Ideas for establishing a capital base to begin investing - getting past first base

[tech/a]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Good list tech.

But what does 17 mean? If what takes 30 minutes to devise?

If you have an idea,business,trading,property,Around the house,whatever.
If it takes more than 30 mins of thought to crystalize it into a format then its probably to complex--Refer then to (7) the 80/20 Rule.
You'll spend 80% of your time on things that return 20% of Enjoyment/Profit/Work Result/Cost Savings/Time management.
Look to work on the 20% which return the 80%---time flies ask any 80 yr old!

You know some of the greatest ideas have been written on the back of Envelopes,Business cards and drink coasters!

 

[nizar]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Out of interest Nizar (BTW, I thought I noticed on your blogs that some prices of your stocks were actually below the stop, why is this?), wouldnt trade frequency really just help limit risk? A form of diversification or hedging if you will.

Further, leverage increased risk, for example, if you had 15k + leverage, if you were stopped out on a few consecutive trades would end up with no capital base? Any % based stop is sure to be a far larger % of your capital base. So you had better make profits quick! I mean one futures position held overnight could mean a margin call. Not saying leverage is a bad thing, as I am planning on using it in the future, but it is of course, far more risky and can lead you in one direction a lot quicker!

Compounding rates of return are a powerful, poweful thing! Good on you for trading full-time though TH, I have been doing it also now for a couple months and will continue for AT LEAST a couple more!

I have little idea about how leverage works -- Ive never used it -- In anything.

Regarding your comments about my blog, it is due to slippage.
It is a weekly system. So if the price I actually exit (almost always on the monday) at is lower than my stop level (which would have been breached on the friday), then I will lose more than I had intended to.

This would have been taken into account during testing.
That said -- Ive tested the system with and without slippage and it doesn't make a whole lot of difference. That's because half the time the slippage was positive.

Sorry for the off-topic. Any other questions please PM me.

 

[2BAD4U]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Best piece of advice given to me was to remember that with time, it (money) gets cheaper - time value of money.

I also don't think enough people are prepared to make sacrifices. Go without the booze, smokes, new car, big screen tv, parties, etc, etc, etc. I maxed myself out on my first house, then lost my job the day after the pad went down. Didn't know how to make ends meet and for the first 4 or 5 years it was a battle but we hung in there. By the time we sold the house we were making double payments and a healthy profit. Kept applying this philosophy, but reducing the level of risk each time.

Sacrifices + leverage + time = a bit of pain now for a lot of gain later.

 

[MRC & Co]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

'zactly.

And those two contracts have a face value of a quarter of a million smackeroos. The notional return, lets say if you make 50k (to pluck a number out of the air), becomes 25% per year. Nothing out of the ordinary.

But because you're trading on margin, you don't need the $250k.

Simple as that really.

And if you are stopped out a few times in a row?

You would loose a lot more than if you were without leverage? I have 100k and am looking to leverage, so would appreciate any advice.

Cheers

 

[tech/a]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

And if you are stopped out a few times in a row?

You would loose a lot more than if you were without leverage? I have 100k and am looking to leverage, so would appreciate any advice.

Cheers

No no
Its a contract which controls X amount.
Not the same.
A 1 pip move will have a value attached depending on what future your trading.

 

[trishan9390]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

This topic has certainly provided much food for thought and inspiration. I can relate to a lot that has been said. Firstly a bit about myself and my story (which will become relevant to tech/a's question about capital): I am 18 y/old, studying a Commerce/Law degree and I have always been interested in the stock market.

I was first introduced to the ASX in grade 6, also my first year living in Australia. At the time we had to pick a share at random and follow its progress over the year. I then had exposure to ASX in high school as we played the sharemarket game.

I think that while I was playing the sharemarket game I got the same thrill I get today when you see a position going your way. The sharemarket is, whether you lose or make money, a lot of fun! At the time there was no method in the way I picked stocks. I subcribed to trials of stock reports (something which I would later regret) and ended up being regularly in the top 10 ranked students.

So once I got to VCE or year 11 and 12, I didn't pay much attention and focused on my studies and achieved quite well allowing me to study a degree that is in high demand in the business world. It was only after completing VCE that I would enter the stock market with "real" money.

