Are you going to share any details of your algorithm?
That is not to shabby! But yea it would be interesting if you could share with us your methodology. Perhaps give us a example or whatever else your comfortable sharing. The more we all share the more we can all learn from one another both what has worked and what hasnt.
thanks
I'm sure you'll understand that I can't really share any of the details of my strategy. However, I can tell you about the trading philosophy with which I operate.
RiskFirst of all, you must understand the different kinds of risks involved with trading:
Volatility risk Any volatility in a stock or fund will erode the potential return of that asset. The more volatile the asset, the greater this risk becomes.
Bankruptcy risk If you own stock in a company that files for bankruptcy, then you can lose all of the value of that asset.
Margin risk Margin is when you borrow funds from your broker in order to trade. If the asset that you bought using margin moves against you, then you can receive a margin call. This means that the broker (in an attempt to preserve the money it lent you) will require you to either sell some (or all) of the stock at the current price or bring in more capital to settle with them.
Market risk This is simply the risk that the market might go down when you want it to go up.
Liquidity risk This is the risk that your full order might not go through because there isnt enough activity (liquidity) currently for that asset. This risk increases if you are trying to process very large orders or trade an asset that is not traded very often. Limit orders can eliminate this risk.
ReturnThen understand ways to increase your return:
Reduce costs From commissions and other fees
Use leverage wisely Consider using leveraged ETFs instead of margin
Increase capital The more capital you have, the greater your gains will be.
Use trailing stops This type of market order is very helpful to try to minimize buying price and maximize selling price.
Reinvest Always reinvest your earnings and dividends to increase compounding.
Your Trading StrategyYou must also develop your own trading strategy. This is the tricky part. In order to be successful trading, you need to come up with a profitable strategy and stick with it. Usually this involves a good bit of trial and error. To keep the error part of this from impacting your wallet, it is a good idea to practice your strategy without risking real money. There are several ways to do this including paper trading or using a website that gives you a fake trading account.
Beware of books that tell you about a strategy that someone else used to get rich. These books are a way to make money on a strategy that has already been milked and is no longer profitable. So this is why I suggest that everyone search for their own method and not use a method that has been devised by someone else (for trading and speculation, not investing). When I was doing research before I started trading, I came across this advice and it was very frustrating because it seemed so vague and unpractical. But looking back now, I definitely think it helped me tremendously. This forces you to think creatively and actively try different strategies. So take in advice from all sources, but create your own method.
Beware of listening to other people's stock picks (especially with penny stocks). These are often pump and dump schemes. If you do take advice from blogs or articles, make sure they disclose their own positions.
Your Broker and CommissionsWhen finding a broker, you need to take into account their reliability, costs and ease of use. For me, the cost is the most important factor. Typical trading commissions can range from $20 per trade to $4.75 per trade (and possibly less). It is important to remember that the round-trip cost of a trade (buying and selling) will be twice this commission, so a $10 commission will cost $20 for a round-trip trade.
The commission price is also very important in determining how much capital you need to start trading. For example, if you have $500 in capital and have a broker that charges $10 in commission fees, the you will have to make $20 for each trade just to break even. That means you will have to make a profit of $20/$500*100%=4% just to break even. Gaining 4% on a trade is definitely doable, but this makes it very difficult to make a real profit.
Increasing your capital to $1,000 or changing brokers to one with a $5 commission will reduce this breakeven point to 2%, which is much easier to handle. Making both of these changes will reduce your breakeven point to 1%! I always recommend finding a low-cost broker and using at least $1,000 to increase your chances of success.
Don't Risk Your LivelihoodDon't trade using any money that you're not willing to lose completely! The more risk you take, the more relevant this becomes. Don't risk any money that is needed for bills, food, rent, your children's future, etc.
Buy Low and Sell High. This is very simple in theory, but difficult to implement in practice. Just remember that neither loses nor gains are realized until you sell. Sell when you've made a profit, otherwise you haven't actually made a profit. The buy determines a successful trade, the sell just locks it in.
Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1. - Warren BuffettDont Be ADDInstead of trying to pick the stock of the day, try to pick one asset to focus on. Learn how it operates and how it behaves in different market conditions.
Be PatientI call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. Warren BuffettDont Use MarginMargin increases your margin risk and your market risk. If the market drops you not only lose value, you also could be hit with a margin call. This will require you to either sell at a loss or add more capital that you may not have. If you need leverage, consider using leveraged ETFs instead.
Go Long/Dont Go ShortShorting stocks requires the use of margin which increase both your margin risk and your market risk. There are better ways to take advantages of bear markets. My advice is to just be patient and only go long, but if you do want to bet against the market, then look into inverse ETFs.
Dont Use Single Stocks/Use ETFsSingle stocks expose you to bankruptcy risk and increase your market risk. Single stocks are like climbing a rope with only one strand. If that strand breaks, then you fall. Consider using ETFs, which are a collection of stocks. If one company in the ETF goes under, its much less painful.
Use Trailing StopsTrailing stops are awesome! They can be used when buying to lock in a price while also following the stock if it moves down. They can also be used when selling to lock in a price while following the stock if it moves up.
Hopefully this helps!