its the same as gambling. There are games being played out there that you can get caught up in.

Another way of looking at it is the market is law compared to where it was and after perhaps another few black days will no-doubt rise over the next 10 years. Your pension, if you are in 30's 40's is probably the best bet. There are tax savings and it should be spread over a range of stocks and other investments. Your pension, up to now would have been savaged during the last few years but going forward they should be buying in at a low level. However, as I know nothing about this I am probably completely wrong.

[VedantaTrader]

Can a complete amateur learn about stock markets and make good investments? A lot of people on these forums seem to do it. Is it possible to pick up a few books and start making good investments? I wouldn't have a lot of time to invest and would be looking at making a few long term picks a few times a month.

Hi Reraise, investment / trading appear in the beginning to be easy, but it is actually alot more difficult than most realise...Your relatives, work colleagues, friends etc will say it is like gambling, 90% lose money...I have heard that alot, but my reply was always so that leaves 10% who make money.

The reason that it is difficult is that it is simple. And it is human nature to complicate things. The more complicated you make it, then the less stable any method will be, the more parameters you add, the less stability that system will have. The best methods and systems are simple, but in order to be able to use it psychologically, you have to understand the reasoning behind the simplicity which can be more complicated and takes conceptual understanding.

For example, and this is real...I can give you in large writing, black letters the exact rules of a system that made about 200 million USD in the 1970's to 1980s...from 400 USD starting bank...You can have it for free, I got it for free, anyone can get it for free if they want. I can't use it. People will lose money using it, as the most difficult part is the mental side. can you with stand being 50% down on your bank, having to take losers, until you find that one trade that offsets the loses plus alot more.

Anyway, my point is that you need to find a method that suits you, that fits with you. YOu need to decide if you are going to be a trader or an investor, what timeframe will you operate on? Short, medium, longterm. I know you mention longterm, but perhaps trading US stocks for 2 hours at night between 6-9pm would suit, you ll never know until youmtry throught trial and error. Its free to try with so many demos around these days.

Personally, I like to look at longer term trends, find the intermediate term trend with the larger trend, and then zoom into a smaller timeframe and find an optimal entry into a market at a level which is conducive with the trend on the longer time frame, medium and then with the shorter.

So if you want to trade longterm, I would look at perhaps monthly, weekly and daily timeframes, or perhaps just weekly and daily. I would observe the trends, ways to detect the trends...For this type opf trading a grasp of the fundamental economic conditions of the market is most useful, and then use trend indicator to time the direction that your fundamental analysis takes.

Finally, these are the most important things you will need to answer if you want to make money...

1. What markets will I trade and why?

2. What timeframe will I trade in and why?

3. How correlated are the markets I trade and why? For example, people talk of diversity...well, by buying a basket of stocks in a bear market, that can be taken as diversity. Well, its not. I think this is risky. As 90% of stocks fall in a bear market. For me , going long a few stocks and short the index is diversity, a hedge...so find markets that are loosely correlated.

4. What tools will I use to decide an exact entry point ot buy any market, and what is the reasoning behind it?

5. Even more important than when to buy is when to sell. It is harder to sell. The point at which you sell, determines your profit, so what method, tools will you use to tell when it is time to sell, what is the reasoning behind this.

6. How much of any market will you buy? Money management and risk control are the two most important elements. It is these two factors that will tell you how much of your total bank will you risk in anyone trade/stock/investment...2% of your bank is sufficient per market, per trade. This will then tell you many stocks/ contracts to buy of any security/investment. I would not risk anymore than 20% of your capital at any one time,ie, total portfolio heat. So that could be ten markets with 2% risk in each market, all loosely correlated.

7. Will you use leverage or not. Ask yourself about the pros and cons of leverage. Personally, I believe if you want to make sufficient amounts of money leverage is necessary...however, you really need very good risk control and rules to use leverage...it is a double edged sword. For smaller capital banks, using leverage for short term trades needs less money that using leverage over longer term trades.

It all depends how much you want to get into it. Take it seriously as there really is no point doing it half a*sed thinking you will make money consistently. I can easily spend 16 hours at my computer, looking at ideas, testing ideas out etc etc. but I love it and enjoy it, so the time is non-existent. If you like chess or strategy games, then it is great fun, something that you can get totally engrossed in, sub-merged in. Concentrate firstly in making good decisions, then money is a by product of that. Dont even think about money. Just think of it like a computer game and you are making points, not money.

Btw, Gambling is taking risks when the odds are against you, and speculating is taking a risk when the odds are in your favour, which you have to test and back test over a period of time following rules that you develop yourself. If you have an edge then it is not gambling.

[Doctor Dick]

What a post Vedanta Trader - very informative.

You say you can make money consistently - does this require a large amount of money to start with? Could I theoretically only start with only....say £500 and double it in a month...or more?

I like your analogy of the strategy game - I think I could really get into it.

[VedantaTrader]

What a post Vedanta Trader - very informative.

You say you can make money consistently - does this require a large amount of money to start with? Could I theoretically only start with only....say £500 and double it in a month...or more?

I like your analogy of the strategy game - I think I could really get into it.