I decided to subscribe to one of the stock reports I trialled while in high school, parting from a large amount of money for a yearly subscription. I was young and ignorant and silly and I believed the sales pitch that I would be earning a ROI that far beats interest with little or no risk. This was far from the truth as you will see in the accompanying chart.

So where did I get my starting capital? When I was younger I used to be quite the entrepreneurial type and the internet was the only place age discrimination could not affect how much money you made. I started my own search engine, made websites and earned revenue from advertisers, bought and sold domains, you name it... I had earnt 5k and now I was ready to invest.

So when I turned 18 I opened an account with a CFD provider having done much research. I then followed the trading suggestions provided in the report and as you can see from the graph, after a few good trades, things went downhill. My capital was being eaten up.

So after losing over 10% of my capital, I paused (At point 1 on the graph). I took a few weeks to research more and started finding out about technical analysis, which brought me to this site. I decided to go it myself, and occasionally entered promising suggestions from the report that turned out to be a dud (one example: point 2 on graph)

So I am constantly trying to gain more knowledge on tech analysis and fundamentals. Six months after I started trading I think I am much more wiser and as you can see by the graph, I am starting to make money consistently, which is encouraging. I am one or two trades away from breakeven.

So my motivation for trading and looking for good investments while I am still young?

Someone once said, “For all sad words of tongue and pen, The saddest are these, 'It might have been'.” I don't want to say to myself 10 yrs down the track sitting in a crappy job I should have invested more while I was young so that I could do what I want now. I want to be sufficiently well off so that I do not have to be at a job I don't want to be. I want the luxury of being able to do what I want and thats worth its weight in gold.

Also RE:Happiness/Money arguemnt - for me trading is a hobby. I enjoy the process of learning more and the thrills and physcology of the market. It also teaches good life lessons like being disciplined - which has proven handy in games like poker where I have seen a marked improvement in the game. It's just good fun!

 

[freddy2]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

'zactly.

And those two contracts have a face value of a quarter of a million smackeroos. The notional return, lets say if you make 50k (to pluck a number out of the air), becomes 25% per year. Nothing out of the ordinary.

But because you're trading on margin, you don't need the $250k.

Simple as that really.

25% per year out of the ordinary? Consider this is what Warren Buffett has done to become the richest man on earth I would consider this far from ordinary. And to say you can make a consistant return above 1% per month is ridiculous no matter how frequently you trade.

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

And if you are stopped out a few times in a row?

You would loose a lot more than if you were without leverage? I have 100k and am looking to leverage, so would appreciate any advice.

Cheers

Risk control still applies. So if using fixed fractional position sizing, the same still applies *to you* actual capital.

EOD trading you could easily blow up an account with that sort leverage. However when day trading, you can stay well inside your risk parameters.

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

25% per year out of the ordinary? Consider this is what Warren Buffett has done to become the richest man on earth I would consider this far from ordinary. And to say you can make a consistant return above 1% per month is ridiculous no matter how frequently you trade.

OK, you're right and we're wrong.

Happy investing.

 

[mikat]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

so a question then to the posters to this forum, who actually trade for a living.

how much capital do you use, and how much return do you make.?

its easy to hypothesise on how much you need and make,if your not doing it to pay the bills, but merely as a hobby, but some real traders input would certainly cement the arguments

 

[lesm]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

25% per year out of the ordinary? Consider this is what Warren Buffett has done to become the richest man on earth I would consider this far from ordinary. And to say you can make a consistant return above 1% per month is ridiculous no matter how frequently you trade.

So, what do you think is a realistic and consistently achievable return?

We await your eminent words of wisdom.

 

[ceasar73]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Nice thread tech/a.

Lets face it when starting out you need to be super tight and avoid BIG debt. I bet my left one that guys like Buffet,Gates,Lowy,Murdoch etc were/are all super tight arses

Its not what you make, its what you do with it!

Q - How come its always there poor blokes that say 'Money wont make you happy..Money isnt everything etc etc'???

ceasar73

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Q - How come its always there poor blokes that say 'Money wont make you happy..Money isnt everything etc etc'???

Ahem! You may find that not to be quite correct.

However, in the context of our society, a certain amount of money IS required to be happy. The amount is not great however and will vary from person to person. Any wealth above this amount will not contribute to happiness... and if a person is not happy with this modest level, there is no hope of being happy with more.

Epicurus postulated upon this a few years ago.

