# Trading advice



## Investor82 (5 December 2009)

Hi All
Ok - so Im looking for some advice from the more seasoned investors. So Ill give you a bit of my background. 

I have been actively involved with property investments for the last 7 years or so and have built up quite a nice property portfolio (5 active investment properties and 3 non active). However I have recently come to a stand still because the banks refuse to lend me anymore more money (the classic cashflow short fall scenario). 
I earn a very above average wage and have basically zero living expenses (I own my own home, I dont have a car, family, etc and my company pays my living). 
At only 27yo I am targeting 'retirment' (ie living off passive income) by age 35. Until the last 3 months or so I have been dead on target - however - the banks aren;t playing the game. 
My 'method' of purchasing property is 'conservative' in that I must meet my monthly repayments (ie I refuse to capitalise interest) - so it is a drain on my cashflow. 

A couple of years ago I went to a hometrader course - and am none the wiser having now blown $4,000. 

My goals are pretty straight forward. I would like to generate regular (1/4ly) cashflow from trading. My initial budget is pretty small ($20k), with any profits being used for debt reduction. As cash becomes more redily available I will increase the amount traded. 
I have some experiance with purchasing shares, with mixed success. Generally however any trading has been speculative, without any direction. 

So how can you help?

I would like to know where to start. To develop a system, find tools, set goals, and start trading - without blowing another $4,000 in "education".
What tools do you use? 

In return if you have any queries regarding property investment or banking/finance (I worked in corporate finance for 6 years) please let me know - or PM me. 

Cheers to all
Tony


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## IFocus (5 December 2009)

Well done on the property front

This answer maybe isn't what you will be expecting 

In property its not hard to find many who have made excellent returns both long term and short term and that's taking out the big move up this decade.

One thing when I moved into trading (I was thinking like you) is that I didn't appreciate that the same success rate doesn't translate through.

After 10 plus years I know personally outside of this forum very few that trade full time, trade and make a profit each year. But I have met thousands who have tried and failed some at considerable cost.

I didn't appreciate just how hard it was to generate consistent profits.

I didn't appreciate that consistent profits meant year to year not week to week and that consistent meant not losing money rather than how much I made.

For me it was4 to 5 years to get consistent.

Trading for me and I think for many I have met who can get a return is all or nothing.

As for investing others best advise

If I had stuck at property I would have made zillions more.

From trading I have made money and continue to do so but more so I have traveled a discovery of life and changes required to do so that makes up for every thing.

Sorry about the bad news just my own experience


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## skc (6 December 2009)

If you are looking for *consistent cashflow *as a primary goal I would say short term trading strategies are more suitable. Preferably a strategy that is both long and short, and probably a market / instrument that don't have extended quiet periods.

Scalping futures and FXs is one possibility. I am no good at either of these to tell you how to get started, but there are several threads here which can provide a bit of background.


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## Aussiest (6 December 2009)

skc said:


> If you are looking for *consistent cashflow *as a primary goal I would say short term trading strategies are more suitable. Preferably a strategy that is both long and short, and probably a market / instrument that don't have extended quiet periods.
> 
> Scalping futures and FXs is one possibility. I am no good at either of these to tell you how to get started, but there are several threads here which can provide a bit of background.




I concur. I wouldn't trade shares with 20k, but if you focus your attention, you might be able to learn the Futures / Fx markets. 

*Btw, it sounds as if you're leveraged to the hilt... a pattern some traders fall into, which can be dangerous


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## Aussiest (6 December 2009)

IFocus said:


> I didn't appreciate that consistent profits meant year to year not week to week and that consistent meant not losing money rather than how much I made.




What iFocus means there is that sometimes you will have to cop a loss, it is inevitable, so your overall wins need to be larger than your losses.

PS. iFocus, i agree... the journey has been great and there is very little i would "trade" it for (no pun intended!)..


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## mazzatelli (6 December 2009)

You should assume you will lose money/break-even at the beginning, so scrap the plans to use profits for debt reduction.


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## condog (7 December 2009)

Whilst I concur with the reality of the information above....At 27 yoa your obviously into breaking the moulds.....so dont let anyone tell you what you can and cannot do, because in reality, I bet most people if you had asked 7 years ago would have bet money on the fact you could not own so much property so soon.....

On the property front, I gather youve probably read most of Rich Dad Poor Dad books, and if so you have hit one of the exact barriers he hit ......

You can walk away defeated or you can go and have a half dozen more interviews with yours and other bank managers till you find out what it is they want, the language they want you to speak, the risk managment they want you to have....

Just because they are not playing ball right now does not mean they wont....

We are not allowed to give advice in here, but in my opinion you should go back to the banks and learn to speak there language and play the game within their parameters........

Your obviously a very successful property transactor, and to walk away from that because som box ticker said no is ludicrouse.....Its just a hurdle, you tripped. Get up and go again......if you trip enough times you will work out how to get over or around the hurdle...


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## Investor82 (7 December 2009)

Thanks for the info so far. 

Ifocus - thanks for the heads up. Thats some really solid advice. Even in property too many people "spruke" about their "success". I definatly have not "made it". I have the hardest hurdles in front of me. I am really looking at trading as a way of generating more regular cash flow - shares are more liquid than property. 

ICK - where would (did) you start?

Assiest - thanks, why wouldnt you start with only $20k? What would your minimum capital size be? Not forgetting that this is only a start, and I will look to increase the investment as I get more comfortable with my (yet to be developed) system. 
Yes - I have a lot of debt - however, unlike many of my compatriates I can afford the debt that I have, and meet all my monthly repayments. Im not capitalising any interest - so really Im no different to most people who are repaying their house - just my loan is a bit bigger. (hope that makes sense?)

Thanks Mazzetilli - Will do  - Ill put debt reduction off until I have actually made some money.

Condog - Thanks - No I have not read the Rich Dad series, though I have heard a lot about them. In hindsite I didnt really know what the hell I was doing when I started. I just kind of "Jumped in the deep end" and it worked out ok. All I had was a dream, and an idea. Not to say I havent made some huge screw ups, which have (and continue) to cost me a lot of money. But hey, thats life - you live and you learn (hopefully). 
I have not stoped on the finance front, but I am away at the moment, so it is in with a broker to sort out (generally I dislike brokers and avoid them where I can). In the meantime I thought I would look at some other options. 
If I had a dollar for everytime someone told me I "cant" do that - I would be a very wealthy man...but alas. So yeah - people saying that "you wont, you cant etc" doesnt really put me off. I listen to their reasons, and then make a judgement call from there. 

Maybe my first post was badly worded. Im not looking (or thinking) that Im going to throw $20k into the market for the next 3 months then reduce debt with what ever I make. Not the case. This for me is a much longer term proposition, a "sideline" if you will, which I can draw a couple of $$ from every couple of months (which I cant do with property). Its by no means a "get rich quick" idea...

