My spreadbetting adventure

[kimchi]

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i will be using britishbulls.com. I then choose their higher rated stocks, 5 of which I short, another 5 I long, therefore, no matter where the index direction goes, I am fully hedged.


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But you're not fully hedged because I know you're not practicing position sizing. Your bets are dollar-weighted and not volatility weighted.

Your exposure will thus be squewed to the direction of whichever stock has the highest volatility.

[john kane]

Good point. I'll factor in the volatilty of each stock (beta?) and weight it appropriately. From my strained memory of my economics degree, if beta = 2 that is double the reaction to the market than if beta = 1, thus do i put half my position on a beta = 2 stock relative to a beta = 1 stock.

Is there anything else I should consider?

Also, I'll also be using a set % of my portfolio value for each position, thus if my value drops by 1/2, then so do all my new positions (and to an extent my present positions).

Thanks for your help.

[DcifrThs]

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Good point. I'll factor in the volatilty of each stock (beta?) and weight it appropriately. From my strained memory of my economics degree, if beta = 2 that is double the reaction to the market than if beta = 1, thus do i put half my position on a beta = 2 stock relative to a beta = 1 stock.

Is there anything else I should consider?

Also, I'll also be using a set % of my portfolio value for each position, thus if my value drops by 1/2, then so do all my new positions (and to an extent my present positions).

Thanks for your help.

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you would have to be careful with this since the "beta" changes all the time.

it isn't a static # for any given stock (though i doubt it moves much). the main thing you'd have to program in is a recalc of the betas (and thus yoru positions) afer large market moves, or large moves in your stock prices.

Barron

[john kane]

im sure this will have been mentioned before but where is thanks barron for the reply. where is the most accurate sources to find beta? i used yahoo finance last time but i remember people on here saying there were better alternatives.

ive spent the last week while stillllll waiting to get some proper funds on the site playing around and working out how best to use the functions etc.

my main problem is trying to decide which stocks to use, whether to follow say stocks and flip the positions whenever im told to, or to chop and change. im leaning towards 8 stocks so i can actually follow them properly (4 long 4 short) , then long gold, oil, corn and short the dollar.

[kimchi]

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ive spent the last week while stillllll waiting to get some proper funds on the site playing around and working out how best to use the functions etc.


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This might be a blessing. I think the recent market volatility may have been a baptism of fire. I know you were considering long and short positions so maybe you may have made a killing had you started - who knows.

Anyway. Keep us posted on how this all pans out.

[john kane]

definitely a blessing. ive only had £1K to play with and am down to about £850. ill be depositing about £12K i think, working at 12 holdings of average £1K, beta weighted accordingly, 1 currency, 3 commodities and 8 stocks (4 short 4 long)

ive definitely learnt a fair bit this last week in terms of how best to structure it.

for example, the most annoying part is when confirming the switching of positions is wise, becuase it can switch a few times during the day, and with the spreads it can make it costly to keep switching.

thus i am trying to find a solution as to how best to solve this. my general plan is to search for the stocks which have the least switching of positions and go with them. i know one company ill use, but still trying to decide on the other 7.

fwiw, my activity so far has been mainly longs becuase of my 4 holdings i had the 2 shorts switched to longs. the worst performer has been qxl. ive never heard of them or what they do, but they were on a hold, but they were already up 9% in the signal to signal period, so maybe i was coming in at the end of the run up, as they have dropped about 6%.

anyways, this is definitely something i want to pursue, still got to tinker about, but i think it should work.

[john kane]

looking more deeply this will take a fair bit of balls tbh.

but that will not stop me....currently trying to find the best way to go about this, basically i'm looking for stocks which are large enough that the spreads will be as small as possible, combined with little switching of position (which obv is bad when spread is concerned).

basically i want a list of about 12 stocks which i am willing to use, and hopefully at least 4 will be long/short so i can have 4 each.

i think to begin with ill start with 7 times leveraging at stop losses around 20% (tbh no real need for a stop loss given the position always reverses within 10% or so, but need it to have enough money to do this).

so if i have 2% swing against me i lose £1.4K from my £10K....ouch!!!....so in that case ill leverage 5 times, makes it a bit more user friendly.

anyways, whilst posting this ive been coming up with my list:

Anglo American (AAL)
Barclays (BARC)
British American Tobacco (BATS)
British Airways (BAY)
BT Group (BT_A)
Man Group (EMG)
GlaxoSmithKline (GSK)
HBOS (HBOS)
HSBC (HSBA)
Invesco (IVZ)
Marks & Spencer (MKS)
National Grid (NG)
SAB Miller (SAB)

those are my 13 stocks ill be using.

tomorrow ill work out the % spread on each one and work out the best 8. ill also look up the betas and not pick any which are really wild.

ill probably rank them in order, then on day 1 ill pick the 4 best shorts and the 4 best longs. if any switch, ill close the position and look to see which is the best short/long to replace it with (may be the same stock itself).

