Stock trading for complete beginners

badger09

ColdIron wrote: »

I'm enjoying it enormously

Me too:)

bulltraderpt wrote: »

Thanks Ed, but I suppose it was only to be expected.

Regarding the polarise views, I see this day in day out with investors / traders either trying to talk up their position or defend it, try advfn for size. But at least with them, like you, they've done it or are in the process.

I'd be interested in your style of trading, i.e. are you purely FA based or technical / patterns / sentiment. There are plenty of FA types but most appear to have an accounting back ground which would bore me to tears.

I'll PM you later, cheers.

Genuine question: what in EdGasket's post leads you to believe he is a trader?

EdGasket wrote: »

You are getting a hostile reception here bulltraderrpt; rather unfairly I think. Obviously some posters have polarised views and are a bit OTT defending their position.

Personally I would be very interested to hear how you are getting on and accept your results at face value; I mean what's the point of making out you're a good trader to a complete stranger who you'll never meet if it isn't the case?

As previously posted I am sceptical that anyone can repeat your success, and maybe you can't either due to reasons I already mentioned however I am open to the possibility that one/ you can. Let me know who it goes; by PM if you like,

Ed

bulltraderpt

badger09 wrote: »

Me too:)
Genuine question: what in EdGasket's post leads you to believe he is a trader?

Hi Badger,

He's stated he's into swing trading and posted three companies he'd made money on.

EdGasket

I use the company reports and accounts, broker recs, director buys, NAV, PE, and price relative to the market / historical price to judge whether a share looks good value or not; plus too many hours watching prices and how they react to news or lack of it. Like you, I am only long. I am not a fan of technical analysis and hence probably why I don't day trade.

badger09

bulltraderpt wrote: »

Hi Badger,

He's stated he's into swing trading and posted three companies he'd made money on.

Apologies to both. I missed that:o

Malthusian

EdGasket wrote: »

Personally I would be very interested to hear how you are getting on and accept your results at face value; I mean what's the point of making out you're a good trader to a complete stranger who you'll never meet if it isn't the case?

There was a guy in the news recently who claimed to be breaking the world record for running across the length of the United States of America. Painstaking analysis by members of an ultramarathon community website proved that he was in fact on the passenger seat of his support caravan for large parts of it - either that or he had a stride length about 40 yards long.

Then there are the many people who cut the course or hop on a bus during marathons and appear at the finish to collect their medals looking as exhausted and proud as those who have run the full 26.2 miles. They usually have social media profiles full of self-congratulatory posts with numerous messages of support and well-done-yous. Until someone catches them out and - after a brief flurry of denial and excuses (chips don't always work, the photographers must have missed me, I only left the course to take a leak) their Facebook profile vanishes without a trace.

Why I am I talking about cheating amateur runners on a thread about daytraders? Because you suggested that no-one would bother to lie about their success (at daytrading) on the Internet because no-one would care about what perfect strangers think. I have absolutely no doubt that people would lie about their success to perfect strangers on the Internet and I've seen it happen numerous times.

I have little doubt that most of the day trading "success stories" posted on day trader forums, apart from those that cover a very short space of time, are fictions. Compared to the lengths some people go to to create a fantasy of achievement - entering the London Marathon and running the illicitly-shortened route is still a hell of a lot of expense and effort, never mind the guy who kitted out a caravan so he could pretend to run across America - making up or selectively reporting a trading history is nothing.

That said I don't believe bulltraderpt is fabricating the little he has told us about his results, they aren't good enough.

bulltraderpt

Malthusian wrote: »

That said I don't believe bulltraderpt is fabricating the little he has told us about his results, they aren't good enough.

Thank you! lol I'll er sort of take that as a back handed compliment, I think..:)

I agree, surely I'd be stating I made more than what I've stated every time? My only regret is I stated what I've made.

bulltraderpt

EdGasket wrote: »

I use the company reports and accounts, broker recs, director buys, NAV, PE, and price relative to the market / historical price to judge whether a share looks good value or not; plus too many hours watching prices and how they react to news or lack of it. Like you, I am only long. I am not a fan of technical analysis and hence probably why I don't day trade.

Ah I see thank you. That to me, is considerably more complicated that charting. But as I am sure you are aware the two camps of FA v TA usually consider each to be better than the other. The Market Wizard books detail the tensions between both the camps via several wizards.