Maybe someone wants to tell me where they started? Why they trade? Key Lessons learnt (some are listed - thanks)? good coarses, People, Books to help get started. 
Im not asking what you trade (share codes), but rather how you started, How you developed your system, WHO you spoke to for lessons etc. 

Thanks
Tony


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## xygtho (10 December 2009)

well, im new, i dont think ive even introduced myself. well, i hope i dont get banned, but I feel like contributing, and i will introduce myself real soon.

but in regards to this topic,

Ive just started trading, about a month ago, had about enough capital to play with, played, bought into dips hoping that the prices would bounce back. Worked on paper, did not work in practise. For about 9 months this year, did this on paper, worked great, first 3 weeks in practice, was up 10k, now i'm down 8 k after about 5 weeks. thats a 18k loss. talk about sweating!! nausea! feeling sick! i think i will go back to paper trading to see where i went wrong.

Now i ask myself these questions, bull and bear markets. and how everything is linked to one another in one way or another. For example, oil prices, when they go higher or lower, how they affect certain stocks.

I keep asking myself, how everything is linked to everything, how one thing affects another thing, and so on. 

Good stocks, less volatile stocks, hedging, short/long. 

ARGHHHH SOMEBODY KILL ME, ALL THESE VARIABLES, BOOM CRASH BLUE SCREEN OF DEATH, REBOOT, RELOAD PARAMETRES, FIX MISTAKES, REBOOT, RELOAD SOFTWARE DRIVER FOR HARDWARE.

btw im completely new to trading and the share markets. I guess buying into dips only works when theres a mega rally going on like since the the \_/ , that or someone on the other end wont let me buy into dips, picked up on my secret and has changed the rules, therefore forcing me to change my rules. I mean who buys into stock going down, thats just plain ridiculous in my opinion.

So, to be completely honest, I really am now scared to play anymore. So scared. But, what do i do, keep playing, "hoping" that my techniques work which is no better than gambling, or read books, start with low capital, technical/fundamental analysis, buying a parrot so it can forecast the stockmarket.... (bulls**t)

I'm thinking also, there are too many sharks out there, pretty much, if your not a shark yourself, your going to get bitten. So, in saying so, I dont think these sharks are going to tell you how to make money, then if they do, you might be taking a slice out of their profit. We dont want that do we.

You just cant trust anyone, or listen to anyones advice to be completely honest. I think the best way is to find out for yourself, bet low, read and profit, dont trust anybody, dont even trust people you pay for their information. go study in uni get your masters become a maths geek go study psychology, control your emotions, set the rules.

maybe start selling drugs and pay off the cops if you really want to make money from the stock market to pay off your debts.

Hope my extremist view doesnt get me banned. 

p.s psychology, bloody psychology.

p.s.s im the classic novice trader story

p.s.s.s cant wait to get the hang of it!

p.s.s.s.s cant wait for the next bull run.  

p.s.s.s.s.s cant wait to not lose more than i make

and the bloody list goes on and on and on. like i said, somebody kill me.


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## xygtho (10 December 2009)

i think i might be a bit negative.

cheers.


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## mazzatelli (10 December 2009)

xygtho said:


> i think i might be a bit negative.
> 
> cheers.




so according to your logic, he shouldn't listen to you either?


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## xygtho (10 December 2009)

forgot to add that in.


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## cutz (10 December 2009)

Hi xygtho,

For the benefit of other beginners how did you wind up so resentful of the markets, did it involve some sort of course ?


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## IFocus (10 December 2009)

> Maybe someone wants to tell me where they started? Why they trade? Key Lessons learnt (some are listed - thanks)? good coarses, People, Books to help get started.
> Im not asking what you trade (share codes), but rather how you started, How you developed your system, WHO you spoke to for lessons etc.




Looks like I didn't put you off 

The best advice I can give you(and xygtho, timely that post) is that testing and paper trading long before you put money in the market for trading is the holy grail. 

This process is largely misunderstood by most. Professionals always test a system not only to see if its profitable but also to understand when it isn't. IMHO all trading methods fail at some time knowing when and why is an edge.

For new starters like yourself xygtho gives a pretty good window into what can happen if you don't follow this process.

Testing for new starters is the start of the process for slowly changing how you understand the process of trading. Its teaching the mind good trading behaviors. Its very much a game of changing your psychology this is the hard bit testing is the start. 


Hope this helps


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## xygtho (10 December 2009)

Yes, a course of sales that went horribly wrong because i may have reacted badly to some emotions or maybe the market just did not go in my favour, which at the end of the day, whether you like it or not, if the market turns, its not a matter of emotions or any bullcrap like that, the market turns, your stuffed unless you get out earlier enough that it doesnt do any damage.

or maybe i need to learn a bit more. experience and education will only tell. 

Resentful meaning happy/whistling when i was + 10k in 3 weeks, to extremely pissed off when i was down that 10 + another 8 of my own money. But I quickly told myself to not worry, all part of the learning and fun time. I immediately felt alot better when i told myself not to worry. Back to whistling again and now, im even more determined to beat the market.

I think though, the best way to make money from the stock market is when it crashes. Simple. 

Market crashes, buy at the bottom, make your 400% in year or two and then thanks alot markets. thats all its good for. haha


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## Investor82 (11 December 2009)

IFocus said:


> Looks like I didn't put you off




Takes more than that to put me off :




IFocus said:


> The best advice I can give you(and xygtho, timely that post) is that testing and paper trading long before you put money in the market for trading is the holy grail.




Roger that - thanks - very helpful



IFocus said:


> Testing for new starters is the start of the process for slowly changing how you understand the process of trading. Its teaching the mind good trading behaviors. Its very much a game of changing your psychology this is the hard bit testing is the start.




Can I ask - by testing do you mean back testing? Or do you develop your system, then paper trade the system for a while to test your success? If you back test how do you do it? i know there are companies which will back test for you, do you use one, or do it yourself? (with which programme). 





IFocus said:


> Hope this helps



You bet it does!

Sorry to quizz you so hard, but these are the answers I am chasing.


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## Investor82 (11 December 2009)

xygtho said:


> which at the end of the day, whether you like it or not, if the market turns, its not a matter of emotions or any bullcrap like that, the market turns, your stuffed unless you get out earlier enough that it doesnt do any damage.




xygtho - a $30 book will teach you the first rule of trading is risk management. If you cant manage the risks you wont be in the market for long. 
(See ppl I have learnt that much already and Ive only been doing this for a week ) 




xygtho said:


> or maybe i need to learn a bit more. experience and education will only tell.



Education should come before experiance should it not? 



xygtho said:


> Resentful meaning happy/whistling when i was + 10k in 3 weeks, to extremely pissed off when i was down that 10 + another 8 of my own money. But I quickly told myself to not worry, all part of the learning and fun time. I immediately felt alot better when i told myself not to worry. Back to whistling again and now, im even more determined to beat the market.