[john kane]

first a quick apology to mods, sorry if it isn't appropriate that i update this whenever something changes, but i feel it helps me to jot down how im progressing and maybe in the future for others looking into trading systems they'll see how a noobie tried (and may well failed) and what steps he took.

anyways, basically the site im using tells you when to buy and when to sell. i'm going for the more aggressive approach of long and shorting the stocks whilst leveraging 5 times.

i've now worked out the spreads ill be paying and from what ive calculated the 13 stocks range between 0.58% to 0.66% i lose in the spread everytime i trade.

do you think such a spread is beatable?

also from the data they provide i have calculated the % rise in the stocks had you of bought and held for the past 2 years and if you had bought when the said to buy and sold when they said to sell and wait for a price drop. here are the results:

the average return of the 13 stocks from buying and holding has been 42%

the candlestick method has returned 158%

now, the obvious problem with this is that i am picking 13 of their better performing stocks.

they rank stocks on a 5 star rating based on how well they have previous done. all of these stocks are 3* with a couple of 4*. almost all the 5 star ones are very unknown stocks which have ended out producing them incredible returns.

therefore i have looked into some well known companies and less well known companies with no stars to 2 stars to see how they have performed. in general almost every stock i look at has outperformed under the candlestick method.

taking the beverages sector, every stock has outperformed by using the candlestick method.

i see a number of mid-tier firms which have done especially well, take Admiral, a UK car insurer which is mainly web-based, they have over doubled their share price in the last 2 years yet via the candlestick method they have over quadrupled.

one example which has given me confidence is jessops, the company which deals mainly in photography. they are a well known (ish) high street chain). 2 years ago their price was 80p, 9 months ago they had risen 80% (using candlestick method up 160%).

then what i find remarkable is by only buying (they never short, only sell and buy back in) that in the fall from 140p to 16p they managed to profit 58%, by only having a long position at set times.

anyways, i am confident with this system.

they also have an identical service for US, commodities (although in general the candlestick method has performed pretty poorly with commodities), chinese, and about 6 or 7 other stock markets.

i still need to look into this furthur, and try to develop a portfolio of stocks which i am confident can beat the spread. i believe the higher cap firms should be more consistent and less risky in that market news will not be so important. however, i think with the candlestick method it filters in this news by seeing when investors are becoming bearish.

however, it is still important i think that i know roughly what is happening which each stock. for example they were 'buy' signal when the US banned online poker, and if you asked anyone on here who knew about the friday bush signing you'd of been mad to of been long the days before. (i still wish i had set up this account then, would of made so much).

anyways, thats the update, the funds should be in my account tomorrow. ill dout ill start it then as i still want to build up a large enough portfolio of companies i have confidence in.

also i want to become confident with how i will deal with the intraday decisions of when to reverse my position, becuase each mistake costs me around 0.6%.

[kimchi]

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first a quick apology to mods, sorry if it isn't appropriate that i update this whenever something changes, but i feel it helps me to jot down how im progressing and maybe in the future for others looking into trading systems they'll see how a noobie tried (and may well failed) and what steps he took.


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You're starting a trading journal, which is what probably 90% of traders don't do. 90% of traders also fail. Any reasonable mod shouldn't have a problem. It's vital you keep a journal.

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i've now worked out the spreads ill be paying and from what ive calculated the 13 stocks range between 0.58% to 0.66% i lose in the spread everytime i trade.


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I know you're not paying tax or commissions so the 'trading charge' is factored into the wider spread.

Which broker are you using?

I've seen brokers with spreads a maximum of 0.25% for the FTSE350. Maybe things have changed.

Whether or not that spread is beatable depends largely on how often you trade. I read somewhere you will be switching positoins daily. That spread will theredore be unbeatable, IMO.

It's still not clear what strategy the signals that you are following use. Since you're following a 'black box' system, I feel at some point it will become very difficult to trade as you can't relate to the rationale behind each ide/position.

[john kane]

thanks for the reply kimchi and apologies for my delay in replying.

im with ig index who seem a solid and safe company. given no tax and commissions, i think the wider spread is definitely better (for example on tdwaterhouse i was paying £12.50 per trade, if i was investing £1K per stock, as i am here, then im paying 1.25% to buy and again to sell).

the spread is 0.35% but as ive gone for the guarenteed stop loss account it means i have an extra .30% spread or so. this is well worth it imo, as say a stock plummets overnight. normal stop losses means you would just get the best price when trading opens. this guarentee means no matter what you are getting that price. if you have a stop loss at 5%, and it drops 20% on opening, you only loss the 5%. i thinks it worth the 0.3% extra for the peace of mind, as well as helping to lower variance.

plus if there is a big flip decision on a stock with will affect it by + or - 50% on the next day, with a guarenteed stop loss you can make that -10% or +49.4% [img]/images/graemlins/smile.gif[/img]

The hardest part is definitely find stocks and a strategy which prevents regular (as in no more than every few days, preferable a couple of weeks) changing position.

my dilemma right now is that my money has hit my current account. part of me wants to put it into my savings account, but then i cant withdraw it till the end of the month.

i think ill leave it in my current account.

also im erring on to begin with just going long on stocks, but then with the market not set to do too well (maybe pretty badly) over the coming x months (maybe x year(s) then maybe doing both long and short is wiser.

definitely some thoughts to mull over.

thanks again for reply, really does help.