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Online Share Trading

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The importance of a solid trading strategy...

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Not applicable
I know trading strategies have been discussed here before, but I feel a bit philosophical right now and for those interested, read further. I've been trading on the side (I have a day job) for the past year and a half or so with mixed results. The reason why I never consistently made money was because I did not have a trading strategy in place and was led mostly by my emotions. The two emotions `greed' and `fear' ruled the way I made my trading decisions. 19 Nov. this year I lost about 90% of my portfolio ($^%& BIL!!) because of this and breaking almost every trading rule in the book (averaging down, not exercising stop losses, etc.). So I was down in the dumps and almost decided to give up trading completely although I liked the thrill of it so much. Ok, here comes the happy ending.don't cut your wrists just yet. I dusted off some of the technical analysis books in the cupboard from the TA courses I attended through Standard Bank (Yonothan Rom presented it). I literally went back to the drawing board and put a system together that I hoped would work. The 20th of November I started trading again with the few bucks I had left and stuck to the trading system 100%. I did not let emotions guide my decisions at all. Since the 20th until today (exactly 1 month) I made back all my money and then some. Out of the 10 trades, 9 were winners (the one loser was because the system was too sensitive at the time.) I made 355% profit to be exact!! This is not to brag or boast about the achievement, I'm sure there was a lot of luck involved as well. The important point I want to make is if you're stuck in a rut, go back to the drawing board and check where you went wrong. Simon P-B once told me how he write down all his trades (and reasons for the trade) on a piece of paper and throw it in a box. When things starts going wrong, he goes back to box and read through the trades that worked for him to remind him of his strategy. This was my thought for the day. Like they say."use it, don't use it".
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22 REPLIES 22
barry_1
Super Contributor
Great Bouts,i think i'm one of the traders here that have been trading the longest and can confirm that,without a stratergy ,one will eventually fail.Mine is well known,can u tell us whats yours is,i'm sure it would be helpful to many?
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Russ
Super Contributor
If strategy fails just ask Chartist for advice!
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Not applicable
The strategy is fairly straight-forward. I use one main indicator for my trigger (MACD) and two others as confirmation. As I mentioned in the original post, this "strategy" of mine is only but one month old and I want to experiment a bit more before I disclose it and lead lots of people in the wrong direction. Today was my last trade for the year, if I find that I constantly make money next year I will definitely let you in on my secret...LOL!! I learnt a lot from Chartist with his posts and videos; in the meantime I would rather ask him to let you in on his strategy. His strategy has been proven over and over again, the 10k into 100k is proof of that.
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Preston
Super Contributor
Bout , my strategy is based on reading the annual financial statement of the company. 2. Computing key financial ratio. 3. Look at key indicator of the company i.e sharebuyback, directors dealings 4. Analysing the "equity portion" of the note contained with the financial statement 5. Analysing the Balance sheet, "Is the a Deffered tax debit balance" 6. Looking at the liquidity ratio and Dividend payout. 7. Performing a "valuation" of the company using my own assumption I then look at the price chart of the company concerns and check 2.1 How the company share price reacts to interest rate hike and other key data and also incorporating USA release of Data 2.2 Develop an analysis with Volume of share traded against price of shares 2.3 Then i goes onto the technical aspect of this share namely ,is this share "overbought" etc. Has work quiet well thus far..
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Not applicable
Preston, that is defintely the better way of doing it. Unfortunately I don't have a lot of spare time on my hands (2 kids and a demanding day-job) and therefore rely heavily on TA for my trading decisions. One day I hope to do it that way as well.
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Preston
Super Contributor
The mere fact that you are making money , is an indication that you are 1. Constantly learning 2. Your strategy is achieving its objectives.
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Preston
Super Contributor
Also i keep a backup of all intra trade, just to understand the mentality of those individuals buying and selling those shares.
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Not applicable
For sure. One of the elements of trading that attractive me the most was because there is just SOOO much that one can learn. It never gets boring as you have to constantly re-evalute your stragegy and adjust to ever changing market conditions. New factors come into play literally every day and throw in some people emotions and a sumprime crisis and it really gets interesting!
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Preston
Super Contributor
Exactly. Personally i have learn't alot from John. I believe he should give himself more credit.
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Thojody
Occasional Contributor
Thanks for the post Bouts, I am just like you were a month ago. Messing about with Greed and Fear and not really making much more than 15 to 20% return because of it. Just sold MMH at a loss (droped 4 % between my placing the trade and it going through!!! but had been fixed the whole day before MY trade!!! talk about bad luck :)) Obviosly, I was feeling really down again till I saw your email. Could the guys out there that have already fought this battle, give us "lost soles" a hand? I would love the following information ... 1. Is there a freely available link to some (in your opinion) good suggestions on the beginnings of a TA strategy? The only one I found forth while is the training given on this site. I plan to attend the next available STDBNK T/A course anyway. 2. I have read of Chartists videos, but WHERE do I find them? Thanks
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Robbie
Regular Contributor
As far as I understand, Warren Buffet does not buy into a company without a 5-year view - in other words he "invest" and does not "trade". That made him "Warren Buffet", and I wonder if he would have been there if he were a trader like most of us with "trading strategies". It reminds me of my 30000 BSR's which I bought @78c; also my 5000 MTN's which I bought @ R40. Because of trading strategies, today I have only 500 MTN's, and no BSR's. I have to admit that my portfolio total would have been around 40% more if I did not sell anything, which includes the ones which did not do very well.
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Preston
Super Contributor
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Not applicable
Bouts,thanks for the honesty. This kind of information makes the forum really worthwhile. I was also about to give up and fell into looking for the perfect indicator hole. Was down 60% and then, after having tried at least 10 different strategies found one that matches my trading style. Since then I have no complaints as all emotion is out of my trading now. Hell, if a trade goes sour then it is a system drawdown and not me beating myself up. thanks again for the post it has given me motivation and further surety that sticking to a system is the way to go.
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Preston
Super Contributor
learner, the key is not to give up. All the "new guys" have entered the stock market at such an exciting time. This year the market have taught us a few lessons. Imagine the false confidence we would had, if we entered the market during the "Bull" run.
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asylum
Super Contributor
i think one important aspect that is often overlooked when trading even before any TA takes place or company financials are read is to see which sector of the economy is moving and which is static or in a downward trend , by doing so you eliminate a lot of bad trades, i have only invested in sectors that are doing well this year and done quite ok i did however stray into sectors which are not doing so well when i saw an opportunity. I mainly stick to a couple of shares here are some of the shares i thought would do well and most of them have , Arcelor Mittal, BHP, Mur, CBH, Sol have keept away form financials and retailers not a great sector at the moment with subprime and interest rates. omo and all that!
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Not applicable
this is so true bouts learnt many lessons the hard way - firstly dont get emotional- before you enter have your exit ready
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Not applicable
Hi Bouts Would you mind sharing the basics of your strategy?
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DZ
Contributor
Asylum, financials in Europe and USA have not done well but SBK at R100 is a bargain. In two years time that share could be worth R150. Why are the Chinese willing to pay R136 per share- they must see some value?
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john_1
Super Contributor
Well done Bouts..the key here is not what your strategy is but that you are sticking to it. That is the hardest thing to do in trading as it takes disipline well done! Next year is gonna be huge for you...Keep it up mate.
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