I don't wanna Stack, I wanna Trade...please help

SS said:
Can you kindly critique my move? Please don't sugar coat it. I must admit, I only learn by making mistake and I am having fun here. :)

By the way I take FULL RESPONSIBILITY in EVERYTHING I DO!

If it is OK, can you tell me what you think?

Many thanks
SS
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SS,

I don't like doing critiques, because I don't consider myself worthy of the qualification needed to be able to do this. What I can do is share my experience with these types of trades, and point out the red flags that may indicate to me to hold off trading in certain circumstances.


SS said:
Wrcmad,

I loss my first trade :)

Here is the plan: On-Stop Strategy (Shorting) (trend is coming down following Cartel Smack Down)

Current Point When Ticket Was Made : ~ 3340
Entry Point : 3254
Exit Point : 3170 (86 pip)
Stop-Loss: 3282 (28 pip)
Risk Ratio : 1:3
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This is a plan for one trade. But it doesn't constitute a "trading plan". A trading plan takes time to develop techniques you are comfortable with, and then test them over sufficient time using your demo account to see if your strategy is viable. You are trading probabilities, so longer term testing is needed. I will post below on how to develop a risk management plan, but the entry and exit tools, indicators, signals, and triggers need to be what works for you. :)


SS said:
Hindsight:

1. Maybe 3264 was not a very good support as it only has touched once???? where in you previous example/trade the resistance was touched 5x.
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The 3264 support, although not extremely strong, was not too bad as it had been touched once as resistance back in late Jan '12. I would consider this support given the right conditions.

SS said:
2. The trend is still going down on a daily chart. maybe my stop-loss was too tight. But if I loosen it, my risk ratio will be less than 1:3
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Two red flags for me here:

Firstly, you need a basis for selecting your stop-loss distance. This comes from testing you system or plan. My method is to vary the stop-loss distance depending on recent volatility. I do this using a percentage of average true range (ATR) - see below. Thus, stop-loss distance will get larger with more recent volatility. This works well for me because as volatility increases, risk:reward decreases. This keeps me out of trades when market volatility is too high, and you can get thrown out of trades early, or get false signals.

Secondly, I have found that breakout trades are much more successful after a period of price consolidation. In the trade you mention above, price has already made a run downwards and you are not getting in at the beginning of the run (ie it's too late for my liking).

Remember, you are trying to enter the trades with the highest probability of success, so you need to sit tight in situations where there may be factors affecting the likelihood of the trade being successful.

Regards

wrcmad

4088_silver5.jpg
 
RISK MANAGEMENT IN TRADING

Risk management is a large topic, so I will attempt this very briefly. It is also the most important aspect of trading successfully! Capital preservation is of utmost importance, as without capital, you have nothing but a big loss.

This is the risk management philosophy I trade by:

To determine your acceptable risk/reward ratio, you need to work backwards from your trading strategy:

Step 1: Develop a trading methodology that suits you (timeframe, indicators, trade signals, available time to trade, etc).

Step 2: Determine stop-loss distance you will use. This should be based on volatility of each market to be traded thus, when markets going through periods too volatile, risk management strategy will prevent you from trading (losing), as your risk:reward ratio decreases to an unacceptable size. I use 30% Average True Range (ATR) for silver. See here for ATR definition: http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:average_true_range_atr

Step 3: Determine how much you are going to risk on each trade. This is very important! Capital preservation is paramount, or you have nothing left and can not make the money back. If you lose 20% of your trading capital, you have to make 25% on whats left just to break even again. The universally accepted amount to risk is 2% of your trading account on any one trade. This prevents you from losing your capital in a run of losses.

For example, for any sized trading account, risking only 2% per trade, you need a run of 15 losing trades to lose 25% of your account, and a run of 35 losing trades to lose 50% of your account.

This is significant, because, given a poor trading system that decides to go long or short simply by flipping a coin, and thus assumes a probability of winning any trade of 50%:
The chance of 15 consecutive losing trades is 1 in 32,768.
The chance of 35 consecutive losing trades is 1 in 34,359,738,368 (34 billion).
So you can see, using this strategy minimises the chance of a big draw down and thus blowing up your account.

Step 4: Test and validate your trading system using your demo account until you get enough results to draw conclusions from ie statistically significant samples (at least 25 trades).

Step 5: Positive expectancy. It is the most important element in trading. It is a priority in trading to understand what this means, and it is this understanding that separates those who make money and those who lose it.

Positive expectancy is defined as, how much money, on average, we can expect to make for every dollar we risk.