There are small forex accounts now, where you can buy very small lots of a currency, called microlots. For example a standard contract in foreign exchange lets say GBP/USD is the same as owning £100,000 of sterling...so today for example the range in the GBP/USD was very small, at least below current volatility, as mnay markets were closed...The range was, high:1.5939, low: 1.5834, about 105 points from top to bottom. So each point in a standard forex contract is worth £10. That means that if you bought GBP/USD at the low today of 1.5939, and it moved up to 1.5900, that is 61 points which is 61*10, =£610... the full range today was about £1500.

So you can buy one of these standard contracts worth a 100,000 with about 1-2% margin, therefore about £1000...to own £100,000...however, that is high leverage, that means that with an account size of £1000 could be wiped out in a 2 hour morning session, or even minutes at times...

However, you can buy smaller lots these days worth £10,000 and £1000, where the point movement is circa £1 and £0.10p respectively. These are for the retail trader. They are abit crude, with widening spreads, they are not a direct market access market, like trading forex on the Chicago mercantile exchange. However, you can learn how to trade and they play a big part in education. And to be fair some of them are not too bad. Alpari UK is FSA regulated for what thats worth, haha,and they have a segregated account for funds.

So back to your question, can you double £500 in amonth. Well, as you can see leverage plays a big part. You could take a huge risk and double it in 15 minutes, but that would be stupid, or you can play conservative and trade using small lots with,using either a forex broker or spreadbetting company. I think you can safely own one to two thousand pounds of a currency with a £500 account. It depends on how tight your stoplosses are, how short term you are trading. If your stoplosses are small then of course you can risk more.

For example, if you have £500, 2% is £10, so if you were daytrading, you could buy £1000 of a currency and £10.00 would be a stoploss of 100 points. If you had stoplosses of around 20 points, then with a £500 account and 2% risk per trade you would be able to buy circa £5000 of a currency, as 20 points would be about 50p per point, 20*0.50p=£10.00

This is just an example, I m not saying to day trade, and the figures are not exact. Just demonstrating the point that with leverage and high risk and luck you can double an account in a month, but only if you trade right, and make winning trades. To do it without using too much risk would be difficult in my opinion...The first aim would be to still have £500 at the end of the month...that would be a great achievement.

However, with these small retail accounts, you can trade small with leverage and not too much risk, and teach yourself and test out your ideas.

Edited May 25, 2009 by VedantaTrader

[ratatat]

The first aim would be to still have £500 at the end of the month...that would be a great achievement.

Amen to that.

Not overly comfortable with short term trading here, I really thought I would be when I first tried (and the second and third time ) but came to the realisation that I need a -lot- more knowledge and mental conditioning before I would be able to do it sensibly. As the subjects come up I'm going to throw a trading book in to the case for next few weeks work away, might throw myself in to the den again.

I'm definitely far more comfortable with long term accumulation but only really found out when money was on the line, it messes with your head and makes you do things you know full well you shouldn't be doing

[Reraise]

Hi Reraise, investment / trading appear in the beginning to be easy, but it is actually alot more difficult than most realise...Your relatives, work colleagues, friends etc will say it is like gambling, 90% lose money...I have heard that alot, but my reply was always so that leaves 10% who make money.

The reason that it is difficult is that it is simple. And it is human nature to complicate things. The more complicated you make it, then the less stable any method will be, the more parameters you add, the less stability that system will have. The best methods and systems are simple, but in order to be able to use it psychologically, you have to understand the reasoning behind the simplicity which can be more complicated and takes conceptual understanding.

For example, and this is real...I can give you in large writing, black letters the exact rules of a system that made about 200 million USD in the 1970's to 1980s...from 400 USD starting bank...You can have it for free, I got it for free, anyone can get it for free if they want. I can't use it. People will lose money using it, as the most difficult part is the mental side. can you with stand being 50% down on your bank, having to take losers, until you find that one trade that offsets the loses plus alot more.

Anyway, my point is that you need to find a method that suits you, that fits with you. YOu need to decide if you are going to be a trader or an investor, what timeframe will you operate on? Short, medium, longterm. I know you mention longterm, but perhaps trading US stocks for 2 hours at night between 6-9pm would suit, you ll never know until youmtry throught trial and error. Its free to try with so many demos around these days.

Personally, I like to look at longer term trends, find the intermediate term trend with the larger trend, and then zoom into a smaller timeframe and find an optimal entry into a market at a level which is conducive with the trend on the longer time frame, medium and then with the shorter.

So if you want to trade longterm, I would look at perhaps monthly, weekly and daily timeframes, or perhaps just weekly and daily. I would observe the trends, ways to detect the trends...For this type opf trading a grasp of the fundamental economic conditions of the market is most useful, and then use trend indicator to time the direction that your fundamental analysis takes.

Finally, these are the most important things you will need to answer if you want to make money...

1. What markets will I trade and why?

2. What timeframe will I trade in and why?

3. How correlated are the markets I trade and why? For example, people talk of diversity...well, by buying a basket of stocks in a bear market, that can be taken as diversity. Well, its not. I think this is risky. As 90% of stocks fall in a bear market. For me , going long a few stocks and short the index is diversity, a hedge...so find markets that are loosely correlated.

