First posted 11/12/09

Some thoughts about my first week’s relatively unsuccessful trading. While I am down a bit, my risk control has been reasonable — my realised losses amount to 1.17%; my two open trades, short NKY and short AUDNZD, are showing a small loss at present, so in total my return for the first 4.5 days of trading is -1.6%.
Placement of stops: It is too tempting to place stops based on the intra-day chart. My style is medium-term, and whereever the market goes on an intra-day chart, it is unlikely to tell me categorically that I am wrong — that requires a move that will show convincingly on the daily chart. So I should place my stops using the daily chart only.

Novice risk level: I started at a 1% max loss per trade, with the intention of increasing to 2% once I had found my feet. This was not conservative enough. Max loss on medium-term trades should be 0.5% with technical and fundamental support, and 0.25% for purely technical trades. Short-term trades, which are not my core style and somewhat experimental, should be 0.125%. If I keep losing I will cut these levels further.

Intra-day (short-term) trading is not my core style and is entirely new to me. I should not be trying to do it in the range of markets that I am watching for big macro-driven moves, but should learn in one market only; or perhaps I should give up on it entirely for the time being.

I have rushed into some trades. I have often said before that markets give you second chances — I need to remember that.

Style drift: My intended core style is medium-term trades with strong technical support (e.g. trend and significant breakout) and a fundamental story that the market will believe. I can afford to stand aside for weeks at a time until the right trade comes. It’s important not to miss it when it comes, but this week I have felt a bit like the proverbial (and American) “kid in a candy store”, seeing trends and turning points everywhere. I should remember what I am trying to do and wait, wait, wait.

Entry points: Should you buy close to the support/resistance/trend line or wait for the market to confirm you expectations before getting in? I suppose the answer is that the weaker the support/resistance/trend, the move you should wait for market confirmation.

IG dealing spread: IG index is interesting because the spread bet market stays open even when the underlying market is closed. So, for example, I got quite a bad entry level for my short NKY position, I presume because punters (IG customers or futures trades — not sure which) had been betting on further declines.

Entry: I am not used to watching a market tick-by-tick and have not yet learned to stand aside. I feel rushed by all the moving around. Also, I am not watching the markets all day long, because I am not a day trader — but I suspect that there is not much to be gained, on average, by watching them like a hawk for a couple of hours a day. I should therefore make more use of orders to open a trade if the market hits a certain level. This would accord better with another element of my planned style: being able to sleep. I planned to set stops in such a way that I could go to bed content that the worst that could happen overnight was a small loss. To this I now add: being able to concentrate. I need time to do research and to think, and should not be wasting time watching markets move around.