Trading.

JohnRo

No, currency pairs are a nightmare, far too unfathomable and volatile for my limited capacity.

I trade the indexes (or indices if you're that way inclined) and try to apply some structure to proceedings which has helped return about 11% on the pot but that's gone up to about 14% after today.

It also means I don't have to sit staring at a screen full of numbers flashing red and blue all day long or watching candlestick charts bouncing around which used to drive me mad in the dim and distant past.

kangoora

spender wrote: »

" my LTBH investments now "

Could you please explain what an LTBH investment is (I am curious). This subject fascinates me as I have a friend who is using redundancy money doing this. From the grapevine he earns the same as he did each month working.

Whenever I see this I shudder, obviously when markets are constantly rising then you can practically throw a dart at the FT, buy some shares and make money. What can't really be predicted is when the markets will start constantly falling.

I remember all the American day traders when the crash of 2008/9 happened or the crash (correction?) of the dot-com boom in early 2000 and people losing virtually all their retirement savings because they assumed the good times would go on forever and the shares would 'bounce back'.

I was over in USA in early 2000's and met a few 70+ year olds still working, some packing groceries in Publix, because they'd lost virtually all their savings. I talked to a VP in my company who went from being a multi-millionaire (well $2m) to having a few hundred $k because he didn't cash in his options and kept thinking they'd recover to the dot com peaks.

I guess even well balanced portfolios will struggle from going into another global recession but someone who is 'playing' the stock market, who may not have a well balanced portfolio including 'safer' investment options and possibly isn't fully aware of risk could face some calamitous losses if unlucky.

That's why I'm going to pay for an IFA initially, especially being hopefully only 6-8 years from retiring. It might not happen for 1, 2 or even 5 years but it will happen - it could also happen next week. Maybe I'm just a natural pessimist

Maybe in a couple of years if I keep up studying (and reading these boards) I may have a go with some 'spare' cash, provided I have some and the aforementioned crash hasn't happened

spender

Kangoora, he is Forex trading with his redundancy and reckons that once he hits what he used to earn a month he stops for that month. He says sometimes it takes days other times weeks.

Not knowing enough about it I do not know whether he is being wise or stupid, he spent years studying but never had the money to do it until redundancy.

kangoora

If a forex trader makes some big mistakes he has the backing of funds and his business to cover short-term losses, whether your friend has that I don't know.

It seems to be working for him and it is his own money anyway so who are we to say how he decides to spend or earn it. Maybe I'm just a bit less of a gambler and should look at it myself

I'd be interested in an update in 2 years time

Glen_Clark

JohnRo wrote: »

The secret to success, that is no secret really, is to let winning trades run and stop the losing trades early.

The secret to success, that is no secret really, is to know which are going to be the winning trades, and which are going to be the losing trades.
But how can you know that in advance?

bowlhead99

spender wrote: »

Kangoora, he is Forex trading with his redundancy and reckons that once he hits what he used to earn a month he stops for that month. He says sometimes it takes days other times weeks.

The difference between investing and gambling is who has the edge.

Arguably if you go to a casino and play blackjack or roulette you can try the trick of starting with a very big pile of chips and just leaving and banking it when you've made £100, and you'll achieve it many many times, but one of those times you'll never make it and you'll never recover because the house has too much of an edge for you to get back above water. The optimum amount of time to stay in the casino is zero.

With LTBH investing in a diversified enough set of assets with low enough management and dealing costs, generally the investor has the edge rather than the house (due to dividend payments and capital growth of an economy over time) , and so the optimum amount of time to stay in the market is forever.

With short term trading with positions of a few days or weeks or months, you are not investing for a long enough term for the 'growth of an economy over time' argument to persist and the right bet to be placing might be up or down, while the market makers or trading platform will take a cut from both sides. So if the trades/bets being placed are large in relation to your capital, even a talented trader with a 'system' still faces risk of ruin. Not unlike a professional gambler who can beat his peers and the rake at poker, or count cards to get a tiny edge on blackjack, for a general consistent profit despite a wide variance, but still get killed by a bad run. Money management is key, along with some luck.

