What if you have a fully automated trading system?
New trader. Newbie question
- Thread starter RastaMouse
- Start date
Walk forward testing will be better than paper trading in every possible universe. If you "forward test" with paper you're basically doing the same thing you would with walk forward testing. Yes, in WFT you're using historical data but most importantly your system doesn't know about the state of the system it is operating in. So you won't gain any appreciable information by paper trading forward after a walk forward test.
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I appreciate such detailed responses, thanks again.
I think I find the idea of learning to trade intimidating. Like, even some of these responses in here sound so detailed and complex, I do worry that I'm never gonna really know or understand what I'm actually doing. I know that should be my warning sign to not trade period, which is why copy trading was an idea. Maybe I should just invest as I can go with the pretty safe companies (I.E. Amazon, Apple, Facebook etc.) over long term. I'm just annoyed from having such a big lump sum of money which is earning me no real decent return.
One last question, I've read a lot of speculation about a potential upcoming market crash which people believe is due this year, I just wanted experienced traders opinions on this? Is it a good idea to wait it out till next year and see if the market does crash first? If I catch the crash I may be able to really capitalise from it so that's a thought.
I think I find the idea of learning to trade intimidating. Like, even some of these responses in here sound so detailed and complex, I do worry that I'm never gonna really know or understand what I'm actually doing. I know that should be my warning sign to not trade period, which is why copy trading was an idea. Maybe I should just invest as I can go with the pretty safe companies (I.E. Amazon, Apple, Facebook etc.) over long term. I'm just annoyed from having such a big lump sum of money which is earning me no real decent return.
One last question, I've read a lot of speculation about a potential upcoming market crash which people believe is due this year, I just wanted experienced traders opinions on this? Is it a good idea to wait it out till next year and see if the market does crash first? If I catch the crash I may be able to really capitalise from it so that's a thought.
If you have a big lump, as you say, diversify out some of that sum into dividend-paying stocks (but not all in one sector), stash some cash in an interest-bearing account like a money-market, and keep cash on hand to spend/live on/emergency.
Use the rest to trade with, and know it can all be lost. After all, look at any chart of any market crash. It ALWAYS recovers. Sometimes it recovers quick, sometimes it takes a while. It is the nature of the market.
Get a good financial advisor at this point.
It is kind of complex, yeah. It can be learned DIY fashion, though, but it takes considerable time and effort. Not for everybody. Literally. I think it is something like 80% of new traders fail or quit.
Learning about trading WILL MAKE YOU A BETTER INVESTOR. There are times to buy. There are times to sell. There are times to buy or sell one thing but not another thing. Learning how to interpret price and volume action will enable you to pick better entries and exits. Learning how an order is executed will ensure that you do not buy too high or sell too low. More buying and selling action as appropriate will increase your returns.
Most people think we are overdue for a bear market. Yet it keeps going up. It could turn around next week. It also could look like Pamplona for another three years. Who knows for sure? The thing is, it WILL recover. It always has, and it always will. On a big decline you could of course sell all stocks and stock based funds, and buy bonds, gold, commodities, etc or just hold the money (which is of course earning nothing and probably depreciating in real value as well), and then buy back into stocks when you think it has hit the bottom. You could increase your earnings, yeah. You could also screw up and make some bad calls. And if you just leave it, eventually it will recover and surpass the previous high.
If you sell all the stock you own, that isn't all you can sell. You can also sell stock that you do NOT own. This is called short selling. You sell now, and you buy it back when it is cheaper. You can of course also lose your ass short selling and it is nothing to try to do if you don't have a clue. There is a limit to how far down a stock can go. It can't go down past zero. There is no limit on how high it will go. If it goes higher and higher you eventually have to buy or your broker will simply take it from your account. You can end up with nothing, even owe money. You can also keep earning as much as you earn in a bull market. But you are almost guaranteed to fail without educating yourself.
Sure, you could invest in so called blue chips. Learning how to pick and when to enter and exit though, is kind of like trading. Do it well and you increase your returns. Do it poorly and you still earn if you hold the stocks long enough, but you earn a bit less. The less you are willing to learn, the better off you are with ETFs or regular mutual funds. Split it up. Go with a minimum of 5 different funds. Learn about them, try to avoid having all in one industry or using one investment strategy. Avoid the more leveraged funds or at least make them a small part of your portfolio. I think I mentioned TQQQ earlier as an example. Even with plain simple investment, the more you know, the better you will do.
Right now, my advice would be for you to buy a few ETFs and maybe a few tech, manufacturing, and consumer product/services stocks, maybe after consulting an advisor at your bank. Lean heavily toward the funds. The fund managers know all the stuff you should know when you pick your own stocks. Essentially when you buy a fund you are paying a presumably smart stock picker to pick your stocks for you. In the meanwhile, study. Learn. Be ready for the markets to go tits up. If you only see a bull market for a couple of weeks, you will have earned something. In a couple of years of bull market madness you will have earned a pretty fair amount. Sell if it looks like it is crashing or fixing to crash. Buy when it is as low as you think it will go, or when it starts to tick up with lots of volume. The more you learn, the better you can do this. If you want to play around with swing trading, have one highly leveraged fund, which will be much more volatile than most, in your portfolio. Sell when you think you should sell, buy when you think you should buy. Try to hold positions for days or weeks, not minutes or hours. If you find yourself making too many mistakes, put that bit of money back into more conservative buy and hold investments.
With a sensible investment strategy it is almost certain that in the long run your holdings will increase in value faster than inflation. This is true even if you hold everything while the market seems to be spiraling down out of control. It will come roaring back up eventually. Trading can increase your earning exponentially even during the "bad" times, but the risk is incredibly high. Especially if you don't know what you are doing.