Geez, not worried about being $8k down. You either have a lot more money than I do, or your balls are made of steel and significantly larger than mine. 
A friend of mine once told me "you never lose money taking a profit". Rules for any investment - Know when to get in (sounds like you have that down pat), know when get out (I think you need work on this area) and know how much you are risking (this bit needs some work too). 

Good luck to you my friend.


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## ceasar73 (11 December 2009)

Read 'How I made 2 million in the stock market'. by Darvas.


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## IFocus (11 December 2009)

Investor82 said:


> Can I ask - by testing do you mean back testing? Or do you develop your system, then paper trade the system for a while to test your success? If you back test how do you do it? i know there are companies which will back test for you, do you use one, or do it yourself? (with which programme).




Trading / investing generally is about trying to exploit pattern recognition. Any method you care to name will likely come back to this simple fact. 

I always smile when the debate comes up about fundamental vers technical / charting all are pattern methods.

Time frames can vary from instant to years still patterns.

Mechanical trading methods use testing by means of running various scenarios using some form of software, a good public example is tech trader over on the Chartist. Plenty of help over there if you wish to go down this road.

I use discretionary methods based on some form of price / volume action / pattern. Some of the general thinking I use for trading I got from Nick Rage you can sign up for a month to his service very educational and highly recommended. 

I still use Nicks service as I find he is a excellent market barometer and a long time market professional. I often find my own analysis at odds with Nicks but when I put the two together I generally stay on the right side of the market this is simply the most important thing I can do as a trader.

These days because I look at so many charts I see the patterns sweep through the markets. I still test / paper trade but its more to do with different instruments / markets (i.e. forex / futures) and shorter time frames.

When I started down the testing path I went back to basics, trend following, simple patterns. The patterns had to be a price consolidation with clear support and resistance areas, buy the breakout in up trends sell the failure in down trends. Simple but it works and a great place to start IMHO.

I found as many as I could that worked by scanning thousands of charts and playing what ifs. After that I go back and find all the failures and play what ifs. There are a million nuances when looking at charts and working markets I found through this process I started to understand some of them and developed an edge.

I had been trading for a while but just treading water or gathering small losses bleeding to death. So when I started basic testing as above I also start to see my bias i.e. only seeing profitable trades etc. 

At this level nothing works all the time....nothing. Understanding a method and the market conditions in which it works and when it fails is what testing is all about.

After this comes paper trading, I have been trading for more than ten years I still paper trade ideas before using money. These days there is no excuse many accounts now have simulators so its really easy when I started out you had a pen and paper and could cheat. 

Your quote "you never lose money taking a profit" unfortunately in markets this is generally why trading neophytes do fail. Trading is only ever about taking smaller losses and bigger profits. Testing will likely show you that its not normally a high win / loss ratio that determines this (scalpers excepted). 

This is pretty general  hope it helps


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## So_Cynical (11 December 2009)

I'm not buying this thread...it feels like there's a sales pitch coming.


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## weird (11 December 2009)

So_Cynical said:


> I'm not buying this thread...it feels like there's a sales pitch coming.




I wouldn't worry too much about it ... inexperience has been pre-stated, unless some other character comes along to save the day.

Trading for regular income is a different game, a game I at least don't know how to play. I know someone that can be wildly successful doing futures option spreads, but for some reason prefers doing it for clients under a major financial company name instead of under his own weight. 

Steady income equates to a pay check ... which is from an employer ... and I am sure there are many self-employed people, perhaps agree the word steady, is not a given.


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## IFocus (12 December 2009)

So_Cynical said:


> I'm not buying this thread...it feels like there's a sales pitch coming.




Simple contribute.............put it on the line..........lets hear what you know tell us all how its done


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## xygtho (12 December 2009)

Investor82 said:


> Education should come before experiance should it not?




Not necessarily, I mean, learning on the job (experience) can usually be better than education. I know some people who've studied, to learn more the ins and outs on the job where you cant find out from just educating yourself. Although the peice of paper that you get from studying usually helps you get the job in the first place.

But in saying so, put the two together. Who knows. Maybe you got an advantage I would guess.

also in regards to the lots of money thing, its called margin lending.

be careful. lol.


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## xygtho (12 December 2009)

Also. For anyone who wants to actually trade on the stock markets, and not talk crap,

paper trading/simulated trading, is pretty much useless.

Your not actually participating.

When you participate, you will find that your participation is making the stock go up or down, along with the market conditions. 

Want trading advice, stick with RIO, BHP and your blue guys, put your money in these strong companies, (blue chips), and let your money run. Last time I checked, RIO was at around $75/unit, when they peaked, they were at $125, so your looking at possibly a 66% return + dividend. Thats making your capital work and grow. Now if you put 10K, thats $6600 return. Just gotta wait till it reaches that point, I doubt there'll be a W shaped disaster, but ultimately the stock market never disapears and history tells us strong companies and government backed companies will recover, it should reach that point and go beyond since the world is continually growing and theres a new mining boom coming. (but yes look at telstra) (omg the variables)

Telstra is paying 10% dividend?

So yeh, theres oppurtunities. If you want to take a big risk, Virgin Blue were $2.40 at their peak, the stock is at $0.54 cents. Do the maths.

I should take my own advice. But I want the profits today, I want to beat the market at the end of the day. On paper it worked, in practise, different story. Stop loss *cough* stop loss *cough* sell short *cough* take my own advice *cough*

still a newbie. and i dont know what im on about. i admit that. hehehehe


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## xygtho (12 December 2009)

I still think the stock market is only good when it crashes. What is it, another 7 - 10 years for the next one. What do you guys think?

I think the trading advice heading is a bit broad


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## xygtho (12 December 2009)

im over it.


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## mazzatelli (12 December 2009)

xygtho said:


> im over it.



orix...is that you?  :
lol


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## nunthewiser (12 December 2009)

Yes ...... Blue chips definately "safe " hey bud.........

BNB .great investment 

Sons of Gwalia ........... awesome stuff .......

Too many great "blue chip" stocks to mention .

Go the blueies!


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## Aussiest (12 December 2009)

Investor82 said:


> Aussiest - thanks, why wouldnt you start with only $20k? What would your minimum capital size be? Not forgetting that this is only a start, and I will look to increase the investment as I get more comfortable with my (yet to be developed) system.




I rarely trade speculative stocks, some people are very good at it, but not me. I think 20k would be okay to start specs with if you knew what you were doing.. 

With 20k, you would only be able to open one (or two v. small) positions in a blue chip stock, that's why i suggested index CFD trading. DYOR, set stops.

Nun lol @ BNB... what a disaster...


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## Sir Osisofliver (12 December 2009)

xygtho said:


> Also. For anyone who wants to actually trade on the stock markets, and not talk crap,
> 
> paper trading/simulated trading, is pretty much useless.




Really?  Thanks for that xygtho, it's good to know I've been wasting so much of my time for so many years. /sarcasm.

