Short term trading

[anonymous-user]

China trade war drops look quite juicy. I'm thinking of a 1 month trade. Is there any use competing with the pros?

It's more of a hobby for me. I don't trade with retirement funds etc.

Apple looks tempting.

[Derek Chevalier]

sambucket said:

Is there any use competing with the pros?

Unless you're not telling us about your army of quants, your petabytes worth of historic market data and your farm of computers I would suggest it's going to be a tough ask. It's tough even with those tools at your disposal.

[anonymous-user]

True. I guess it's a bit like betting on a football team despite not knowing the names of any players.

Sometimes I do bet on footie, to make the game more interesting. I find betting on stocks makes the papers more interesting.

Nobody playing?

[Derek Chevalier]

sambucket said:

True. I guess it's a bit like betting on a football team despite not knowing the names of any players.

Sometimes I do bet on footie, to make the game more interesting. I find betting on stocks makes the papers more interesting.

Nobody playing?

I used to bet on in-game rugby matches. Was good fun but these days is populated by the same type of people that make it hard for us mere mortals to find an edge in the markets.
Two of my friends started at Betfair, one is now at a hedge fund and the other works or a betting syndicate. That said, I still have a belief that betting against England football pays off in the long term.

[sideways sid]

sambucket said:

China trade war drops look quite juicy. I'm thinking of a 1 month trade. Is there any use competing with the pros?

It's more of a hobby for me. I don't trade with retirement funds etc.

Apple looks tempting.

A great trade to make.

Last week!

[anonymous-user]

Derek Chevalier said:

I used to bet on in-game rugby matches. Was good fun but these days is populated by the same type of people that make it hard for us mere mortals to find an edge in the markets.
Two of my friends started at Betfair, one is now at a hedge fund and the other works or a betting syndicate. That said, I still have a belief that betting against England football pays off in the long term.

But is an 'edge' even relevant, if you don't even know the name of the manager?

The odds are calculated by quants etc, and you bet on those odds. So all the work is taken care of. Obviously the house always wins. But to talk about 'having an edge' seems to me to be confusing two different kinds of betting.

One type is where you think the odds are incorrect and you can arbitrage the difference.

The other type you just pick the runner, assume the odds are light but roughly correct, and you are just betting on a gut feeling.

So to transfer to stocks, you might have a vague feeling that China will cave, combined with an appreciation of IOS icon design, and make a bet that way. The 'odds' are priced in to the degree of the sell off. So in some senses you don't need to research the stock as the movement is based on wider factors.

If doing this is okay for sport, why not stocks?

Or am I just lying to myself to justify a habit?

[bitchstewie]

If you treat it as a gamble just as you would red or black and have limits and stick the them then sure.

My concern would be that you "kid" yourself that you're investing.

[Derek Chevalier]

sambucket said:

Derek Chevalier said:

I used to bet on in-game rugby matches. Was good fun but these days is populated by the same type of people that make it hard for us mere mortals to find an edge in the markets.
Two of my friends started at Betfair, one is now at a hedge fund and the other works or a betting syndicate. That said, I still have a belief that betting against England football pays off in the long term.

But is an 'edge' even relevant, if you don't even know the name of the manager?

The odds are calculated by quants etc, and you bet on those odds. So all the work is taken care of. Obviously the house always wins. But to talk about 'having an edge' seems to me to be confusing two different kinds of betting.

One type is where you think the odds are incorrect and you can arbitrate the difference.

The other type is more emotional, you just pick the runner, assume the odds are light but roughly correct, and you are just betting on a gut feeling. Which is why I think this is the way to go, because it feels better when you win. And you don't have to spend your life looking at numbers.

So to transfer to stocks, you might have a vague feeling that China will cave, combined with an appreciation of IOS icon design, and make a bet that way. The 'odds' are priced in to the degree of the sell off. So in some senses you don't need to research the stock as the movement is based on wider factors.

If you do this in a bull market, on average you will come away in the black, if you bet on enough stocks, albeit under benchmark minus fees?

For the price of the underperformence, you get to artificially inflate the interestingness of the papers.

Or am I just lying to myself to justify a habit?

Edited by sambucket on Monday 13th May 16:53

There's nothing wrong with having some play money and keeping this separate from your "serious" investing. We all want to think we are smart enough to beat the average. Who wants to be average? But whether, as a punter you analyse the odds or instead rely on gut feel, the chances of being better than average aren't great.

[putonghua73]

sambucket said:

China trade war drops look quite juicy. I'm thinking of a 1 month trade. Is there any use competing with the pros?

It's more of a hobby for me. I don't trade with retirement funds etc.

Apple looks tempting.

A number of questions:
Are you shorting?
If so, what mechanism are you using? Margin account w/ brokerage? Spread betting?
What time period i.e. you state that you're thinking of a month - will you hold the position over-night?
What is your target price?
How will you set your stops?
Are you using TA to identify a trend to time your trade? If so, what are your charts telling you - what trend, what patterns are forming? At what price point do you anticipate resistance? Do you anticipate a breakout?

Are or you long i.e. buying on the dips?

Also, are you really competing with the pros or AI / algorithms?