Positive expectancy and the likelihood of winning (system accuracy) are not the same thing! Most people confuse the two and chase high accuracy it is instinctive to equate successful trading with the accuracy of trading. It is our social conditioning.

Positive expectancy = (probability of winning x Ave win) (Probability of losing x Ave loss).

So, to increase your systems' positive expectancy, you can either increase the probability of winning (accuracy), or increase the average win size, or decrease the average loss size.

The probability of winning can be increased by entering higher probability trades.
The average win size can be increased by only taking trades that have a better potential pay-off, ie increase the risk/reward ratio.

This is where you need to tweak your risk:reward ratio to suit your trading system.

If you follow this philosophy, you can make good profits with only 50-60% trade accuracy.

Hope this helps????? :)
 
Hey all, great thread and trade (wrcmad). I've learnt a few things from here.

I just have a few questions based on wrcmad trade - Mini Spot Silver (500 oz), and I hope you don't mind me spelling out each calculation based on the trade.

Thus, reference point is 3444, and entry a little above that (exact entry point depends on your plan). The high of 8 Feb was 3451.6.

My plan called for an entry at 3454. Initial stop loss was 3439 (again determined by plan). Margin required $AUD235. Risk $US150

Next determine where you expect resistance to be encountered - ie if it breaks up, how far do you expect it to go? High of 28 Oct 2011 was 3569.1 - and I expected some resistance. So build in a safety factor and expect it to go to say 3560. Therefore aim to get out at 3560 (again dependant on plan).
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1) as SS have pointed out the Risk calculation was a bit off:
- it should've been USD $75 based on entry - stop loss (in this case 3454 - 3439 = .15 per oz; therefore .15 * 500 oz = $75).
- wrcmad has pointed out the mistake due to typo. He has adjusted his initial stop loss of 3424, which makes the risk 3454 - 3424 = .30 per oz; therefore .30 * 500 oz = $150.

2) I'm a bit confused on your margin calculation. You mentioned that the margin required is $235. But based on the 5% margin requirement, I then calculate (assuming you're trading 1 contract):
- 5% of 34.54 * 500 oz = USD $863.5. Did I miss something here or did I misunderstand how the margin is calculated?

3) IGMarkets charges 0.1% of commission fee for each trade. So, in wrcmad's trade, he'll be charged:
- 0.1% of 34.54 * 500oz = $17.27 when initiating the position, and
- 0.1% of 35.60 * 500oz = $17.80 when closing his position.

4) Also, how does the overnight financing work if you plan to hold your position for more than a day? When is the cutoff time when the fees kicked in, is it at midnight or end of the day (4 or 5 PM?)
 
Sorry, forgot to ask whether IGmarkets charge currency conversion fee for trading Spot Silver/Gold, as the spot price is based on USD.
 
alex.ross said:
2) I'm a bit confused on your margin calculation. You mentioned that the margin required is $235. But based on the 5% margin requirement, I then calculate (assuming you're trading 1 contract):
- 5% of 34.54 * 500 oz = USD $863.5. Did I miss something here or did I misunderstand how the margin is calculated?
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Alex,

5% margin requirement is required for a naked position. If you use a contingent stop order (should ALWAYS do this), the margin is requirement is greatly reduced.

In the below example (picture):

Margin required = 5% x 3390 (order level) x 500(oz) = $USD847.50 (right hand side)

The margin requirement is made up of two factors when using a non-Controlled Risk Stop; the risk deposit and the slippage deposit.
The slippage factor for Mini Spot Silver (500oz) is 20%

risk deposit = (Number of contracts x value of one pip) x Stop distance = (1 x $USD5.00) x 30 = $USD150.00
slippage deposit = slippage factor x (value of the underlying position x deposit factor) = 0.2 x (33.90 x 500(oz) x 5%) = $USD169.50

Total margin = risk deposit + slippage deposit = $319.50

So by placing the non-guaranteed Stop 30 points away you have reduced the margin requirement from $847.50 to just $319.50 (USD).

4088_order_ticket.jpg


alex.ross said:
3) IGMarkets charges 0.1% of commission fee for each trade. So, in wrcmad's trade, he'll be charged:
- 0.1% of 34.54 * 500oz = $17.27 when initiating the position, and
- 0.1% of 35.60 * 500oz = $17.80 when closing his position.
Click to expand...