 

[MRC & Co]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Tech/a, you are talking about 1 "pip", as in one point? Each future having a $$ value per point. I understand futures/options are the right to control etc

EOD trading, as in end of day? i.e. day trading?

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Pip

What does it Mean? The smallest price change that a given exchange rate can make. Since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point - for most pairs this is the equivalent of 1/100th of one percent, or one basis point.

What tech means is "tick", which is the smallest price change a future can make.

A point is a whole number. eg ==>> SP500 eminis move in 0.25 point increments. So 0.25 points = 1 tick

1 point = $50
1 tick = $12.50

Of course 1 point may equal 1 tick, as in the case of Dow eminis.

 

[mikat]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

see id have to disagree with you there.
i was happier before my first wife got $1m in divorce settlement. thats not to say i was happy with her, but until i had to part with the cash i was ok.
i was happier before a bad business deal cost me another $1m.
i find that i am happiest when i can write a cheque for any amount without wondering if theres money in the bank to cover it.
being rich doesnt make you happy... thats not really correct. being rich lets you do things others cant, and that generally will make anyone happy.
ive been up , down ,up down etc, and i was certainly happiest when up...

Ahem! You may find that not to be quite correct.

However, in the context of our society, a certain amount of money IS required to be happy. The amount is not great however and will vary from person to person. Any wealth above this amount will not contribute to happiness... and if a person is not happy with this modest level, there is no hope of being happy with more.

Epicurus postulated upon this a few years ago.

 

[MRC & Co]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

What tech means is "tick", which is the smallest price change a future can make.

A point is a whole number. eg ==>> SP500 eminis move in 0.25 point increments. So 0.25 points = 1 tick

1 point = $50
1 tick = $12.50

Of course 1 point may equal 1 tick, as in the case of Dow eminis.

Thanks Wayne. I have read up on options, now moving into futures.

What is EOD?

If leveraged then through futures, you would have to place VERY tight stops (more prone to whipsaws) to preserve your capital base yeh?

Otherwise, even trading one contract, a move against you by 10 points would hit you $500. If your base was 10k, that is 5% in one hit! Hence what you mean by "using fixed fractional position sizing, the same still applies *to your* actual capital"?

Cheers

 

[ceasar73]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

see id have to disagree with you there.
i was happier before my first wife got $1m in divorce settlement. thats not to say i was happy with her, but until i had to part with the cash i was ok.
i was happier before a bad business deal cost me another $1m.
i find that i am happiest when i can write a cheque for any amount without wondering if theres money in the bank to cover it.
being rich doesnt make you happy... thats not really correct. being rich lets you do things others cant, and that generally will make anyone happy.
ive been up , down ,up down etc, and i was certainly happiest when up...

spot on!

ceasar73

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

see id have to disagree with you there.
i was happier before my first wife got $1m in divorce settlement. thats not to say i was happy with her, but until i had to part with the cash i was ok.
i was happier before a bad business deal cost me another $1m.
i find that i am happiest when i can write a cheque for any amount without wondering if theres money in the bank to cover it.
being rich doesnt make you happy... thats not really correct. being rich lets you do things others cant, and that generally will make anyone happy.
ive been up , down ,up down etc, and i was certainly happiest when up...

I would look deeper than the purely monetary aspects of that. I have also been up, down, sideways etc. and the cash balance of my bank account was fairly irrelevant to my mental state. The correlation was with something else. But that's getting a long ways off topic, perhaps for another thread?

 

[wayneL]

Re: Ideas for establishing a capital base to begin investing - getting past first bas

Thanks Wayne. I have read up on options, now moving into futures.

What is EOD?

If leveraged then through futures, you would have to place VERY tight stops (more prone to whipsaws) to preserve your capital base yeh?

Otherwise, even trading one contract, a move against you by 10 points would hit you $500. If your base was 10k, that is 5% in one hit! Hence what you mean by "using fixed fractional position sizing, the same still applies *to your* actual capital"?

Cheers

If trading intraday, I would call 10 points a gargantuan stop. But if trading EOD (end of the day - trading daily bars), 10 points would be rather too tight.

Thus, if trading daily bars, you would need a helluva lot more capital than 10k, and you would need a much wider stop also.

Intraday however, a 2 to 5 point stop would be entirely appropriate. Capital required for both margin and cash reserves can be calculated from there.