4. What tools will I use to decide an exact entry point ot buy any market, and what is the reasoning behind it?

5. Even more important than when to buy is when to sell. It is harder to sell. The point at which you sell, determines your profit, so what method, tools will you use to tell when it is time to sell, what is the reasoning behind this.

6. How much of any market will you buy? Money management and risk control are the two most important elements. It is these two factors that will tell you how much of your total bank will you risk in anyone trade/stock/investment...2% of your bank is sufficient per market, per trade. This will then tell you many stocks/ contracts to buy of any security/investment. I would not risk anymore than 20% of your capital at any one time,ie, total portfolio heat. So that could be ten markets with 2% risk in each market, all loosely correlated.

7. Will you use leverage or not. Ask yourself about the pros and cons of leverage. Personally, I believe if you want to make sufficient amounts of money leverage is necessary...however, you really need very good risk control and rules to use leverage...it is a double edged sword. For smaller capital banks, using leverage for short term trades needs less money that using leverage over longer term trades.

It all depends how much you want to get into it. Take it seriously as there really is no point doing it half a*sed thinking you will make money consistently. I can easily spend 16 hours at my computer, looking at ideas, testing ideas out etc etc. but I love it and enjoy it, so the time is non-existent. If you like chess or strategy games, then it is great fun, something that you can get totally engrossed in, sub-merged in. Concentrate firstly in making good decisions, then money is a by product of that. Dont even think about money. Just think of it like a computer game and you are making points, not money.

Btw, Gambling is taking risks when the odds are against you, and speculating is taking a risk when the odds are in your favour, which you have to test and back test over a period of time following rules that you develop yourself. If you have an edge then it is not gambling.

Thanks for taking the time to reply VT

In answer to your questions,

1. Markets I can understand and gain an edge in

2. Hmm, I think medium to long term

3. I suppose it depends how deeply invested I am and if I think it's worth it

4. I was thinking that if i could work out that stockX was a good buy at £1 but it was currently sitting at £1.05 there would hopefully be some tool that could allow me to buy whilst I was away from the computer

5. When to sell? I suppose whenever the stock is overpriced and likely to fall. I mean if they are long term picks I hopefully wouldn't be checking too often and would expect them to show a good return over a few years. If I was day trading that's a whole different ball game I presume

6. I don't mind taking on some risk with my own money. As long as the risk isn't so high that I will get destroyed by variance.

7. I don't think I would want to use leverage. I would be using savings and if I lose some money then w/e but I don't like the idea of getting into debt, at least not at first.

I could see myself getting into it, I love strategy games etc. I just don't think I would have the time to educate myself enough to gain an edge in day trading. I work about 50 hours/week. I was thinking that if I could understand some market fundamentals and why certain stocks should be certain prices I could gain an edge. Are there any books worth reading? How did you get into it?

Edited May 25, 2009 by Reraise

[Mr Mephisto]

Has anyone got any views on the LLoyds "Placing & Compensatory Open Offer". Should I take up my options or forget it?

[redprince]

Can a complete amateur learn about stock markets and make good investments? A lot of people on these forums seem to do it. Is it possible to pick up a few books and start making good investments? I wouldn't have a lot of time to invest and would be looking at making a few long term picks a few times a month.

Reraise- id like to give you my twopennies on this.May be of value to you - i dont know.You need to consider all types of trading / investing and decide which one you are psychologically suited to.Why?Cos it needs to be fun and it should not give you anxiety.Vedanta trader has given a very informative

post on one aspect of trading however i will give you another aspect of investing.

My passion is smallcap stocks ie small market capitalisation so theoretically if the co is a growth story there is potential for serious uplift in share price.

Now i dont trade (as yet anyway) although this year would have been a great time to do so with many good co`s trading at low prices due to all doom and gloom.Anyway with smallcaps there is more risk than bluechip so you need to look for certain things to stack the odds in your favour.What do you look for:

1.Proven management.If the head honchos have disappointed before then you need to be vary wary indeed.

2.Cash flow positive (esp today).If co has to go to market to raise more funds then that will be very dilutive on share price.

3.Reasons for growth.Needs to be more than just wishful thinking and idle bb chatter/ramping.

4.What makes this co`s product offering / services unique?Competition?

5.What proportion of co`s shares are owned by directors?If they arent buying then why should you?

Fwiw you need to have some nerve to trade/invest seriously in small cap but if you find something you are interested in then there is opportunity to make money.I believe the whole market is on a false rally at the moment and that when people realise the depth of doodoh we are in in UK then the whole FTSE will tank bigtime.

However this is a great time for you to sus out a few companies that you may be interested in owning some shares in at some point in the future.