No, IG Markets does not charge commission on metal, energy and soft commodity CFD trades. These trades are completely comission-free. On commodities, commission is made on spreads (3 pips for silver, and 0.5 pips for gold). Commission is charged on Share, Indicie and Forex CFD's, however.

alex.ross said:
4) Also, how does the overnight financing work if you plan to hold your position for more than a day? When is the cutoff time when the fees kicked in, is it at midnight or end of the day (4 or 5 PM?)
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Again, O/nite funding not required for commodity trades.
alex.ross said:
Sorry, forgot to ask whether IGmarkets charge currency conversion fee for trading Spot Silver/Gold, as the spot price is based on USD.
Click to expand...
Again, no fee. Small exchange rate spread of <0.3%.

Hope this helped.

Cheers.
 
wrcmad,

Thanks a lot for the clear and wonderful explanation in addition to the myth busting lessons for beginner like me. It's really valuable to learn from the experienced traders.

You're a champ.
 
Wrcmad,

Thanks for all you great and precise explanation. You have confirmed some of my Ahh Ha moments after my last post and more.

Looks like I will need a lot more "excel" trades or $1 trades to know my success ratio.
Thanks for the 2% rule.
Thanks for explaining Positive Expectancy

Thanks for the link also from stockcharts.com, now I finally understand what a MACD is:
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:moving_average_conve
Another useful and easy indicator I believe is RSI:
http://stockcharts.com/school/doku....hnical_indicators:relative_strength_index_rsi

Looks like I lost my 2nd excel trade due to narrow stop-loss, maybe again this is too volatile. (from memory)
Entry Point: ~33 (going Short)
Stop-Lost: ~34
Exit Point: ~30
The trend is still going down (daily chart), maybe we will have a huge reverse head and shoulder (shoulder at 30-29.50)

I use Netdania.com for the silver/gold chart as it is very fast to work with. IG Market charts is a bit slow but workable.

Does anyone knows of any similar "fast" chart to work with for the SP500?

Thanks again Wrcmad.
 
There is a high risk in trading as it is all about risk management and one cannot be always be right or sure.However, if you interpret yourself highly leveraged risk, your are expected to call your end quickly as one bad trade decision will finish you.

However , there are many tools available in the market which will help you in stopping your losses Example: Margin and leverage are two tools which I know which will help you.
 
Erezbenson said:
There is a high risk in trading as it is all about risk management and one cannot be always be right or sure.However, if you interpret yourself highly leveraged risk, your are expected to call your end quickly as one bad trade decision will finish you.

However , there are many tools available in the market which will help you in stopping your losses Example: Margin and leverage are two tools which I know which will help you.
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What are you talking about????

You are contradicting yourself.

Margin and leverage is what wipes out a lot of people.

It makes you or breaks you!

Margin/Leverage is just like Marriage with one clear distinction....... The maximum you will ever going to loose in a marriage is 50%! Where Margin/Leverage will take you to the cleaners, Bankrupt you (Yep with capital B)! Not only will it take you down, but your marriage partner as well.

When is comes to trading my motto is : RESPECT LEVERAGE MORE THAN YOUR MARRIAGE!

SS
 
Erezbenson said:
There is a high risk in trading as it is all about risk management and one cannot be always be right or sure.However, if you interpret yourself highly leveraged risk, your are expected to call your end quickly as one bad trade decision will finish you.

However , there are many tools available in the market which will help you in stopping your losses Example: Margin and leverage are two tools which I know which will help you.
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Mate, stick with the gear you're on, cause it'll keep you a lot more content than trading. :)
 
great thread, soaking up as much info as I can..

Has anyone has experience with saxo bank's platform? Or are there better out there. They charge $10 per CFD trade
 
Wout said:
great thread, soaking up as much info as I can..

Has anyone has experience with saxo bank's platform? Or are there better out there. They charge $10 per CFD trade
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What is their spread? IG's is 3cents
 
Just wanted to say my thanks for all the info in this thread.

Might hop on a demo account and see how I fair.
 
jnkmbx said:
btw. You can get a free demo account with IG Markets and with CMC Markets.

I prefer CMC Markets interface.
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Thanks for this suggestion jnkmbx!

CMC app for iPad is awesome
 
Having a go with IG Markets only on a demo account at the moment but looking to deposit some money in a couple of weeks, got a couple of questions though; if buy (long) gold and it goes up so I change my guaranteed stop to above the rate I bought at to lock in my profit am I charged a fee for this amendment?
 
Noppy said:
Having a go with IG Markets only on a demo account at the moment but looking to deposit some money in a couple of weeks, got a couple of questions though; if buy (long) gold and it goes up so I change my guaranteed stop to above the rate I bought at to lock in my profit am I charged a fee for this amendment?
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Not charged for amendment, only charged for execution. :)
 
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