If the friend is funding his trading with a redundancy pot and has planned to earn his old monthly salary from it, I'm guessing his capital isn't just a couple of months' paycheck. But even if it's 6 months to a couple of year's salary, he's hoping to make returns of more than 4% per month, maybe 10-15% if he got less than a year net salary to start with. Even the low end of 4% a month is ambitious as we're talking 50-60% a year.

The "monthly salary per month" in profits as a new trader seems a pretty lofty goal and while it might have been achievable over a period when certain markets are generally moving one way (as they have been broadly for the last half decade) it is trickier when markets get truly choppy. Of course, his particular system might entirely rely on markets being choppy.

If he is literally stopping once he's earned that month's spending money, and is still spending his monthly salary that he's earning from the system, rather than reinvesting it to cover future losses, it sounds like he could be setting himself up for a pretty dangerous fall. At least, his pot is not getting bigger over time so he can't afford the bad months - and even if the bads are no worse than the goods: by taking out any and all net profits, his capital that's providing the return is declining in real terms which should have a consequential effect on the income he can get from it.

Of course, he may not tell his friends how many painful falls he's had along the way. Some people would eventually say they've given up trading and gone back to their day job because "the income wasn't consistent enough", when what they mean is they lost all their accumulated income and a lot more besides that than they care to admit.

As Kangoora says, professional traders have the backing of their firm or the firm's clients to provide the capital and cover losses. And generally get bonuses in the good times which they don't pay back in the bad times. A 'sole trader' has to pay heed to John Maynard Keynes put it: "Markets can remain irrational a lot longer than you and I can remain solvent".

JohnRo

Not true Glen, if you set stops or exit manually in 4 out of 5 positions, then let the one trade that flies keep going with a dynamic stop that's wide enough to absorb some volatility on the way up it can easily cover the loses and provide a profit. Of course it can also not quite make it or even reverse.

It's really all about psychology, and how you handle the pressure of sitting on trades that either go for you or against you. One thing for certain is that losses cannot be avoided by anyone, whether that's a hobbyist sat at home or a pro trader on a fat salary.

In all cases it's never perfection, but it's possible to get a return.

IronWolf

I watched both the episodes of this, was quite interesting, especially the ex antiques dealer that had been trading for 7 years yet still wasn't making money. I guess if he's happy then fair enough, but surprised he's stuck with it so long, I also wonder how he survives with no income? (I'm guessing benefits...)

droopsnoot

Archi_Bald wrote: »

If it was working well as a steady and reliable source of high income, why would anyone go on telly / seek other publicity to tell others how to do it?

Some people are just like that though - it's not as if a load of other people doing the same trading will make any noticeable difference to the traders income.

That said, I always wonder about the people who write these self-help books about making money and becoming a millionaire - if it's been that successful for them, why take the time and trouble to write a book, surely that isn't going to supplement the income all that much? I'm sure some of them genuinely want to share their methods of success with people, but there's a lot of junk out there.

IronWolf wrote: »

I also wonder how he survives with no income? (I'm guessing benefits...)

Or possibly insurance or compensation from his motorcycle accident?

cepheus

Glen_Clark wrote: »

The secret to success, that is no secret really, is to know which are going to be the winning trades, and which are going to be the losing trades.
But how can you know that in advance?

A guy called van Tharp actually claims that running gains further than losses is sound advice irrespective of when you trade and even which security you trade. So you lose more times than you win, but you win a lot more than you lose on the occasions you win. The reason is often works is because it's the opposite of what instinct tells you to do, and what others are probably doing (exactly what Masomnia said he did)

However, that's not the whole story, it would depend upon the distribution of prices. Only if the distribution is like the red line here Tharp's method would work..

SailorSam

If you do try it, try to find a reason why it might work for you and not the others. Be aware that it's a zero sum game and in the big markets you will be against experience traders. Even if you do seem to accumulate a consistent profit it still could be down to luck, and you might lose eventually. Try a system in a variety of markets as well, try past data in bull, bear, volatile and non volatile markets.

If you believe you don't need to analyse past data, or don't have nerves of steel to act out a well researched strategy, or believe you need to have some nebulous ability like being 'in the zone', don't do it! Also be aware of the black swan, and that applies to long term investors, and the top traders as well. They won't take any notice though!