Edited by putonghua73 on Monday 13th May 17:30

[anonymous-user]

putonghua73 said:

A number of questions:
Are you shorting?
If so, what mechanism are you using? Margin account w/ brokerage? Spread betting?
What time period i.e. you state that you're thinking of a month - will you hold the position over-night?
What is your target price?
How will you set your stops?
Are you using TA to identify a trend to time your trade? If so, what are your charts telling you - what trend, what patterns are forming? At what price point do you anticipate resistance? Do you anticipate a breakout?

Are or you long i.e. buying on the dips?

Also, are you really competing with the pros or AI / algorithms?

Edited by anonymous-user on Monday 13th May 17:30

I'm not shorting. I guess cos if it really tanks I could always ride it out long term as I'm long The Earth.

I'd be using standard brokerage. I'm not up on spread betting. Is 1 month is too long for this kind of instrument?

I'm thinking 1 - 3 months.

I would not set a target price or a stop price, but just keep it running as long as I'm interested in following the event that caused the stock to sell off.

I don't have any positive feelings about TA.

I'm not competing with AI, just like I'm not competing with the quants who set odds at bookies.

Edited by anonymous-user on Monday 13th May 18:05

[Derek Chevalier]

sambucket said:

I don't have any positive feelings about TA.

I don't understand how a punter can use it to make money.

[bmwmike]

bhstewie said:

If you treat it as a gamble just as you would red or black and have limits and stick the them then sure.

My concern would be that you "kid" yourself that you're investing.

Good advice. Just to add, if the bet goes against you it becomes an "investment".

[DonkeyApple]

sambucket said:

I'm not shorting. I guess cos if it really tanks I could always ride it out long term as I'm long The Earth.

I'd be using standard brokerage. I'm not up on spread betting. Is 1 month is too long for this kind of instrument?

I'm thinking 1 - 3 months.

I would not set a target price or a stop price, but just keep it running as long as I'm interested in following the event that caused the stock to sell off.

I don't have any positive feelings about TA.

I'm not competing with AI, just like I'm not competing with the quants who set odds at bookies.

Edited by sambucket on Monday 13th May 18:05

I don’t think you need spread betting. The funding on a relatively long term trade like 1-3 months heavily erodes any performance and there’s no real need for leverage. More importantly, the real benefit of spread beta lies in the tax not the leverage. If you have plenty of spare CGT allowance and trading in small size then that’s a big advantage that doesn’t exist. Likewise with PTM levy. You can save .5% on UK stocks but in the grand scheme of things it’s a minor gain that would be erased by the funding cost at around 30 days.

OTCs are incredibly powerful and hugely beneficial tools but most amateur traders use them for the leverage and the leverage just apologies the losses. Losses that cannot be carried forward against future gains.

The biggest and most common mistake amateur traders make is trying to fight the big money. The key is to run behind the big money. Go where that money is going and get out before it does. Punters are always trying to buy something that looks cheap because it is at a lower price today than yesterday. That tactic is a typical death spiral.

Go with the flow. But find a flow that is running at a macro level, those trends are steadier.

Would I be trading the US/China trade war? No. It’s gambling. No one knows what’s happening next. What I would be doing is looking for the solid stocks and commodities that are getting hammered as a result. Look to see how justified their sell offs are, how much is just down to current market fear and not rational repricing and then monitor how far below fair value they are. These are the instruments that will bounce back when the fear subsided and sentiment goes positive. At that point you wait to see the recovery. Then you wait to see that it is confirmed. And then you take your first small position. Then when it goes up you take your next small position. Then when it goes up more you add. Then add. Then add. Place stops that lock in the gains and run while the sentiment remains positive. Bail.

I typically use indices and commods but occasionally single stocks. I’ve just been stopped on Brent at 70 having waited for the turn from around 55 and starting scaling in from 60.

You might actually only get one trading run all year but some years you get quite a few.

My colleague does this with defensive and cyclical FTSE 100 stocks over much shorter timescales of typically less than a week. Just looking to make between .5 and 1% per trade. Averaging around one trade a fortnight.

[putonghua73]

DonkeyApple said:

The biggest and most common mistake amateur traders make is trying to fight the big money. The key is to run behind the big money. Go where that money is going and get out before it does. Punters are always trying to buy something that looks cheap because it is at a lower price today than yesterday. That tactic is a typical death spiral.

Go with the flow. But find a flow that is running at a macro level, those trends are steadier.

What I would be doing is looking for the solid stocks and commodities that are getting hammered as a result. Look to see how justified their sell offs are, how much is just down to current market fear and not rational repricing and then monitor how far below fair value they are. These are the instruments that will bounce back when the fear subsided and sentiment goes positive. At that point you wait to see the recovery. Then you wait to see that it is confirmed. And then you take your first small position. Then when it goes up you take your next small position. Then when it goes up more you add. Then add. Then add. Place stops that lock in the gains and run while the sentiment remains positive. Bail.

Hi DA,

What MA indicators do you use for such a trade? Does it depend on the length of the trade i.e. long-term entry points 50 & 200MA - potential entry when a Golden Cross forms (50MA>200MA) and visa versa w/ Death Cross (50MA<200MA)? Would 20 & 50MA be better for the short-term trade that Sambucket is proposing? Or would you use shorter MAs?