Edited May 26, 2009 by redprince

[getdoon_weebobby]

Reraise

As some background my dayjob is as a "daytrader." i trade various futures markets contracts - nasdaq , s+p 500, ftse, cac, dax, eurostoxx. creating many pairs of spreads;

ftse dax spread, ftse eurostoxx spread, ftse cac spread, nasdaq dow spread etc etc etc

what i do is similar to the following;

http://www.moneyweek.com/investment-advice...airs-42111.aspx

however im looking to take a series of small profits all day long over numbers of different spreads. different spreads being more correlated than others. the dow is more correlated to the s+p 500 than it is to the ftse for example.

anyway my strategy doesnt need you to get the general directions in the market right (although it helps) to make money. i can think the markets are due a sharp downward correction (which i believe might happen shortly to scare people into bonds to get yields down) and they could actually rise and i could be ok. this is because every position i hold is usually hedged, im short one side, long the other eg short sainsburys, long tesco in the above example.

i use a lot of charts etc and this strategy has been hugely sucessful. the difference being that i am proprietry trading. As I trade my firms cash then if i lose money it is the firm who take the loss, if i make money we share the proceeds. So the money doesnt feel like real money till its in my bank account. This is a key difference for me which allows me to trade large amounts of money - I would feel more miserable losing £500 of my own money in a Las Vegas casino than I would 5 grand trading as at that point it is "still the companies money" . This is what allows me after nearly 5 years of trading to trade big positions. my system tends to make more money the more volatile the markets are so i have been extremly fortunate to trade over the last couple of years (i would imagine the volatility around the likes of the Lehman Bros/AIG etc collapse may never be repeated)

http://en.wikipedia.org/wiki/Proprietary_trading

So i can pretty much make money 9 days out of 10 at work and i am very risk seeking at work. Yet with my own savings i find myself to be hugely risk adverse. i put this down to a good few factors.

- i spend so much time trading markets for a living im sick of the site of them come my spare time

- i have a girlfriend of many years (shes from n. ireland hence what brought me here) and wish to spend the money i have earned on a house for us when I feel the market is near a nominal bottom. Because of this I dont like to risk much capital - sometimes I feel like I have done so well with my work why risk the money again.

However Verdanta Trader is right. If you have the convictions to follow your own beliefs (Now I trade half the time from home in Belfast and half the time in an office in London. I think i trade better on my own because my actions are solely my own whereas in London they can be swayed by market chatter with colleagues) and you just look at what is happening in the world and what the futur holds as a result trading in the medium-long term really is not that hard.

A lot of my time is waiting for my positions to come good and I fill this time with reading what people write on here/the news/newspapers/moneyweek etc etc etc. You need to know what is going on the world. Build up a base of good sources - much of what is written is rubbish but much is good and some people are consistently good (for a £1 a week and a magazine delivered weekly Moneyweek would be a great start ReRaise)

i must also remember I am only 27 and have been trading since i left uni and tried my luck down in London. so i am still on a steep learning curve. thats why its great to read things from people who have experienced these things before whether its an old hand on here or a Milton Friedman book.

The point is i am still learning , and lack the confidence to trade my own money with the skill I trade my firms. I dont think this will change until I have poured my money into a house (so if i lose the lot a future wife and kids still have a house!), then I feel i can risk my own money. Until houses stop falling nominally (i do hold inflation protection TIPS / index linked gilts / some PMs) then I do not get involved in much stockmarket investment myself which people find incredible.

You need to get an all round grounding in what i sgoing on in the world, how the world REALLY works, not how 99% of the sheeple think it works.

i would start with the following before you do anything. this book is a great introduction to investing even with it having been first published some 60 years ago

http://en.wikipedia.org/wiki/The_Intelligent_Investor

Edited June 6, 2009 by getdoon_weebobby

[azogar]

time to dust off this thread?

there's some good stuff here and I want to add my 2'penny worth in due course (or 1p if you're a deflationist / 3p inflationist )

GEI is an excellent resource site for investors and the posters there are very knowledgeable (ditto hpc of course - the difference being gei is a lot more investment orientated).

Anyway, I listen to a lot of podcasts and there is a thread on gei which lists many good audio sources and some not so good, but i guess the fun is in making up your own mind.

Incidentally, archive.org (featured on the above thread) is an excellent resource site not just for investors. Indeed, that is only a tiny feature of the site; the audio books section is good and all downloads are free. There are other non-investment audio sites listed as well.

I don't know about other mobile networks, but 3 give you 1000mb download / month for an additional £5; if you have a modern mobile phone like the Nokia N series you can download these on the go and listen at your leisure (I guess that's obvious for many here but I thought I would mention it regardless). I tend to use the speakers on my phone because I don't like headphones and it does not restrict my work.

My personal favs are howestreet, fsn and archive - where I downloaded the Return of Sherlock Holmes this week!

hopefully there is something for everyone here..........

Edited June 19, 2009 by p.p.

[Doctor Dick]

There's a wealth of knowledge on this thread that I would very much like to fully absorb. Is part-time trading a worth-while way to spend my free time and more importantly - my free money. Or is it only a hobby that doesn't really make a considerable profit - I do realise its not an easy way to make money of course.

getdoon_weebobby - do you make considerable profits for the companies? Or is it more along the lines of a steady profit greater than your average savings account?

[Reraise]

Thanks everyone for the replies, there is a lot of info here, much appreciated. I have been v busy for the past few weeks so haven't been able to give this much more thought (perhaps an indication that I might not be cut out for day trading in the near future) I did manage to pick up The Intelligent Investor from play.com and will read it this week on hols.

