Hi guys, I've recently looked up trading as a potential way to increase my life savings. I currently have £50k. Being honest, I think trading may be too complex for me to grasp for a living, but I have one quick question. If I flung my £50k into a trading account (I know we're warned to only use what you can afford to lose) and put a stop loss as let's say -0.50% maybe more and put a auto sell as 0.50% or 1% on say the SP500 daily (which so far, just keeps on growing) would this be an easy way for me to slowly build up profits while minimising risk? It sounds way too easy which makes me think this wouldn't work, so I would just like clarification. For example, because I buy so much, could it be that I struggle to sell £50k worth of shares on a daily basis etc? Any advice appreciated, thanks
Sound like an easy to way get stopped out before the market goes up. The current VX future is about16.15. That represents a little more than an expected 1% move per day. On the S&P cash, that is about 29 points. If you are not going to trade, be an investor. If you are an investor, one day's average move is too small a stop. For a day trade, it might be too big unless you are not leveraged.
If you have no idea what you are doing this will bleed you dry. Better to take 10 dollars, purchase The Intelligent Investor and learn to build a portfolio. Generally even hedge fund managers find it difficult to beat the market consistently. For example, I have a small risk capital account (~10k) I use to speculate. This is money I could lose tomorrow and, while disappointed, it would not alter my life. I have an IRA I invest in a very conservative 3 fund portfolio, and a normal brokerage account with the remainder of my saved money I invest in a well diversified portfolio (approximately 7-8 ETFs depending on how the market is during my tri-yearly adjustments) tailored to my own risk preferences. In my IRA and brokerage I have had no problem returning anywhere between 6-8% a year since I started. I could probably take this up to 10-12% if I sold some of my bond holdings and invested into more mid-cap issues. I just don't presently trust this market enough to do so. This is probably the route you want to go. My speculation account has had good years and bad years. I don't recommend putting your life savings on the line in the way you want.
In a bull market this would work, in a bear market you will bleed. This could easily be automated and back tested to see how its done in the past(during bull and bear markets), however, obviously past performance is not indicative of future results. Everyone should know the S&P 500 overall has more up days than down, the down days however, are larger. I wouldn't recommend this strategy personally but if you do it, I would go with a free commission broker and use a 1:1 risk to reward, not more as that will skew your probability. Best of luck
By theory it will work but you are maximising your gains. Also, theres no guarantee it will work forever, stock market may turn into a bear market and this strategy will not work.
Theoretically, it would work but it would require to have an infinite amount of money which you don't have. And that is even assuming that you are stopped out exactly at 0.50% of the move. Stop-loss is a market order which means you are at the mercy of the market. Even if you set your stop-loss at a certain price you might get out at a lot worse price if the market moved fast.
Thanks for all the helpful responses guys. Ok, it sounds like it's still very much risky so I think I'll refrain from using that strategy as I'm too worried to lose savings I've earned my whole life (I have a job, that's how I save, for the guy said that). Just two more questions if you guys don't mind. 1. How do you know when you're in a bullish market and a bear market? Example, the SP500 seems to be growing pretty well, but can this still be performing well in a bear market? Or would all stocks etc. Be falling or underperforming in a bear market? 2. I assume all you guys are self taught traders. At the moment I'm not sure I can grasp this good enough to become a good trader. I've seen a copy function on apps like eToro. On the basis that I don't feel confident enough to pick my own stocks etc. Is it a good idea to invest a small lump sum of money and just copy people who seem competent at trading? Thanks
History has shown us time and time again that while the S&P500 and other indices keep going up and up and up in the bigger scheme of things, they can all drop like a turd now and then, and keep sliding for weeks, months, even years. You will not win every day. And you will have expenses. So the amount of your profits needs to be about 3x your risk. That is the conventional wisdom, anyway. You can build wealth by just buying and holding a diversified portfolio and not bailing when times get tough. Or you can up your game a bit by selling and even short selling when the game goes tits up and it is obviously caused by some news... war, famine, banking collapse, unfavorable election results, etc. Then buy back again when things start to turn around. To just arbitrarily set a profit taking and a stop loss sell like that is probably going to cost you. If you know nothing about trading and don't want to get into it, don't want to learn it, then invest. I am liking ETFs (Exchange Traded Funds) for that. Diversify. Funds are already sort of diversified in their holdings, but the manner in which the fund managers invest is not a one size fits all thing. Some are more leveraged than others. Some concentrate on value, some on growth, some on dividends, etc. I