Xygtho I maintain certain levels when I test a new strategy so I don't waste time. Here are the levels.

New Idea/Strategy
I go away and gather data on the target space (Ie if it's a strategy that will only be employed within the ASX200 I will gather that data) and apply the idea on historical data. Personally I find that I like to test the data in both rising and falling markets. (This is how a long time ago I figured out not to use oscillators in strongly trending markets for example).

Phase two of the testing process will be to test against live data.

and Phase three of the testing process will be to test using a small portion of the funds ultimately destined for the strategy.

From phase I and II I learn the following highly important pieces of data.

win/loss ratio
cents gained versus cents lost (anything less that 3 cents gained per cent lost is abandoned)

The above determines my positional sizing model that I will use, and if using leverage in the strategy, what portion of my own funds I am risking.

It also lets me know how close to the price action I need to establish my stop loss positioning.

Back-testing is time-consuming and can be complex, but is highly rewarding if done right. Doing it wrong......not so good.



> Your not actually participating.
> 
> When you participate, you will find that your participation is making the stock go up or down, along with the market conditions.



 In my professional opinion I highly doubt that your trading volumes are sufficent enough to alter your outcomes in anything but the most thinly traded stocks. If you ARE trading in thinly traded stocks where you are moving the price...that could be part of your problem right there. 







> Want trading advice,



 No you are specifically restricted from providing advice on these boards.  







> stick with RIO, BHP and your blue guys, put your money in these strong companies, (blue chips), and let your money run. Last time I checked, RIO was at around $75/unit, when they peaked, they were at $125, so your looking at possibly a 66% return + dividend. Thats making your capital work and grow. Now if you put 10K, thats $6600 return. Just gotta wait till it reaches that point, I doubt there'll be a W shaped disaster, but ultimately the stock market never disapears and history tells us strong companies and government backed companies will recover, it should reach that point and go beyond since the world is continually growing and theres a new mining boom coming. (but yes look at telstra) (omg the variables)
> 
> Telstra is paying 10% dividend?
> 
> ...



 Why? Are you an educated professional trader? I don't mean to be derisive here, I just want to challenge what you think you know. You have no way of knowing what it is that you do not know. That lack of knowledge can hurt you if you are *playing* around with your hard-earned dollars with no risk management, positional sizing or trading rules in place. 







> But I want the profits today, I want to beat the market at the end of the day. On paper it worked, in practise, different story. Stop loss *cough* stop loss *cough* sell short *cough* take my own advice *cough*
> 
> still a newbie. and i dont know what im on about. i admit that. hehehehe




Cheers

Sir O


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## xygtho (12 December 2009)

yes so much to learn.

and yes you dont know what you dont know.

and yes, risk management. cool. im wiser. 

so in other words, test, set rules, stick to those rules and profit.


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## xygtho (12 December 2009)

ceasar73 said:


> Read 'How I made 2 million in the stock market'. by Darvas.




Yeh, how to make 2 millions dollars by writing a book with a lure of a heading.



hahaha


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## xygtho (12 December 2009)

Sir Osisofliver said:


> Why? Are you an educated professional trader? I don't mean to be derisive here, I just want to challenge what you think you know. You have no way of knowing what it is that you do not know. That lack of knowledge can hurt you if you are playing around with your hard-earned dollars with no risk management, positional sizing or trading rules in place.




I am definitely not an educated professional, but positional sizing sounds interesting. I am looking into it. Thanks.

Bare with me, i am one of those "Thought thought he farted but Thought ****ted type of person when it comes to trading.

Can anybody elaborate how many trades they make in a week?


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## Sir Osisofliver (14 December 2009)

xygtho said:


> I am definitely not an educated professional, but positional sizing sounds interesting. I am looking into it. Thanks.
> 
> Bare with me, i am one of those "Thought thought he farted but Thought ****ted type of person when it comes to trading.
> 
> *Can anybody elaborate how many trades they make in a week?*




Why is that important?

Some trading systems will give you a way to make small frequent gains. Some systems given you infrequent gains (because they are dependent upon certain conditions).

Make sense?

Cheers

Sir O


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## condog (14 December 2009)

whoooooo back everyone

take a chill pill

Experience will teach who thinks he knows all, where as knowledge will be the teacher of he who is brave enough to ask and wise enough to listen.


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## Bryan Carlin (15 December 2009)

If you start trading, without first educating yourself and learning the 'rules of trading' you will fail.

Better to take up brain surgery, at least you can burn and bury your mistakes. With trading you only burn and bury yourself.

Paper trading if fine but it will never take the place of real time trading because when you have to activate your 'stop loss' your real emotions take over.

People spend years educating themselves in their professions but go full on into trading with no education or experience.

Trading is more about managing your risk and capital. You should first decide if you want to be an 'investor' or a 'trader'.

Ninety percent of people who start trading fail because they don't know what they are doing and do not have the mental strength to press the 'sell' button when they have reached their 'stop loss'.

Trading the stock market is not easy and to be successful takes a lot of work. If you are not prepared to spend considerable time to educate yourself, you are better off to go to the Casino.


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## Investor82 (15 December 2009)

Thanks for the info guys/girls - really appreciate it.


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## IFocus (15 December 2009)

Bryan Carlin said:


> If you start trading, without first educating yourself and learning the 'rules of trading' you will fail.
> 
> Better to take up brain surgery, at least you can burn and bury your mistakes. With trading you only burn and bury yourself.
> 
> ...




Bryan I think this is a general misunderstanding by the masses 

Paper trading is a process that IMHO is a process required on the way to profitable trading.

Paper trading for a new starter is to test if you know what you are doing. 

If you cannot make a profit paper trading............

Its also a process to establish correct trading behaviors 

Trading real money comes much later


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## SmellyTerror (17 December 2009)

I think Byan's point is that, no matter how much paper trading you do, once there's real money in there you can get emotional and screw things up.

"Ok, I just lost 10 thousand dollars in a week. If my wife finds out she is going to set my PC on fire, maybe my testicles too, and never let me trade again. BUT, hey, that company has good fundamentals, right? I mean, there was a reason I got in, right? So it's still as likely to go up as it ever was! Yeah! Hell, if I sold it now, I'd just be getting back in because now it's even better value than when I got it the first time. Maybe I should buy more...? And if I don't sell it, it's not a loss yet, is it? So I'll just hold it another couple of days - there's good news due any day now, and everyone has the earning expectations wrong, I'm certain. And anyway, if I save it 'till tax time and sell it then I could use that loss to offset my winnings from elsewhere! Thank you government, paying 40% of my losses. In any case, I'm sure it's all to do with that bad news yesterday - it'll bounce right back. That was an abberation, it doesn't count. Plus, the dividends! With those and the tax write off, I'm practically in the black! I just need to hold them a bit longer, and *I'll be right*".

