I have been spending a fair bit of time working on my trading plan and thinking about my approach to trading so I thought I would write a bit about it. My background in the markets is purely non-professional and dates back to the mid 80’s when I used to chart share prices on graph paper . Our family never understood the property market so we were always talking about companies and share investing.
Shares were something you bought and watched go up and collected some nice dividends along the way. Most of these dividends were reinvested using DRIP (Dividend Reinvestment Plan) which seemed like a good idea at the time but is the most tedious admin task ever if you need to work out CGT 😳 . To this day I don’t think my father has ever sold a share and he has watched a lot go up and come back down and some even disappear. During the global financial crisis I sat paralysed and watched the value of my portfolio halve, like father like son I guess and after it had recovered somewhat, in March 2010, I decided I would never be a passive investor again.
I bought lots of books (and read them) and set about coming up with a strategy or strategies that would suit different market conditions. The key to this strategy was to engage the market over different time frames. Over the course of the last few years I have set about re-training my poor brain to become a trader. I have studied different approaches and tried them out in the market to see if I can work out what sort of trading best suits me. Whilst doing this I have set up a SMSF, been helping my father finally SELL and buy a few things, been investing some spare company money in shares and working on day trading. Oh, and running my “other” business in manufacturing/printing. I have never been so busy but I have also never been happier in my work.
Now, however, I want to really improve my performance and start making consistent income from the trading part of this work. Some of the issues I am facing which perhaps could be split out of this post as separate questions are:
Position sizing: Mostly I am using a local brokerage account for long positions and when I see an entry I calculate the number of shares to buy based on my risk but I often halve that as an initial position and then end up with an account full of part positions that are sitting somewhere between my entry and my stop (sometimes a bit below 😕 , I know, I know). Then I tend to rationalise holding them because the $ at risk doesn’t seem to matter so much. Do the traders here use some sort of time stop that keeps their capital turning over? Is it better to add to starter positions or is this something for the more proficient traders here and I would be better just taking the position?
Time frame: Some of my best trading I did sometime ago using Mini warrants where I would go long or short ASX50 stocks knowing that it was most likely I wouldn’t hold the position overnight. In the last 30mins of trading I would analyse my open positions and decide what proportion, if any, I would hold. I think this approach enabled me to take what the market offered in the day and be much more ruthless with stops. The $ loss was real and I got out and I could also measure my results on a daily basis. Do you guys have a rule that says I have made x$ from this trade today I will bank that? Do you have profit targets and if so in what time frames?
Platforms: When I was exploring different markets to trade I opened an InterTrader account so I could look at indices, forex and gold etc. Now I am using CFD’s through InterTrader to short stocks and make use of leverage. My discipline is probably at the stage where I could just use CFD’s for all my short term trading but maybe not. Is it even realistic to think a regular income can be made without using CFDs/spreadbets and going long and short stocks? To have the opportunity to make a regular income (assuming I can be skilled enough) is it better to focus on trading long/short one or two stocks or indices and short term invest in other stocks?
I have reached this point in my post and re-read it and I am thinking hmm what a mess. There are so many points that would need more elaboration if anyone was going to respond sensibly. Some of the questions are more rhetorical than direct but I will post it anyway and maybe it will lead to other people talking about their road to trading, how long it took before they could really say I am a good trader, what is key in their trading plan etc.
For next time,