like TQQQ but I would not want a portfolio that was 100% TQQQ. OTOH, I might TRADE TQQQ if it is acting feisty. I suggest you pick up a couple of good books on trading and investing. Educate yourself and make informed decisions. You have no guarantee of doing well. But you are almost guaranteed of doing decently if you make sensible investments. You COULD do better trading, though there is an incredible amount of risk involved, and beginners often blow through their entire account while learning. Or while not learning. Knowledge gives you a fighting chance. I will say this, though. I still consider myself a newbie so take this with a grain of salt, but trading is fun. Sort of like how gambling is fun, but I don't lose as much when I lose. It can be a great hobby, one that can pay for itself and if you are disciplined, smart, and lucky, even turn a profit, if you don't get carried away. If you got the bug, by all means, split off a sliver of that account and put it into a brokerage account dedicated to day or swing trading. If you blow it, think carefully on whether you want to fund it again or not. Before you blow it, if you don't like the way it is going, don't be ashamed about it... bail, put your money back in smart investments, and don't look back. After your read a book or two on trading, the first thing you will want to do, before you put any real money on the table, is to paper trade for a while. Paper trading is simulated trading, usually with real time data, and with a certain amount of imaginary money, which you can generally replenish at will. Usually, your brokerage will open a paper trading account for you. It should be considered MANDATORY that you paper trade at least for a little while, and make your beginner screwups there, instead of in live trade. A simple oops like making a purchase and not knowing how to sell, or not knowing the different types of orders or the default hotkeys for them, or using the wrong type of order and coming in too high or selling too cheap. Lots of details about your trading platform and trading in general will trip you up, and you need to do that tripping for funsies instead of for keepers.
1. Bull vs Bear Bullish markets are by-and-large increasing (higher highs and higher lows). Bearish markets are by-and-large decreasing (lower highs and lower lows). Trendlines on SPX/RUT/QQQ etc will tell you this quickly if you don't have an eye for it. You have to remember as well that there are temporary corrections that may look like a market sentiment switch. Everyone has their own rule but this one is semi-reliable: indexes crossing above (bull) or below (bear) the 200 SMA, rising (bear) or falling (bull) volatility. Volatility is probably more accurate. Volatility picks up significantly as prices fall. Total market sentiment change must not only include the price action sentiment change, but also other fundamentals of the market: reduced consumer spending habits, interest rates (in particular the inversion of the yield curve), etc. For example, I think we are in the largest fake out in history. What I mean by this is we SHOULD be approaching a bear market by fundamentals, but the price action and market volatility tells us it is still a roaring bull market. 2. Self taught Don't copy people who are competent in trading. Everyone has their own style and personality. This doesnt mean you cant take good habits from better traders. However, develop your own style. It is critical you learn your own risk tolerances - for example there are traders here that are very good at scalping. It might be worth paying attention to them for the purposes of learning good habits on setting stops. For me, I could never scalp because I am naturally risk-adverse. I like to fix my risk and let trades run for a while. Obviously it wouldn't be useful for me to learn how scalp by following someone. Instead, spend a few hundred on books. Start with the basics: learn fundamental analysis with The Intelligent Investor, learn technical analysis with Technical Analysis of the Financial Markets, read about famous systems like The Turtle Trader, How to Make Money in Stocks: A Winning System in Good Times and Bad, and The Logical Trader. Take the interesting bits of these (write them down) and set out to work out your own system. You'll fail a lot, but everyone has to pay their tuition to Mr. Market. From there pick up some motivational literature. Look into Market Wizards, The New Market Wizards, and Reminiscences of a Stock Operator. The Audible versions of these are excellent quality. I highly recommend them. I run counter to the majority of people. I do not suggest paper trading. If you study first how to limit your risk, for example no more than 1-2% max risk per trade, losing 7-10% in a month means you halt trading, liquidate everything, and hit the books for another month or two while you build that capital back, and come up with a decent starting system for trading, you can't burn out before you learn something. It is hard to learn with training wheels wearing pillow armor. You must risk your own money to learn something. Every trade you should feel. Each time it goes down and you want to pull out - you have to make the conscious decision to stay in longer or get out because you made a bad call. Paper trading will never teach you this. It is impossible (really) to understand the fundamental aspects of trading and risk management with paper trading. It is virtually impossible to take seriously. Come up with a decent risk management plan, and (as long as you have a decent idea of what to do) place a trade and see what happens.