Have you ever considered shorting? It's something I have considered but feel as with every period of volatility, being contrarian can work if done selectively.

EdGasket

I have both considered and tried it but gave it up as a bad job. In general markets rise so if you go with that and not too short a time frame, the 'odds' work in your favour when long. Shorting means you are going against the overall trend so timing is much more critical.

Also I like collecting the dividends on short-term trades that don't work out and become long-term holds! I am not really into selling at a loss so long as the shares still look sound and even better value than when I bought. I am more likely to hold and maybe even buy more at a lower level at a price which varies depending on the share/fund/market and how I feel.

grey_gym_sock

bowlhead has answered some of this, but i can't resist adding a few comments ...

bulltraderpt wrote: »

Ah ha! Right from the off you are arguing against something you've never tried! You try and justify this by giving a ridiculous example about jumping into a tank with a killer shark! I mean, really...

but have you, literally, tried jumping into a tank with killer sharks? i'm guessing no. do you still think it would be a stupid thing to do? if so, what's the basis for your opinion? how dare you have an opinion without trying it first!

or, a bit closer to day-trading: have you tried schemes for winning the lottery? that could mean going for the same (carefully chosen) numbers every week. or numbers selected by some complicated calculation based on statistical analysis of previous draw results, local weather conditions, etc. or gut feeling: you have to be one with the balls (actually, i suspect you might be ). or any other method. if you haven't tried it, you have no right to say it's a daft idea, right?

yes, these examples are ridiculous. and so, and for the same reason, is your argument that people shouldn't knock day-trading if they haven't tried it.

So, from what you state you must have a managed fund, possibly even a FTSE 350 index tracker as the two component companies are listed in the aforementioned index.

i own those 2 individual shares.

i have not claimed that anybody who owns shares via any other method except trackers is making a mistake. i'm claiming that for day-trading, or any very short-term trading, the costs will more than wipe out the profits for the average trader, so it would be silly even to try unless you have very powerful reasons to believe you'll be a lot better than average. and that most of the money in the markets is managed by professionals, so that means you need to be a lot better than the average professional - the losing amateur traders handle very little money between them, so beating them gets you nowhere. and that traders who are winning (whether they are amateurs or professionals) may well be winning only by luck, and not realize it, and so their luck may run out.

a sensible approach to buying shares is to say: even if i'm going to pick my own shares to buy, i won't assume that i'm a stock-picking genius, so i'll keep my costs low enough that the returns will be acceptable even if i turn out to be average. that implies long holding periods for individual shares (i.e. years). e.g. using my estimate of 0.8% total costs to buy and sell a share, if you hold it for 5 years, that's 0.16% costs per year, and if you get an average return of inflation + 5% per year, then after costs that becomes inflation + 4.84% per year. a pretty good outcome. but you have the chance to do a lot better (or worse) if your picks are good (or bad).

or you can keep your costs low by buying trackers.

keeping a close eye on costs is a pretty strong argument to avoid buying active funds. though it's not as strong as the argument against short-term trading, because the costs aren't as high.

i hold some individual shares, and some trackers, and rather less in actively-managed funds (actually, in actively-managed investment trusts).

Give me evidence from short term trading please. As the comments I have read states it all types of trading, whether short or not. The only evidence I could give is what I've read in several trading books, but does this show all account retail and professional? Probably not and of course that 'evidence' I've read is entirely possibly out of date.

perhaps i should have just said "trading", instead of "short-term trading". i mean to contrast trading with investment, by which i mean (e.g.) owning shares (whether or not via a fund) over a period of years.

firms who facilitate trading, such as IG, always say that most of their clients lose money. and i think very few of their clients are using them for what i'd call investment - e.g. to go long a share or a share index over a period of years (because there are very few circumstances in which anybody would do that, when they could just buy the share / a tracker directly - though somebody who does this did post about it on MSE a while ago).

2) simple arithmetic and logic:

"a) we know that the average return before costs for all traders and investors, weighted by amount of capital employed, is (for a stock market) equal to the return from a capitalization-weighted total-market index. there are good and bad years, but in the long run the market return is unlikely to be much more than inflation + 5% per year. some traders/investors will do better than this average, but only to the extent that others do worse. and most of the money in the market is managed by professionals, with far more resources available to support them than a lone trader: that's who you're competing with."

This is complete hog wash as it shows you've drunk the cool aide from those vested interests in the industry!

