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Online Share Trading

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trading styles

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SimonPB
Valued Contributor
here's a thought I had last night .. the easiest way to trade is to trade the trend .. find the primary trend, wait for the pull back and jump on board when the primary trend returns .. this is essentially my lazy system .. but I suspect most tradesr are trying to trade the reversal or the swing .. now major reversal happen infrequently, on our market twice in the last year so that is a mugs game .. swings are even harder especially as often it seems to be an attempt to swing trade the counter trend (such as shorting ASA the last few days) .. here's the problem with a swing trade, maybe you get a 10% move at best .. you'll miss the perfect entry/exit by at least 2% on each side .. so now 6% profits .. then costs and slippage removes another couple of % .. suddenly that nice 10% swing (if it is 10%, but ti may be only 4-6%) trade makes a very modest 4-5% .. sure gearing ramps that up a bit .. but still the risk is way out of kilter of the reward ..

bottom line is that I suspect the majority of traders need to understand the trading style they have found themselves adopting, consider the real risk/reward potential .. and adapt to aeasier better risk/reward style of trading ..
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60 REPLIES 60
saash
Super Contributor
Trading the trend is definately safe and wise. But since I started trading, I've developed some risk apetite. So every now and then I try someting stupid - like finding a wave which goes against the trend, and a low price, waiting for the probable reversal in the sqeeze, and giving a shot at 100% return .... so far, trading the trend has been the beter option, as the risk option often leads to 100% loss.
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annie3
Frequent Contributor
sorry not on topic but would like the forum and yourself to hazard a guess which bee company is going to buy 14% of metorex s vergenoeg mine. pan african,sallies and is petmin a bee company.
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Not applicable
Simon, a question in your thought pattern. Warrants, even if you pick the trend correctly, have you had many traders make 80% plus?
The way I see it is even if the trend is bullish, or bearish, and your product is chosen correctly, the market might not move as quickly as the decay and gearing. You buy at 10c and say want to exit at 15c (could be a nice profit) but the market treads water for 2 weeks (slightly in the bullish or bearish direction but nothing WOW). By the time the market actually has moved enough your decay and gearing will have gotten you out at the same entry price of 10 or maybe 11c. So is it not easier/wiser to trade shorter bursts of say 1 or 2c profit at a time?
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saash
Super Contributor
The waves are better
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SimonPB
Valued Contributor
firstly, never trade a 10c warrant .. tis a dog an yes it'll have hectic time decay, low delat an everythign else that is bad .. have I had many +80% trades - nope .. over the last 10 years, about 45% of my trades loose me money .. about 45% of my trades make around 20-40% .. then the other 10% make the real money .. thing is trading is not about the huge 100% trades .. it is about consistency and never losing big ..
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Not applicable
Sorry, just used 10c as an example but forgot the article about dont trade 10c warrants.;-) So use the same example at 50c warrant. But I understand your answer. I think it is human/newbie "pie eyed" nature to think they know better and want 100% gain every time. I said to someone the other day "pennies maak die pond", small profits consistantly will get you forward. Thus every so often you get the big catches but you need to loose a little as well to balance the Ego i guess.
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SimonPB
Valued Contributor
ya .. thing is that even trading derivatives is not a quick way to riches .. (albeit it certainly is a quick way to the poor house for many) .. it is a process .. example .. buffett beats the SP500 by a factor of 2 on average .. yet over 42 years his capital is 86 times larger then an SP500 etf fund .. so consistant modest out preform makes for massive overall out preform when time is added in .. aiming for the 100% trades means trading a high risk strategy, and that is way more likely to equal poor house .. trading low risk small reward (and hence risk) .. means larger odds of success and ultimately large piles of cash ..
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Electrox
Super Contributor
I have never traded a warrant and i dont see the point to trade them anyways unless you wanna increase risk/reward factors to levels that the casino offers. CFD,s SSF are a better suited for more trading styles IMO..
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SimonPB
Valued Contributor
CFD & SSF have a higher risk profile .. hence I trade warrants as it is easier to manage the risk ..
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Electrox
Super Contributor
Now why do say that simon? which angle are you refering too?
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SimonPB
Valued Contributor
obligation vs right .. lets say you long tonight at close an over night the US has a black swan event and closes down 30% .. tomorrow first trade we're down 45% .. my warrant has lost 100% an I walk away .. your CFD or SSF has (depending on gearing) lost about 220%-350% .. way way ouch .. now everybody trades saying a black swan event won't happen - but of course it will, thing is when an how bad and does it wipe you out ?? in short, warrants enable me to ring fence my derivative portfolio .. SSF and CFD do not enable you to ring fence and as such your house or other assets are at risk ..
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Electrox
Super Contributor
Ah ok simon.. But that would depend on how one trades SSF and CFD's relative to their actual capital holding of the porfolio..,you dont have to gear your self.. just pay lower comms.
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SimonPB
Valued Contributor
sure, but then you are not trading derivatives are you ?? an whle the theory is there, not so sure about the logic ..
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SkarlakenKoos
Frequent Contributor
In the book "fooled by randomness" there is a story about an investment company that trades "black swan" events. They buy heavily geared shorts and longs everyday so that they even out at the end of the day/week. With trading costs they make a small loss everyday. The idea that a "black swan" event occurs (on average) once every 14(?) years...and when that happens they will make a huge amount of profit. Enough to make up for all the little losses and then some! Scary!
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Maddog
Regular Contributor
I trade the trend with normal shares and im quite happy to pick up my 10-15% I have 20 shares on my watchlist and I only try to trade out of those....however this is a hoppy for me only as i have to spend most of my time on my real job........The point is that Simon is right the simpler your trading strategy the better when I try to get complicated I loose money every time
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Terra
Super Contributor
One of the better posts in a while.....
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Terra
Super Contributor
A good book to read is How You Can Get Rich SWING TRADING by Azizi Ali & Bill Wermine
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Not applicable
Simon, with proper money management there's nothing wrong with CFDs & SSFs. If the size of one/more of your positions are so large that it can wipe your portfolio, then your position sizing is out of whack. CFDs don't have a time decay and have less costs involved.
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SimonPB
Valued Contributor
sure with strict 2% AND 6% rule and large enough capital (min R100k) .. you probably won't loose your house .. but you will destroy your portfolio and potentially years of trading down the drain .. warrants always lower risk due to limited loss potential ..
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