[azogar]

Here's a few thoughts of my own re. trading. Firstly, I am not in the same league as vt, md & weebobby, I am very much a follower of the KISS principle (Keep it Simple Stupid) and try to stay within my narrow bands of experience and intelligence when trading.

I am not a big fan of shares (been there and done that); don't get me wrong, millions will be made by savvy traders who pick the bottom for certain stocks over the next decade. However, I tend to trade commodities (via etf's - electronic traded funds) as I prefer trading in tangibles rather than companies; for me, they are easier to understand and in theory can never go to zero but of course there is outside trading risk. For example, last year many AIG backed etc's (exchange traded commodities) were 'frozen' for want of a better word because AIG was about to sink into the abyss before they were bailed out. Apparently, these problems have been sorted now but..... well you get the picture.

Having said all that, the basic approach set out below can be applied to shares as well as etf's. The two main things to examine are the technicals and fundamentals when trading. I am only going to touch on basic technicals here because generic fundamental analysis is a far more complex then the technicals and very more subject to opinion of the particular stock/etf etc.

I am going to focus on two areas of technicals, finding bottoms ( ) and finding trading channels. This is pretty basic stuff and of course there are far more technicals and patterns eg. stochastics, bollinger brands, double bottoms / tops, head and shoulders, inverse head and shoulders yada yada yada

finding the bottom - value driven long-term buy and hold strategy

Finding the bottom is a good technique to use if you are buying to hold long term, i.e, you think the particular asset will rise over time and are prepared to buy in to what you believe the bottom is to benefit from years of growth (hopefully!). This carries the obvious risk that you er, didn't find the bottom and are left out in the cold for a period of time whilst the asset is below the price you bought at. To paraphrase BB, only monkeys pick bottoms, but I will have a go nevertheless!

The following graphs are platinum and oil, both show the very basic techniques of 'roughly' drawing channels on the downward decline and crossing these with drawn plateau channels; the theory being that you are looking for the breakout of the downward channel to occur. The danger here is that your timing is wrong by mistaking the end of the downward channel OR that the plateau is only temporary. However, if you are confident that the downward channel has been broken by leaving enough time to clearly see a plateau you can avoid the former risk. The latter risk (a cessation of the plateau downwards) can be minimised if you put 'stop-loss' limits on your holdings.

finding channels - short-term profit trading

Identifying channels is a method of short-term trading to gain small profit on a regular basis (that's the theory!). Stop-loss limits are important here because the risks of movement outside of a channel are high. The following graph of palladium ($) shows a beautiful channel that has been in place since the recent bottom of Oct/Nov. Again the upward channel was identified following a plateau break from the downward channel. The theory is you could have bought and sold palladium with the channel limits to gain numerous small profits. Buying back in on the lower channel line (don't forget your stop loss limits here) and selling on the upper channel line. It wont last forever, but whilst it works it's good.

The second risk of trading channels is that you sell below the peak!, this can be seen with silver. You could have hopped in and out of the silver upward movement only to sell to early and 'be-out' of the market whilst silver hit a 'higher' high. However, some might say this is just greed and similarly if you were holding a higher proportion on the asset as a 'long-term hold' you would be still in the game anyway. In theory, you could try and ride out the topping of channels by setting tight stop-losses hoping for a higher movement, but this requires incredible discipline and time. The silver chart is good as it also shows a breakout below the initial channel, which really is a downward channel if you look at it again.

I will look at some more complex patterns in due course but that's enough for today. Interestingly, natural gas looks to be carving out a bottom at the moment - there is massive inventory build up in the US at the moment and given the time of year there will be no demand for some time yet. I am certainly not advocating buying it but it's certainly one to keep an eye on.

bits & pieces:

- I like trading platinum, palladium and silver but not gold. Gold is a 'special' case and one for holding but not trading IMHO. not that I anti trading gold, but it's a bugger to try and predict!

- I don't trade foodstuffs for personal reasons, however, it could be argues that trading oil is just like trading foods because of fertilizers

- goldprice.org has good interactive (Java) charts for precious metals, oil, currencies. http://stockcharts.com is also an excellent free resource for charting just about anything!

- gei is a great site for trading

- I bought oil below $45 but had to sit out an uncomfortable period of seeing the real oil price rise but my etf go down in value because of 'contagion' in the oil market futures!

- if you use leveraged etf's beware of 'price decay' http://www.taipanpublishinggroup.com/taipa...ily-051309.html http://blog.quantumfading.com/2009/06/01/leveraged-decay/

- my roughly drawn channels are exactly that - roughly drawn, this way I can dither about whether a channel has been broken without acting on a specific price point. this is basically the same as having a smallish %deviation which you feel is acceptable to be outside the channel

Finally, I certainly don't advocate going out tomorrow and blowing your wad; if you're interested, you can virtual trade with selftrade etc for fun before (and more importantly IF) you want to trade for real

PS - I will be keeping a close eye on the palladium channel because I think (as many others do) that we are due a commodity /stockmarket sell-off very soon. Indeed, I will not be buying palladium on the bottom channel line, rather waiting to see if the channel remains intact or not. If the channel does not remain intact, then it's back to square one and staying out of the trading market until a new plateau / breakout of downward channel is identified

PPS - like I say I am certainly no expert and more of a 'fun trader', so stick to the professionals if you want advice (and I don't mean Bodie and Doyle)

edit - oh yeah - forgot to say about currency movement risk when buying dollar denominated assets with sterling

edit - detail / sp.