Yeah, that way lies madness. And poverty. And burnt testicles.

Learn what to do until you know WHY you're doing it, so you WILL do it. Be a meaty cog in the money-generating machine.

...and don't tell your wife every time you take a loss, because taking a loss is part of the game. The whole point of this is to stay in the game, and taking a loss when you need to is how you do that.

(Not to say "don't paper trade", just be aware of the traps once you trade real money).


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## GumbyLearner (17 December 2009)

SmellyTerror said:


> The whole point of this is to stay in the game, and taking a loss when you need to is how you do that.
> 
> (Not to say "don't paper trade", just be aware of the traps once you trade real money).




The whole point is to have fun, oh and survive of course.

But fun is good!!!


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## brty (17 December 2009)

One of the best pieces of trading advice I ever heard was the following...

Assume you are incorrect when you put a trade on, let the market prove you are correct. 

How this works in practise is that when I have implemented a position, if it does not go in my favour relatively quickly (according to the analysis) then take the position off. Yesterday I closed out 2 separate trades that were effectively going sideways instead of up. There are plenty of better opportunities out there.

By closing the trades because I assumed them to be incorrect from the start, I did not lose anything, yet if I had used the common 'stop loss' that most go on about, I could have lost a couple of thousand on the trades. Each of these trades had been in play for 1-2 weeks, yet the market had not proved the trades correct.

I do not use stop losses in the traditional sense, that is what 90%+ of traders do. However I do have risk mitigation in play.

brty


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## lukeaye (17 December 2009)

This is probably not what you want to hear, but it is the god honest truth.

TRADING IS NOT A FAST TRACK TO RICHES.

If you think its easy, think again. Its not. Its very very very hard.

If you are not ready to devout all of your free time, alot of money, and lots of boring hard work, then don't bother.

Yes it is boring. If you are having fun, then your not doing it right. There are elements of advanced maths, pyhsics and more. It isn't pretty pictures, it isnt cocktails in the caribeens. Its god damn hard work. And anyone who makes money deserves to because they are smarter then everyone else. 

You will not make money for a long time, that is reality and fact. It will take you years. 

Put simply, if you are making money then somebody else is losing money. You are competing against people who may or may not have decades of experience, mathamtics degrees, people who have devouted there lives to it, like you obviosuly have had property. 

You are competing against large institutions who have a wealth of power, information and systems far more advanced then yours, with 10000 x the buying power of you.

To top it all off, nearly every piece of information out there is uselss. You could wipe your ass with it. It is a journey of discovery which you must take alone, because thats the only way you can know if what you find is correct or not.

Prepare for a very long long journey my friend.

I have been doing it for 3 - 4 years. I still consider myself a beginner/intermediate.

Good luck, not trying to scare you, just giving you the truth and reality.


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## Mr J (17 December 2009)

That's your truth and reality. Other experiences will vary. I disagree with almost everything you have said when I consider trading from my own perspective, so there's no point going into detail - just consider the opposite of each of your points.


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## lukeaye (17 December 2009)

Mr J said:


> That's your truth and reality. Other experiences will vary. I disagree with almost everything you have said when I consider trading from my own perspective, so there's no point going into detail - just consider the opposite of each of your points.




Yes but you still paper trade dont you?


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## Mr J (17 December 2009)

No, and I never did to start with. The only time I have paper-traded was a week in November last year (when first looking at the markets), and two weeks in the middle of this year, while testing a strategy. I've made it clear several times that I'm not a paper-trader.


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## lukeaye (17 December 2009)

Mr J said:


> No, and I never did to start with. The only time I have paper-traded was a week in November last year (when first looking at the markets), and two weeks in the middle of this year, while testing a strategy. I've made it clear several times that I'm not a paper-trader.




Ok so lets break this down then.

For you it is easy? 

It is a fast track to riches?

It isnt hard work?

You made money straight away?

All the information out there is true?

Its a short journey?

You must be very gifted then Mr J


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## Mr J (17 December 2009)

For trading? As a whole, yes. I'm not gifted; I may have good mental traits, but the trading itself is simple. All I do is ride trends and enter at retracements to S&R levels. The only difficulty I've had with trading is "turning up", so to speak, but that is a personal problem, not a problem I have with trading.


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## lukeaye (17 December 2009)

Mr J said:


> For trading? As a whole, yes. I'm not gifted; I may have good mental traits, but the trading itself is simple. All I do is ride trends and enter at retracements to S&R levels. The only difficulty I've had with trading is "turning up", so to speak, but that is a personal problem, not a problem I have with trading.




If its that easy, then you should be able to explain in one simple post, how to consistenly, trade profitibly.

I noticed you mentioned you enter using simple strategies, what about your exit? Is the exit not equally as important?


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## prawn_86 (17 December 2009)

lukeaye said:


> If its that easy, then you should be able to explain in one simple post, how to consistenly, trade profitibly.




I too would be interested. Lots about how easy trading is, but no examples or discussion of personal trades from Mr J.

How about a couple of example charts or trades?


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## Julia (17 December 2009)

prawn_86 said:


> I too would be interested. Lots about how easy trading is, but no examples or discussion of personal trades from Mr J.
> 
> How about a couple of example charts or trades?




I'd also be interested.

Mr J, when you say you are 'riding trends', do you mean in both directions?


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## Wysiwyg (17 December 2009)

I'm not interested. Thought I would let you know Mr. Jay.


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## DocK (17 December 2009)

Bryan Carlin said:


> Paper trading if fine but it will never take the place of real time trading because when you have to activate your 'stop loss' your real emotions take over.
> 
> Trading is more about managing your risk and capital. You should first decide if you want to be an 'investor' or a 'trader'.
> 
> Ninety percent of people who start trading fail because they don't know what they are doing and do not have the mental strength to press the 'sell' button when they have reached their 'stop loss'.




Pulling the trigger to sell when my stop loss point was hit was my biggest failing - I'd let emotions get in the way and endlessly ponder every "what-if" scenario until either the price had completely got away and I finally sold at a greater loss, or price improved and I could congratulate myself on changing my mind  One of the best things I've learnt (from Nick) is to change to a broker that doesn't charge extra for stoploss executions, set my stoploss when putting on a trade based on my money management rules, and then step away from the pc and let the market do its thing.  I've found that with no interference from me my stoploss sales have prevented a larger loss (as intended) more often than they have cost me a potential profit.  Hindsight trading remains the only certain way to set a stoploss at the optimum price imo, so a system that works more than it fails is the next best option - and my system works best if I automate it as much as possible



SmellyTerror said:


> I think Byan's point is that, no matter how much paper trading you do, once there's real money in there you can get emotional and screw things up.
> 
> "Ok, I just lost 10 thousand dollars in a week. If my wife finds out she is going to set my PC on fire, maybe my testicles too, and never let me trade again. BUT, hey, that company has good fundamentals, right? I mean, there was a reason I got in, right? So it's still as likely to go up as it ever was! Yeah! Hell, if I sold it now, I'd just be getting back in because now it's even better value than when I got it the first time. Maybe I should buy more...? And if I don't sell it, it's not a loss yet, is it? So I'll just hold it another couple of days - there's good news due any day now, and everyone has the earning expectations wrong, I'm certain. And anyway, if I save it 'till tax time and sell it then I could use that loss to offset my winnings from elsewhere! Thank you government, paying 40% of my losses. In any case, I'm sure it's all to do with that bad news yesterday - it'll bounce right back. That was an abberation, it doesn't count. Plus, the dividends! With those and the tax write off, I'm practically in the black! I just need to hold them a bit longer, and *I'll be right*".
> 
> ...