There are a good minority of active funds who beat the indexes go and research them.

it's a simple arithmetical fact that in order for some to beat the market average, others have to do worse. and given there are many active funds (thousands!), some are bound to beat the market, if only by luck. with hindsight, you can identify the active funds (and, if you had the data, the active individual shareholders) who have beaten the market. but studies say that past outperformance is a very poor predictor of future outperformance. the weakness of persistence in outperformance suggests that most outperformance is down to luck (or, to put it more politely, down to having an investment strategy that works in certain market types, but not in others). there may well be a tiny number of genuinely skilled managers out there, but can we identify them before we have several decades of their past performance to pore over, at which point they may be retiring anyway. or at which point, they may be charging so much that the charges will cancel out their expected outperformance.

the interests of the fund management industry is overwhelmingly in favour of getting people to keep buying active funds, despite the evidence that it's isn't worth the higher fees compared to passive funds. it's very simple: active funds give the fund management industry more income, passive funds (providing you pick the right ones - so not virgin's infamous 1% tracker!) give them vastly less income.

"b) you also incur costs when trading/investing. to buy and later sell a UK share will cost 0.5% stamp duty + the bid-offer spread (perhaps 0.1% for a FTSE 100 share) + 2 dealing commissions (which are very dependent on deal size, e.g. if you pay £5 per deal and trade £5000 of shares at a time, that's 0.1% each time, so 0.2% in total). that comes to 0.6% + dealing commissions (e.g. perhaps 0.8%)."

News flash! Not all shares attract stamp duty, doh! So that rather makes the above example null and void. You evidently didn't know that otherwise you'd have thought first before posting it. Or, perhaps given some of you other 'musings', you'd have carried on regardless...

Although of course I have traded numerous times companies with stamp duty.

so have i.

OK, let's run the same calculation without stamp duty. that gives 0.3% costs to buy and then sell a share.

"c) put (a) + (b) together, and most traders will lose money. e.g. if you day-trade shares, an average share on an average day in the stock market will rise by inflation + about 5% / 250 = 0.02% ... and your buying and selling costs are at least 0.6%, and more likely at least 0.8% ... so that's an average loss of c. 0.78% per trade."

or, for a share without stamp duty, you gain an average of 0.02% before costs, and pay only 0.3% in costs, so you only lose 0.28% per trade.

Inflation? What's that got to do with day trading?

it doesn't affect the calculation for day-trading - it approximates to 0. it's just in there because i was estimating the long-term return from shares as inflation + 5%.

"(clearly, the numbers vary for different kinds of trading. but - spoiler alert! - there aren't any short-term trading strategies where they are in your favour. it just varies how much they're against you.)"

Hang on, you now STATE there aren't any short term strategies where they are in your favour?

ok, take it as a challenge to you: produce an example where the costs from some kind of short-term trading are on average less than the return.

Really. And this from someone who by their own admission doesn't trade, probably has never traded, not even read a basic book on the subject on short term or longer term trading, but is happy to give his cash to 'professionals' who hardly ever beat the market!

no, i've never read a book on trading. i've better things to do with my time, like arguing with people who are wrong on the internet

Perhaps the reason why so many appear to fail is because, like you, they haven't actually engaged with the subject matter, but are more than happy to spout off on an anonymous bulletin board as though they know what they are talking about.

so you agree that about 95% of traders fail, but you blame them for failing. we can all be above average, if only we try harder. that's like saying all schools can be grammar schools - nobody would ever say that ... oh, wait a minute. perhaps you could consider going into politics if/when the trading stops working.

Go try your comments on proper investor / trader forums they'll metaphorically rip your throat out with the stuff you just posted. I was being pleasant by the way, it could have been so much worse, you got away lightly.

i'm enjoying it. tell us what you really think

Sanctioned_Parts_List

grey_gym_sock wrote: »

ok, take it as a challenge to you: produce an example where the costs from some kind of short-term trading are on average less than the return.

Presumably this is part of the arithmetic of the bet... sorry, trade.

In [STRIKE]placing a bet[/STRIKE]making a trade, you've got the cost of the [STRIKE]bet[/STRIKE]position and the expected execution price as known values. The trader's variables are the size of the [STRIKE]bet[/STRIKE]position, the value the share needs to reach before he can take profit and the time period in which he wants all this to take place. If the trader believes he can win profitably, he makes the trade, if not, no trade. No?