Edited June 20, 2009 by p.p.

[VedantaTrader]

Here's a few thoughts of my own re. trading. Firstly, I am not in the same league as vt, md & weebobby, I am very much a follower of the KISS principle (Keep it Simple Stupid) and try to stay within my narrow bands of experience and intelligence when trading.

I am not a big fan of shares (been there and done that); don't get me wrong, millions will be made by savvy traders who pick the bottom for certain stocks over the next decade. However, I tend to trade commodities (via etf's - electronic traded funds) as I prefer trading in tangibles rather than companies; for me, they are easier to understand and in theory can never go to zero but of course there is outside trading risk. For example, last year many AIG backed etc's (exchange traded commodities) were 'frozen' for want of a better word because AIG was about to sink into the abyss before they were bailed out. Apparently, these problems have been sorted now but..... well you get the picture.

Having said all that, the basic approach set out below can be applied to shares as well as etf's. The two main things to examine are the technicals and fundamentals when trading. I am only going to touch on basic technicals here because generic fundamental analysis is a far more complex then the technicals and very more subject to opinion of the particular stock/etf etc.

I am going to focus on two areas of technicals, finding bottoms ( ) and finding trading channels. This is pretty basic stuff and of course there are far more technicals and patterns eg. stochastics, bollinger brands, double bottoms / tops, head and shoulders, inverse head and shoulders yada yada yada

finding the bottom - value driven long-term buy and hold strategy

edit - oh yeah - forgot to say about currency movement risk when buying dollar denominated assets with sterling

edit - detail / sp.

Good stuff PP. I ll reply start of week when I get a chance. Channels are certainly a good tool to use. I have been looking at ways of implementing channels more. The strategy of course depends if it is a side ways channel, upsloping or down sloping channel.

Using a trend indicator to define the trend is a good technique, so then we can use a market breadth indicators such as the RSI to time entry's on the pullback...However, indicators don't work, but do work also. What I mean is using a market breadth indicator in a trending market if one uses them to pick tops or bottoms, could kill you.

Also, the RSI comes with standard settings such as oversold when the indicator is under 30, and over bought when the indicator turns above 70. However, these standard settings can be optimised by changing them to fit in with the prevailing market conditions...To be honest, the standard settings will be touted in books on technical analysis, the reader takes them away with good faith and then finds they dont work. Markets are too efficient to use exacting past standards. Things need to be flexible and adjust to change in real time. One may find, and actually will find trying to get an edge based on what the books tell us will not be of any use. We are dealing with professionals who want our money in a zero sum game, so its good to think outside the box and question what is there.

I have found that in a uptrend the RSI will not pull back to 30, at least not always, and in a strong uptrend will easily moce above 80. So for an uptrend I change the settings to 40 for oversold and 80 for overbought.

In a downtrend, this can be changed to 60(overbought) and 20 (oversold)...

By the way, this is not a strategy I yet use in of itself, but something I looking to incorporate when the conditions are ripe. However, it is something I want to take a deeper look at.

GBP/JPY

Here is a link from the software I use, a topical trade, using a channel in an uptrend, and how using a market breadth indicator such as the RSI can help us to find good buy entry's on the pull backs. I have changed the default settings of the RSI, to 80 and 40 instead of 70 and 30, as this is an uptrend.

The uptrend is defined by the green volatility line which is below the price on the main chart. This line adjusts in real time to current volatility to prevent false signals as can be seen by the movement of the line as it expands and contracts due to increasing or decreasing price range on the price. As long as price is above this, it is in an uptrend as far as I m concerned. Cannot argue with the price. Also the green vertical line drawn back in mid February is when I go the signal to go long GBP/Yen, and actually Euro/Yen.

I also include a green line at the 30 level on the RSI indicator. Any pullbacks between where the indicator is between 40 and 30 is a place to look to add positions in the uptrend....The green arrows on the RSI pointing upwards indicate entry points to buy at. Also we can see when price moves above 80, not 70(as per default) that the market often reverses at these points....We can't take these readings as "gospel" so to speak, however we should use them as a guide and watch how price action forms at these points. There is nothing to say in a strong up trend the RSI cannot go above 90 and stay there. So thats why risk management and get out points are important.

The yellow band lines on the chart is the RSI indicator programmed into band form, as an overlay on the actual price chart, and uses and exponential moving average for smoothing.

Good work PP, and the KISS attitude is for sure the way to go...however, I have found you sometimes need to go full circle...you have to wade throught the complicated stuff to arrive back at the simple.

We should discuss the natural gas trade later in the week, as I think you are right, it is one to keep an eye on.