Agree that emotions and second-guessing can be your biggest enemy - and I probably used just about every excuse you mentioned until I changed my ways.  I now pat myself on the back every time a position is stopped out, for sticking to my plan and taking a small loss rather than a large one.  Fortunately, there have been enough wins to keep me ahead of the game, and letting them run can be just as hard when it's sometimes soooo tempting to take a sure profit rather than risk giving some back.  I find relying on a trailing stop allows me to sleep at night, knowing that I may give back a bit, but most will be preserved.

Not having testicles, I can't quite imagine how it would feel to have a smoking pair, but personally I always feel it's best to only brag to husband about my winning trades, and not to bother him with details of the losers


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## Investor82 (17 December 2009)

DocK said:


> change to a broker that doesn't charge extra for stoploss executions,



In the past I have only ever used Commsec to buy and sell - can you set a stop loss on commsec? Which broker do you use?


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## skyQuake (17 December 2009)

Investor82 said:


> In the past I have only ever used Commsec to buy and sell - can you set a stop loss on commsec? Which broker do you use?




Commsec charges u $9.95 on top for a S/L

Bell Direct is free.


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## DocK (17 December 2009)

Investor82 said:


> In the past I have only ever used Commsec to buy and sell - can you set a stop loss on commsec? Which broker do you use?




It's called a conditional order (rising buy, falling sell etc) with Commsuck, and as SkyQuake says, it costs an extra $9.95 or $14.95 on top of commission depending upon which option you elect - on execution or not.  This would make my present method of trading - which is to enter on a stop buy and exit on a stop sell - very expensive.  I am now with Interactive Brokers, and pay $6 per order ($12 for entire trade) regardless of whether it's instigated by a stop being triggered or not.  They are so much more flexible than Commsuck, as well as much cheaper!


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## Mr J (17 December 2009)

lukeaye said:


> If its that easy, then you should be able to explain in one simple post, how to consistenly, trade profitibly.
> 
> I noticed you mentioned you enter using simple strategies, what about your exit? Is the exit not equally as important?




I'll do even better and say so in one sentence: I observe the inherent movement of markets and exploit it. This statement is of course as generic or as deep as you want it to be, but nothing I say will prove whether or not I can trade profitably. Some people have become very successful with similar strategies, and many others have failed.



> I too would be interested. Lots about how easy trading is, but no examples or discussion of personal trades from Mr J.
> 
> How about a couple of example charts or trades?




I don't have anything to prove, so take my words as you will. I doubt anyone cares whether or not I am profitable, but the idea seems to be for "proof" or lack of it to decide whether or not I'm credible. This isn't my problem or my decision -whether I am credible - to make. I don't encourage people to take my comments in any higher or lesser regard than any other random stranger on the internet.

I'm not looking to create friction, and my point in my first post to Luke was that experiences vary. Some find it hard, others find it easy. Some take a while, some pick it up quickly, and so on. Just ignore my comments on whether it is easy, because my own experience is really irrelevant, even if I proved a profitable trader. All that really matters to ourselves is our own experience. For example, Luke says it is hard, but I will say just try it and see what happens.



> Mr J, when you say you are 'riding trends', do you mean in both directions?




If the trend is up, I have a buy bias. When it is down, I have a short bias. I won't only trade in the direction of the trend, but most of my trades will. My countertrend trades will have target profits, while I will look to hold my trend-trades as long as possible.


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## lukeaye (17 December 2009)

Mr J.

You really need to contribute something, honestly, your statement shows no strategy what so ever. I don't know whether you trade profitably or not, but you are not demonstrating or contributing any useful information?

HOW DO YOU TRADE

You buy when its going up? Give me a ****ing break

PS: Your buying on retracements at S&R levels is a micro pattern which is moving down? So by your logic you would be selling?


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## prawn_86 (17 December 2009)

Mr J said:


> I don't have anything to prove, so take my words as you will. I doubt anyone cares whether or not I am profitable, but the idea seems to be for "proof" or lack of it to decide whether or not I'm credible. .




Obviously by a few posts in this thread some people do actually care how you trade and if you are profitable.

Personally i find it hard to swallow that someone can find it extremely easy and brag how easy it is (*without showing even one basic example*), when all the pro traders i know all state that it is still a challenge most days for them.

Hence, to me, your either the 1 in 6 billion that finds trading 'very easy' or you are lying/exageratting your ability. And i know what one of those thoughts the odds support...


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## Mr J (17 December 2009)

This is only going to cause more friction, at which point I will probably receive an infraction, so I this is my last post on the matter. I have contributed no less and in no lower quality than the majority of people while I have been here. I obviously rub people the wrong way with my blunt attitude, and the suggestion that I find trading easy, but these people can simple ignore me.



> HOW DO YOU TRADE




I'm not going to give a specific answer. I don't see many others detailing their strategies to forums of strangers. Some here will suggest that most don't go around saying trading is simple and that proof is required because I say this. I don't agree, because my comment is only a comment. It may be a lie, it may be truth. Who cares?



> some people do actually care how you trade and if you are profitable.




But I think only because they seek to establish whether or not I am credible. I'm willing to accept that my word means nothing to people who require proof.



> i find it hard to swallow that someone can find it extremely easy and brag how easy it is




I'm not bragging, I'm stating a fact. For me, this is like playing low limit poker with a robotic strategy (abc poker). My strategy isn't quite robotic, but it is reasonably straight forward. Play good hands and value bet. Leave the hand if the opponent is showing strength. ABC. Maybe I am lucky, maybe I'm gifted, or maybe I'm just fooling myself. I don't think I'm either of those, but time will tell.


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## ThingyMajiggy (17 December 2009)

Over 1,500 posts in 8 months too, its obviously not very time consuming either, posting up a chart or example or two should be a breeze. I'm keen to see how easy it is too


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## nunthewiser (17 December 2009)

Geeeezus!

Give the fella a break, he is obviously a genius like i am and there is no need for further explanation ...........


Take a number peasants or forward your money order to p.o box 4567 Geraldton WA for the Genius manual.

Thankyou.


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## Mr J (17 December 2009)

Can always count on Nun to come in and break up the friction. I don't say any of this with any attitude, I'm blunt and honest. Maybe I'm right, maybe I'm wrong.



