03 Jul 2014 Learning to trade – our Wannabe iTrader gets ready…
Having recently won the Sanlam iTrade’s “Wannabe iTrader” competition on LinkedIn, I immediately started digging into the exciting and adrenaline-filled world of day trading. As I studied Investment Management at university, I am quite familiar with the technical terms, theories, hypotheses and jargon of investing and I’m also passively buying shares when I have a couple of bucks lying around. I might even go so far as branding myself the occasionally speculator, buying and keeping shares anything between 2 weeks to 2 years.
Day trading, however, is a whole new ballgame for me. Especially the fact that, as per the rules of the competition, I have to do at least 5 to 6 trades in the scope of one week, i.e. at least one trade per day on average. So it’s not simply a case of waiting for the market to present a trading signal or opportunity, but actively taking risk in order to complete the necessary amount of trades. I guess the key to success will be taking calculated risks instead of just throwing a dart at the stock pages hoping to hit the jackpot. And that’s where research and guidance comes in quite handy.
Some of the resources I’ve used thus far include JustOneLap, AutoChartist and Validea (for JustOneLap you need to register for free, AutoChartist and Validea are free for Sanlam iTrade users). Social media, especially Twitter, also offer a plethora of market news, trading ideas, opinions, analysis, etc. and it’s never too difficult to find a bull or a bear with regards to a particular share.
I’ve found Simon Brown’s 5 components of successful trading quite interesting (part of JustOneLap’s webinars), with some valuable guidance for a first time trader like myself. (For those not familiar, the 5 components are Goals, Discipline, Money Management, Resources, System). My goals are there, I believe (hope) that I have the necessary discipline (we’ll find out soon) and the resources are provided – so far so good!
I think that, i.t.o. the system, it will be a bit over-optimistic to have a “tried and tested” trading system ready within a couple of days (these take time) but that’s where AutoChartist comes in quite handy. The system basically provides you with trading ideas bases on technical analysis, pattern formation and other statistical measures.
The jury is still out on the ideal trade size (money management). With not a lot of money to trade with (R10,000), and as a general golden rule, I’ll need to limit the extent of possible losses, risking a maximum of 2% of my portfolio per trade (The “2% rule”). I’m currently looking into the impact of brokerage and trading fees and might adjust the percentage slightly higher/lower. It might also be more cost-effective to trade CFDs rather than actual shares. Apart from the ability to sell short, the gearing provided by CFDs will enable me to realise higher profit margins (with the downside of course being the possibility of higher losses too!).
I guess time will tell. For the time being, I’ll try to devise a system and strategy of some sort and try to keep up with the ever rising market, record share prices and Naspers-like movers. It doesn’t seem like the bulls are out of breath yet – let’s hope they keep on running next week!
Sanlam iTrade Wannabe iTrader