I started trading a little over two months ago, after about 6 months of study. I read books. I looked at charts, and tried to figure out what was happening behind the scenes. I paper traded for a bit, then went live with a $10k account. Here in the US I am limited to three in/out trades every five days until I have over $25k in my account, so I also paper trade a bit, still. My paper account has made pretty good money. My live account is down to $9840 something. Not bad, compared to the average beginner. I will eventually be making money. It isn't easy but it can be done. I am no rocket scientist but I am considerably smarter than the average person and I am quite stubborn and determined. I have a very good understanding of risk management from many years of playing poker and other games of chance/skill. So I have a slight edge over the average newbie. If you have an edge, any edge, then you have a chance, if you really want it. Are you very careful and meticulous? Are you able to maintain several threads of thought at once? Can you concentrate on multiple chains of events? Are you good at disecting the news and putting events together into a picture of what a particular market segment will be doing? Are you severely motivated by a challenge? Can you act coldly without emotion while at the same time analyzing the emotions of hundreds of unseen traders? Are you quick to admit when you are wrong, and shift gears to capitalize on the newly revealed reality? There are a lot of traits that a person could have that would make him a good candidate for the 20% who can.
If you are very much the average Joe, then I have to tell you... average guys, trading, are LUNCH. Still, it pays to learn trading if you are investing.
For investing, what you could do is try a sim portfolio at first using a broker platform like ToS on TDA. See how it goes for six months or so. Here's an article with a few suggested portfolio allocations: ( www.npr.org/2015/10/17/436993646/three-investment-gurus-share-their-model-portfolios ). It could help to take an intro investing course at a community college, or read a book on it to have a general idea on it. A free book here: www.palmislandtraders.com/books/finance/introfinbook.html
As for trading, it'll probably be a world of hurt to get started and going. Unless you know someone close that really daystrades well to help teach or trade for you, but even that is extreme and risky. Most people bust their first live daytrading accounts, and many, several. For the average beginner with 50k, I would say be prepared or ok to part with at least 5% to 20% of it the first year or years with many doing far worse. But what you could do is use that parted funds more efficiently such as trading tools or platforms, trading books and learning material using maybe 1 to 2%, then rest of the 3% to 17% for starting successive small accounts as needed to learn to at least get to break-even on trading. Perhaps trade live a few times just to see how the real money is going through the platforms and see a few examples of real broker fees and leverage used. Then stick to sim for many more months until you work out your own edge and system to at least break even on sim and hopefully better. For examples of small account trading on futures , you could check out Big Mike's www.futures.io trading journals and just all around information. Of course be aware that most all those journals and members are still learning and there's little to no proven example of breakout or millionaire traders. But it could be helpful to see what others are doing on their trading aspiration journeys. Just don't buy into any vendor scam junk (see www.tradingschools.org for many reviews), be careful, and good luck.
As for trading, it'll probably be a world of hurt to get started and going. Unless you know someone close that really daystrades well to help teach or trade for you, but even that is extreme and risky. Most people bust their first live daytrading accounts, and many, several. For the average beginner with 50k, I would say be prepared or ok to part with at least 5% to 20% of it the first year or years with many doing far worse. But what you could do is use that parted funds more efficiently such as trading tools or platforms, trading books and learning material using maybe 1 to 2%, then rest of the 3% to 17% for starting successive small accounts as needed to learn to at least get to break-even on trading. Perhaps trade live a few times just to see how the real money is going through the platforms and see a few examples of real broker fees and leverage used. Then stick to sim for many more months until you work out your own edge and system to at least break even on sim and hopefully better. For examples of small account trading on futures , you could check out Big Mike's www.futures.io trading journals and just all around information. Of course be aware that most all those journals and members are still learning and there's little to no proven example of breakout or millionaire traders. But it could be helpful to see what others are doing on their trading aspiration journeys. Just don't buy into any vendor scam junk (see www.tradingschools.org for many reviews), be careful, and good luck.
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Man... 10 years ago, £50k could've gone so far, but in this day and age, it's not enough to get anything substantial (a house etc.). I will look into trading more, read books as you guys have mentioned while also trying to some sim trading to get a right idea/feel of the experience and see if I think I'm grasping it over the coming months.
I was considering going to a financial advisor actually, my worry was getting a bad one who loses me money and charges me for the luxury. It's really hard to know who's legit out here these days and I suppose even with experts there's still risk involved say they may just make a wrong call but once bitten, twice shy as the saying goes.
Thanks to everyone who took time to respond. Really appreciate all the help. If there's any other parting advice you would like to give, feel free to add it, but I don't want to overdo my questions so I'll leave it here for now. Hopefully I can make other threads as I'm learning and you guys won't get sick of me lol. Thanks guys
I was considering going to a financial advisor actually, my worry was getting a bad one who loses me money and charges me for the luxury. It's really hard to know who's legit out here these days and I suppose even with experts there's still risk involved say they may just make a wrong call but once bitten, twice shy as the saying goes.
Thanks to everyone who took time to respond. Really appreciate all the help. If there's any other parting advice you would like to give, feel free to add it, but I don't want to overdo my questions so I'll leave it here for now. Hopefully I can make other threads as I'm learning and you guys won't get sick of me lol. Thanks guys
I recommend you find a better strategy and test it on demo first to find consistency then go to trade with real money. the markets are not simple. I also recommend you to check out Bookmap, it's a powerful tool that even a new trader can work good with, and tou can learn a lot from it about price action.