> Over 1,500 posts in 8 months too




I know it looks bad, but that's only one every 5 hours .


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## mazzatelli (17 December 2009)

nunthewiser said:


> Take a number peasants or forward your money order to p.o box 4567 Geraldton WA for the Genius manual.



bs!!
You don't have a house or postbox :
Tell me which cave you are hiding in Sensei


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## ThingyMajiggy (17 December 2009)

Mr J said:


> Can always count on Nun to come in and break up the friction. I don't say any of this with any attitude, I'm blunt and honest. Maybe I'm right, maybe I'm wrong.
> 
> 
> 
> I know it looks bad, but that's only one every 5 hours .




Haha yeah, but going by the length of some of your posts, that means you just keep typing  :

No but seriously, why do you post here? Just curious is all, if you don't care what people think, don't want to answer the request of how you trade, some say you don't contribute much, seems like a waste of time? What do you get out of it? You're already finding trading easy so its not like you need guidance or help, if anything, you could be helping alot of people by providing examples etc


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## Mr J (17 December 2009)

> Haha yeah, but going by the length of some of your posts, that means you just keep typing






Most of my posts were in the first few months I was here, during my initial learning phase. Looking for information, out of interest, and for receiving feedback in discussion. I have a great interest in discussion, as it forces me to think and that alone is the best method of education that I've experienced. I've spent a lot of time reading a variety of forums, although I mainly posted at this one. I've posted less over the last couple of months because I get less from it, and it occasionally stirs.

I don't post my strategy because I think people need to find their own methods themselves, and also out of selfishness. I also tend to put things in an ambiguous manner, so I'm probably as likely to hurt someone as help them. Some of what I've posted in the trading section is light banter (such as in the "SPI chat" thread), but the majority of it I regard as constructive to discussion. Some people obviously disagree, and that's fine. I'm probably better off staying out of the trading section altogther.


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## explod (17 December 2009)

brty said:


> One of the best pieces of trading advice I ever heard was the following...
> 
> Assume you are incorrect when you put a trade on, let the market prove you are correct.
> 
> ...




First time looking in on this thread and I like it and will have more to say, hopefully as I work through.  

This post took first attention because I also hop out of trades that become range bound or sideways without loss or gain.    The key, "better trades  elsewhere" is a good one.


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## explod (17 December 2009)

I have been an active share investor for about 10 years.  In the early years under paid advisors.  Became unhappy with the performances so went it alone with the aid of investment newsletters in the beginning as well as hitting the books.

In hindsight the suggestion somewhere earlier in the thread of someone such as Nick Radge would be excellent for the beginner.   You need someone to hold the hand so to speak at the start.   I have for years followed a trader named Daryle Morley who has a weekly (Wednesdays Herald Sun, Melb) column of technical charting, he has been in the business for over 40 years and is very successful.  Have attended one of his 2 days seminars and it was very well worth the $350 I paid at that time.

There is a lot of work getting there, you need to understand charting very well, you need also to check fundamentals carefully of any company you put your money into and the company needs to be in a sector of the market that is hotl.  If those ingredients are not there you stand aside from the market till they return, I have been in cash for months waiting for the right trade to appear.

Most on the forums will know me as a gold bug.  Why, because since 2001 it has been in a strong uptrend but has lots of ups and downs, so is fickle.  The great thing about my studying gold is the wealth of intuitive experiience gained in understanding currencies and world markets, that IMHO is vital.  eg. you will all realise that if the Dow jumps we jump.

I gained a huge amount from the Rich Man Poor Dad books but the best ever was called simply "Trend Following"  published about 04, cant remember the writer and it is on loan at the moment to a fellow ASF'er who I met here on the forum.

Will close this post now but will talk in more detail and prepared to post recent and current trades up if it helps.   I do not put the world on fire but have averaged a gain of 60% a year since I went it alone 6 years ago.   This year I am on fire and we can look at that in more detail if anyone wants.  Getting a bit late now for this old black duck.

cheers explod


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## Julia (17 December 2009)

explod said:


> I
> 
> In hindsight the suggestion somewhere earlier in the thread of someone such as Nick Radge would be excellent for the beginner.   You need someone to hold the hand so to speak at the start.



Or perhaps even to just investigate a different approach.  However, seeing that Nick has a SMSF specific plan, I contacted his website to see if a one month trial was available.  Someone other than Nick replied, saying one month would not do the system justice, and that he would be in touch further.  I have heard nothing and there has been no email to explain why.
This is disappointing and not in line with Nick's reputation.



> There is a lot of work getting there, you need to understand charting very well, you need also to check fundamentals carefully of any company you put your money into and the company needs to be in a sector of the market that is hot



I agree with combining both approaches.  I recently fell in with buying a company from the chart, then only later appreciating that the rise in its share price was largely attributable to the fact that it was a take over target.
The ACCC decided against allowing the takeover and the SP fell 25% in an hour.  I should have checked any news circumstances before buying the stock.


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## skc (18 December 2009)

Mr J said:


> I'm not bragging, I'm stating a fact.




Surely terms like "simple" and "easy" are just subjective. Some people find running a marathon easy, other find tuning their own car simple... I cannot do either of that and think they are hard and complicated, but who am I to judge their own subjective opinion? 

And to providing proof... I have only ever seen 3 or 4 threads that include actual proof via statements etc, and most of them were just done for bragging purpose anyway. 

Although it would be great to see Mr J start a thread like "How I trade" for my own learning purpose.



Julia said:


> I agree with combining both approaches.  I recently fell in with buying a company from the chart, then only later appreciating that the rise in its share price was largely attributable to the fact that it was a take over target.
> The ACCC decided against allowing the takeover and the SP fell 25% in an hour.  I should have checked any news circumstances before buying the stock.




Ouch! Got your hands burnt by a hot kettle! May be Sol Lew from Premier will come to your rescue on BRG.


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## SmellyTerror (18 December 2009)

Trading for a living is dead simple.

Step 1: have ten million dollars
Step 2: stick it in your bank account and earn interest

...you can't say squat about what's easy unless you know what someone is trying to do.



> ...seeing that Nick has a SMSF specific plan, I contacted his website to see if a one month trial was available. Someone other than Nick replied, saying one month would not do the system justice, and that he would be in touch further. I have heard nothing and there has been no email to explain why.




I can attest that this is an abberation, since usually they're hell friendly - though I think Nick and Co are on holiday at the moment. I would guess that's why they were saying that a trial at the moment wouldn't be worth it - there won't be any updates until next year (the 7th? Something like that).

There is a $20 two-week trial available, which gives access to the whole thing, SMSF, Growth, power setups, charts, resources, history, everything.