Edited June 20, 2009 by VedantaTrader

[subby]

Thanks everyone for the replies, there is a lot of info here, much appreciated. I have been v busy for the past few weeks so haven't been able to give this much more thought (perhaps an indication that I might not be cut out for day trading in the near future) I did manage to pick up The Intelligent Investor from play.com and will read it this week on hols.

check your PM

[azogar]

Good stuff PP. I ll reply start of week when I get a chance. Channels are certainly a good tool to use. I have been looking at ways of implementing channels more. The strategy of course depends if it is a side ways channel, upsloping or down sloping channel.

Using a trend indicator to define the trend is a good technique, so then we can use a market breadth indicators such as the RSI to time entry's on the pullback...However, indicators don't work, but do work also. What I mean is using a market breadth indicator in a trending market if one uses them to pick tops or bottoms, could kill you.

Also, the RSI comes with standard settings such as oversold when the indicator is under 30, and over bought when the indicator turns above 70. However, these standard settings can be optimised by changing them to fit in with the prevailing market conditions...To be honest, the standard settings will be touted in books on technical analysis, the reader takes them away with good faith and then finds they dont work. Markets are too efficient to use exacting past standards. Things need to be flexible and adjust to change in real time. One may find, and actually will find trying to get an edge based on what the books tell us will not be of any use. We are dealing with professionals who want our money in a zero sum game, so its good to think outside the box and question what is there.

VT, is RSI a measure of the trend strength irrespective of the trend being up or down?

btw, palladium seems to be holding onto the trend (just!), i am looking at this as a wider indicator at the mo........

Edited June 22, 2009 by p.p.

[VedantaTrader]

VT, is RSI a measure of the trend strength irrespective of the trend being up or down?

btw, palladium seems to be holding onto the trend (just!), i am looking at this as a wider indicator at the mo........

P.P, it is always a good idea to have a "barometer", you are using palladium for this if I understand you right? Any particular reason for this? Seems like a good idea.

I happen to be using the GBP/JPY...and have taken a short bet on it in the last week. If it comes off, it will return about 1200% between now and December, it is highly speculative, but I am considering hedging the cost of the transaction by going short the USD even though I think the USD will go up...however this is basically just to end up breakeven if I am wrong on the GBP/JPY which is the primary trade. It is highly speculative, but the risk/reward in my view is too good, so it is worth a go IMHO...

Also picked out Wells Fargo as a short a couple of weeks ago...as a leading indicator to lead bank stocks down.

The RSI can be used in a number of ways. Some use it as a momentum indicator, a trend indicator, trend strength as you point out. It is trend overbought/oversold temporarily or a turning point(perhaps) in an up or down market. Below 30 is adefault for oversold, and above 70 is overbought in an uptrend...but as for the reasons mentioned in prev post I dont like it with these settings.

I like to use as many non-correlated methods as possible...The RSI for me falls into market breadth indicator, or overbought/oversold levels...Some will use stochastics, MACD, CCI etc and countless others. I think you only need one of these types of indicators, as having an RSI and a stochastics and MACD on a chart all tell me the same thing. They dont add anything new apart from looking complicated and making the chart clustered...

This is what I mean by non-correlated.

A list of non-correlated methods I like to consider:

Market Breadth

Fundamentals

Trend definition

Intermarket relationships

Chart Patterns

Volatility/expansion/contraction

Sentiment.

Price action using candles and volume

Support and Resistance

LOng term patterns using very longterm charts from the last century and super cycles

Economic Indicators such as unemployment, production, current account deficits, interest rates etc etc

Trend cycles using multiple timeframes in a ratio of roughly 1:4, for example a weekly chart, a daily chart and a 4 hour chart and a hourly chart

I use not set in stone bt generally daily chart,a 4 hour chart, an hourly chart, a 15 minute chart and sometimes take entry on a 5 minute chart.

The daily one is main trend, 4 hour chart has to be in the same trend as the daily, the hourly has to be in an uptrend also, and then I wait for a down trend on a 15 minute chart...and then trade any uptrends on the 5 minute charts, when the 15 minute trend is down, but the hourly, 4 hourly and daily is in an uptrend. These are for short term trades lasting anything from one day to 2 weeks.

But I m like yourself, I like to try to find bottoms/tops although in the past I have lost money doing it...but I think I have got a little wiser to it now, hopefully,haha. Any ideas how you go about doing this or any indicators you like to use or are curious about? I d be interested to hear as it is other people can bring fresh ideas to this, as here must be a thousand ways to do it.

[azogar]

P.P, it is always a good idea to have a "barometer", you are using palladium for this if I understand you right? Any particular reason for this? Seems like a good idea.

I happen to be using the GBP/JPY...and have taken a short bet on it in the last week. If it comes off, it will return about 1200% between now and December, it is highly speculative, but I am considering hedging the cost of the transaction by going short the USD even though I think the USD will go up...however this is basically just to end up breakeven if I am wrong on the GBP/JPY which is the primary trade. It is highly speculative, but the risk/reward in my view is too good, so it is worth a go IMHO...

Also picked out Wells Fargo as a short a couple of weeks ago...as a leading indicator to lead bank stocks down.