Do you also use RSI and Support and Resistance to identify strong / weak trends?

Would the trade be akin to something like 'The Moving Average Trading Stategy Guide'?. FWIW, I'm interested in an education sense [value investing] because I've been learning about MAs to see if one can time potential entry and exit points - obviously based upon the fundamentals being in place.

Your post trigged a memory of a post made many, many years ago (around a decade) on the old Motley Fool forums by a 'PaulyPilot'. I recall he was shorting a stock but the trade went south. According to his post, all of the fundamentals were in place to short the stock, but sentiment was against him. To paraphrase, "I know I'm right. Problem is market sentiment believes something else and it has deeper pockets than me".

[DonkeyApple]

I know Paul and know about the trade that wiped him.

My personal view is that if a trade is going to wipe you completely out if it doesn’t go according to plan then it’s not a trade but a gamble.

Likewise with penny shares, it’s gambling if you’re using any amount of money that you couldn’t just throw out the window of a moving car and it not have any impact on your life. And it’s problem gambling if you start posting on boards that the stock is going to the moon.

As for TA, I don’t believe in it. I’ve spent my career surrounded by people trying to sell it and people trying to use it. They’ve all lost and the vendors are mostly little double glazing rats or divorced, burnt out alcoholics. My guess is that I’ve seen over 500,000 retail traders lose trying to follow systems or charts.

At a simplistic level the charts have a value but trying to use yesterday’s number to predict tomorrow’s number is, in my book, best left to the little old ladies at the village fair.

[Derek Chevalier]

DonkeyApple said:

I know Paul and know about the trade that wiped him.

My personal view is that if a trade is going to wipe you completely out if it doesn’t go according to plan then it’s not a trade but a gamble.

Likewise with penny shares, it’s gambling if you’re using any amount of money that you couldn’t just throw out the window of a moving car and it not have any impact on your life. And it’s problem gambling if you start posting on boards that the stock is going to the moon.

As for TA, I don’t believe in it. I’ve spent my career surrounded by people trying to sell it and people trying to use it. They’ve all lost and the vendors are mostly little double glazing rats or divorced, burnt out alcoholics. My guess is that I’ve seen over 500,000 retail traders lose trying to follow systems or charts.

At a simplistic level the charts have a value but trying to use yesterday’s number to predict tomorrow’s number is, in my book, best left to the little old ladies at the village fair.

That's a blast from the past - used to follow him on the Fool years ago. Had no idea he took a beating.

[DonkeyApple]

Derek Chevalier said:

That's a blast from the past - used to follow him on the Fool years ago. Had no idea he took a beating.

If I recall it was around the same time of the Kaupthing collapse. I can’t remember the particular stock but we had clients owing millions on margin calls on the retail side.

[anonymous-user]

Has anyone used freetrade.io?

IOS based. robinhood style £1 trades?

[anonymous-user]

putonghua73 said:

Hi DA,

What MA indicators do you use for such a trade? Does it depend on the length of the trade i.e. long-term entry points 50 & 200MA - potential entry when a Golden Cross forms (50MA>200MA) and visa versa w/ Death Cross (50MA<200MA)? Would 20 & 50MA be better for the short-term trade that Sambucket is proposing? Or would you use shorter MAs?

Do you also use RSI and Support and Resistance to identify strong / weak trends?

Would the trade be akin to something like 'The Moving Average Trading Stategy Guide'?. FWIW, I'm interested in an education sense [value investing] because I've been learning about MAs to see if one can time potential entry and exit points - obviously based upon the fundamentals being in place.

Your post trigged a memory of a post made many, many years ago (around a decade) on the old Motley Fool forums by a 'PaulyPilot'. I recall he was shorting a stock but the trade went south. According to his post, all of the fundamentals were in place to short the stock, but sentiment was against him. To paraphrase, "I know I'm right. Problem is market sentiment believes something else and it has deeper pockets than me".

The last paragraph is where you'd need to focus if you ever want to speculate.

The ability to take a loss will define your trading results. The strategy side, which gets 99% of the attention, is the easy side.

That's why 'trading with raynor' writes guides about moving averages and other things with high search volume, because it ranks him in Google, he gets web traffic and he can funnel people to paid services that'll inevitably be garbage. Clever marketing / SEO etc, but not much good for you.

If he wrote about behavioral economics and areas that are the most important, but less 'sexy' side of trading, no one would give him any traffic.

[DonkeyApple]

sambucket said:

Has anyone used freetrade.io?

IOS based. robinhood style £1 trades?

It’s amazing how things come around. There’s a legal precedent that an FCA broker cannot use the word ‘free’ in their name. As per Deal4Free about 20 years ago who had to change their name to CMC.

£1/trade is a good deal though so long as your deal sizes are large enough. The average ISA trade is around the £100 level for monthly investors so they’re paying 1% commas which is huge as an example.

A corresponding spreadbet would be 10p by comparison and also not attract the 0.5% stamp on UK equities.

So understanding what you want to be using it for is key as to whether it is a bargain or not.