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## explod (18 December 2009)

*TRUST INTUITION*  One of the best saying I have picked up is the adage "When in doubt, get out"   I have since added one of my own, "When in doubt, do not go in"

Twenty five years ago in my employ I was part of a think tank research team.  May task was to look at the problems files for a large organisation.   The CEO told me one day to "let your mind do the work in time.   Your difficult files, read towards the end of the day,then  put them aside, next day the answers will usually be there."   I found it was good advice.

A few years later I picked up a book called "The intuitive Edge" forgotten the author but published about 1978.   One of the best insights was that our total life experience/learning feeds our intuition.   If we have a concern/feeling for something it will be based on our past experiences, many forgotten, but not by our subconscious.   

So if you have that feeling of doubt, act on it now, you can always re-valuate after the event and go back in for example.


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## brty (18 December 2009)

Explod,

Very good advice for when you have experience, however for newbee traders/investors it can get you into trouble as they tend to hold a losing position because of a 'feeling' that their research showed it to be a 'good company'.

The quotes below, one of mine from yesterday, and your recent one, marry up together very well, but neither is 'programable'.




> Assume you are incorrect when you put a trade on, let the market prove you are correct.






> So if you have that feeling of doubt, act on it now, you can always re-valuate after the event and go back in for example.




One of the biggest mistakes made in trading is 'one size fits all', by this I mean some parameter based on 'x' days shows a positive expectancy when used over 200 stocks over the last 20 years etc etc. Clearly a simple look at the charts show that different stocks behave differently, any one stock also behaves differently over time. Every system that uses a static approach is flawed.

brty


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## xygtho (20 December 2009)

well, great discussions for sure.

i agree with mr J.

and great discussions!

i think there are a million variables to consider. 

if you can experience and learn from your experience, than, thats absolutely great, you're already a winner.

if you can experience then make the same mistake twice, then, well, you deserve it.

not just for trading, but for life in general.

GET SMART! And not in the television show way HAHAHAA, far out.

p.s. I got no mates, im allowed to laugh at myself. lol. 

quote, the loner/thinker

p.s.s I am not as smart as I once thought, although I am smart, but not as I thought. I may be a good alrounder, but when you want to specialise, then thats a different story.. 

p.s.s.s Its good to interact with the public, get different views, see what others think, then compile and pick and choose what you think is good knowledge. Its a bit like the bible, and religion, you have a billion people who have their own views on the subject, so, in other words, pick up the bible, read it, then make up your own little story, but remember the basics/roots/core.

i should write a book. Life Lessons and the Stock Market. hhHAhahahah

there he goes laughing at himself mindyou again.

YEHH BABY! cant wait to wake up to you every morning! hehe. oops sorry, wrong subject.

i mean, then again, forget all that, its useless. geeeeeeeeeeesus 
come on man, just pess the submit reply button farrr out


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## ThingyMajiggy (20 December 2009)

:dunno: :guitar: :bananasmi:shoot: :swear: :freak3: :holysheep:


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## xygtho (20 December 2009)

I am really serious. But, please, let me be not serious on sundays.


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## MS+Tradesim (20 December 2009)

ThingyMajiggy said:


> :dunno: :guitar: :bananasmi:shoot: :swear: :freak3: :holysheep:




Yep, that just about sums up trading.


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## Sir Osisofliver (21 December 2009)

I'm in the process of building another trading *system*. (ANY EXAMPLE I GIVE HAS NOTHING TO DO WITH MY SYSTEM).

Note the use of the word "system", as opposed to strategy. It's an important distinction.  A strategy might be to trade on a specific technical signal or combination of signals.

Eg In a strongly rising market, use a 5 day and 21 day EMA and trade the crossover points....In a sideways trending market use a Stocastic Oscillator and MA combo for Buying signals etc.

A system is much much more, and a system benefits the most from extensive backtesting. A system removes a lot of the emotional responses. Should I hold on for a bit longer? is answered when the back-testing of your system over several hundred trades gives you a strong indication that your system is correct. (anything less than 500 + trades is not IMO an adequate test of the system).

So what makes up a system as opposed to a strategy? Ask yourself the following questions...

How do I find my trades?
Lead generation/capture - Most systems incorporate, in some form or another, the criteria to quickly and easily create a list of *potential* trades. Stocks that meet the criteria are in, stocks that don't, do not waste our precious time eliminating them from a larger data set. This then allows you to concentrate and be more efficient at selecting the best trades your system generates. 

How much money should I put into an individual trade?
Risk management & positional sizing - No system has no risk. No system is so perfect that you get a 100% success rate. This is why we don't put all our funds into a single trade position, but instead diversify it across a number of trades.  What however is the "correct" number of positions to take? What is the correct size of the position to take? There should be a rule in your system to determine this.

When should I enter and exit my positions?
A good system will have rules for both your entry and exit criteria. This is what removes a lot of the emotional mistakes that people make.

How do I limit my losses?
Your system should have rules that determine the maximum equity loss you are prepared to absorb.

How do I know my system will work?
This is the purpose of back-testing and live testing. back-testing tells you if your system has a positive expectancy. Live testing allows you to work out any kinks associated with slippage, liquidity and other cosiderations that may be unique to your system (use of leverage for example). If at the end of live testing your system has a positive result you can then determine how much of your trading assets should go towards the system. This is also dependent upon how your system is designed - it may be designed to work in sideways trending markets, strongly up or down trending markets, or when certain conditions are present (what interest rate you will pay on borrowed funds for example).

Without these basic characteristics...you have a strategy (and as far as I am concerned you are gambling)...not a system suitable for putting your hard earned dollars towards.

Most of my systems have a 80% + win/loss ratio and a 5+ Cents Gain/Cents Loss ratio.

Cheers

Sir O


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## WilliamP (21 December 2009)

Solid advice in regards to building a trading system as opposed to a strategy. what programs do you use for your system testing?

Mark Douglass' book highlights running 20 completed live trades once you have built your trading system and you are testing it with live money. Trade small during that time and make sure the backtested system results are in line with your live trading results. At this stage you'll be able get a feel for whether or not your live trading system has a positive expectancy.

Sound advice.


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## Sir Osisofliver (21 December 2009)

WilliamP said:


> Solid advice in regards to building a trading system as opposed to a strategy. what programs do you use for your system testing?
> 
> Mark Douglass' book highlights running 20 completed live trades once you have built your trading system and you are testing it with live money. Trade small during that time and make sure the backtested system results are in line with your live trading results. At this stage you'll be able get a feel for whether or not your live trading system has a positive expectancy.
> 
> Sound advice.




It varies according to the style of system I am running. Mostly I use plain old boring MS Excel to evaluate the system. (This would be after I have determined my lead generation, and simply determining the price data fluctuation effects).

I usually run 500+ trades through the back-testing and about 40 trades through the small scale live testing. (yes you only use a small protion of the funds - that's just common sense).

If everything works well and is in line with the back testing data (allowing for slippage, brokerage and other sundries), it'll go full scale.

Cheers

Sir O


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