The RSI can be used in a number of ways. Some use it as a momentum indicator, a trend indicator, trend strength as you point out. It is trend overbought/oversold temporarily or a turning point(perhaps) in an up or down market. Below 30 is adefault for oversold, and above 70 is overbought in an uptrend...but as for the reasons mentioned in prev post I dont like it with these settings.

I like to use as many non-correlated methods as possible...The RSI for me falls into market breadth indicator, or overbought/oversold levels...Some will use stochastics, MACD, CCI etc and countless others. I think you only need one of these types of indicators, as having an RSI and a stochastics and MACD on a chart all tell me the same thing. They dont add anything new apart from looking complicated and making the chart clustered...

This is what I mean by non-correlated.

A list of non-correlated methods I like to consider:

Market Breadth

Fundamentals

Trend definition

Intermarket relationships

Chart Patterns

Volatility/expansion/contraction

Sentiment.

Price action using candles and volume

Support and Resistance

LOng term patterns using very longterm charts from the last century and super cycles

Economic Indicators such as unemployment, production, current account deficits, interest rates etc etc

Trend cycles using multiple timeframes in a ratio of roughly 1:4, for example a weekly chart, a daily chart and a 4 hour chart and a hourly chart

I use not set in stone bt generally daily chart,a 4 hour chart, an hourly chart, a 15 minute chart and sometimes take entry on a 5 minute chart.

The daily one is main trend, 4 hour chart has to be in the same trend as the daily, the hourly has to be in an uptrend also, and then I wait for a down trend on a 15 minute chart...and then trade any uptrends on the 5 minute charts, when the 15 minute trend is down, but the hourly, 4 hourly and daily is in an uptrend. These are for short term trades lasting anything from one day to 2 weeks.

But I m like yourself, I like to try to find bottoms/tops although in the past I have lost money doing it...but I think I have got a little wiser to it now, hopefully,haha. Any ideas how you go about doing this or any indicators you like to use or are curious about? I d be interested to hear as it is other people can bring fresh ideas to this, as here must be a thousand ways to do it.

vt - thanks for the reply - you're a credit to this forum (to have knowledge and share it so freely is very admirable)

good luck on the currency trade - fantastic return Sir!, I would be hedging that to half of the return to see it come in!!! (but don't listen to me!!!)

wrt palladium, following the explosive start off the blocks of silver and to a lesser degree gold (from the Nov. lows), both suffered weakness around late feb whilst pd (& to a lesser degree pt) held its primary trend (channel) move upwards. Indeed, it could be said that pd had some 'catching up' to do. However, given that it is not a monetary precious metal and more an industrial precious metal, it displayed similar steady growth to base metals. I have found that trading the most schizophrenic metal, silver is difficult, but pd can provide me a baseline and indicate whether the trend remains for silver and some other commodities (mostly metals). Indeed, I would go as far to say that pd gives us an indication as to whether the bear market rally in the SMs will continue- esp. since the commodity rally has mirrored the SM rally to some extent.

I know this may not be everyone's view, but as a general indicator, pd has worked for me. To that end, if pd breaks below the trend line (clearly on a daily basis - say 3-5 days below etc.), then, I will be waiting for all the bottoms to come in and keeping away from small trades until i see clear plateaus - that's the theory anyway!

edit - my caveat to the pd theory, would be that it is setting its own trend irrespective of the greater market - very unlikely i know, but it is a risk and given some of the cold fusion stories it has to be considered - unlikely as i say

Edited June 22, 2009 by p.p.

[azogar]

am i right in thinking a 'rising wedge' is bullish - if this is the case the dollar index chart is currently displaying this formation:

i tried to be more precise with drawing the trend lines on palladium and it fits quite nicely:

If the dollar does rally, then maybe we will get our answer re. where many of the commodities are going in the near future, esp. metals.

doccy - is it ok to keep posting charts here? or would you rather it was in another part of the forum? maybe we can keep 1 non-house related / SM investment thread in the NI sub-forum but i don't want to pee anyone off, so please voice (or type!) your concerns (anyone?)

[subby]

I don't see why you can't keep this thread going with the stuff in it as long as it's all in this thread

[contractor]

i'm a lazy git that didn't read the thread, but if you want to save money spend the first twelve months pretending to play the market. Many sites allow you to have a virtual portfolio. Treat that like your real stash and then decide after a year if it's for you

[VedantaTrader]

am i right in thinking a 'rising wedge' is bullish - if this is the case the dollar index chart is currently displaying this formation:

i tried to be more precise with drawing the trend lines on palladium and it fits quite nicely:

If the dollar does rally, then maybe we will get our answer re. where many of the commodities are going in the near future, esp. metals.

doccy - is it ok to keep posting charts here? or would you rather it was in another part of the forum? maybe we can keep 1 non-house related / SM investment thread in the NI sub-forum but i don't want to pee anyone off, so please voice (or type!) your concerns (anyone?)

It looks like an ascending wedge, as there 2 price touches on each line. This is bullish, and one of the more reliable chart patterns.

Should be fine to keeo this thread ongoing for this type of thing, as in the end charts of things like the USD Index indirectly influence what will happen here in the future, regarding house prices. It is off topic in someways, but related. Also if people are renting and are saving money until they can buy a house, then perhaps it will be of interest.