Friday, March 31, 2006

Day one and counting

Day 1 - Friday
Total Account Value: $6040
Available Equity: $5436
Positions Opened: 2
Positions Closed: 0

After considerable delay in having my account opened, I was anxious to check out my new trading environment and kickstart my journey. Just between you and me, I wasn't completely truthful in my application. I knew that by divulging that I was self-employed with no current revenue, they'd boot my application straight into the "get stuffed" basket. It may seem like I'm taking a big risk here, but with no debts, no expenses (apart from phone and gym) and no dependents, I'm pretty well set. Also, a casual job is easily within reach.

Therefore, this is one of reasons why I won't mention my CFD Trader Provider in this blog. You'll see the other reasons further down this post!

Anyway, on to the trading...

I chose a list of 12 ASX300 stocks which I thought have shown clear, juicy, predictable trends, have good liquidity (many players in the market), and are not overly volatile. My strategy (as you'll see in later posts) will be based around short-term , 2-4 day trades. I don't really have the appetite for pure day trading, and at this stage of my education I think wins are more achievable with a slightly longer time frame.

I fiddle around in the software environment, setting up my watchlist and positioning my all important "positions" blotter, which will track my open orders in real time.

The first thing I notice is, the software is extremely ugly. There is red/cyan/yellow text on black in some areas and countless design shortcomings. Coming from a web/usability background, this makes me cringe. And when big money is at stake, dealing with such a thing is extremely undesirable.

I shelve my annoyances for the time being and watch my system clock tick ever so slowly to 10am. Four of my stocks are showing decent buy/sell signals. I just have to wait for confirmation before I put my money where my mouth is.

I must admit I felt nervous energy run through my body as my watchlist started lighting up with price changes, the market opening in a flurry. After a painful wait, Promina Group (PMN) opens as expected after hitting a significant point of resistance in the previous day's trading. It has been tested and rejected six times now and the Slow Stochastic indicator tells me it is oversold, the first time this has happened since the beginning of December.

I mentally place a stop loss one cent below yesterday's low ($5.37). Using this I calculate my trade size. I have already decided that the most I'm willing to lose on any one trade is $120. No buts. This rule will give discipline and prevent me from making a "knob" trade , which would send my balance into the red.

So $120 less $20 total commission equals $100 on the trade. Since this stop loss value is 9c below the current offer price, I calculate:

100 / 0.09 = 1111

Therefore I will trade 1111 units. This works out at not much more than $6000 total. But this is my first trade, so I'm not fussed. I pull the trigger and go long on PMN at $5.45.

I fastidiously set a stop loss at my pre-determined level, but sadly this process is not intuitive. I now see how the author of that book I mentioned in my previous post made many stop-loss related mistakes. This makes me even more annoyed with my CFD platform.

Soon, I go short on LLC (Lend Lease Corp) with a trade of similar size, because it has been stagnating for quite a while at a resistance level. When price action runs sideways for some time, the subsequent break-out will most usually be something you'd want to catch. I notice a signal and jump in.

As the day goes on, some of my stocks move toward potential entry points. I patiently set price alerts (sound and email notifications) and go on with some other work. Quite a bit later in the day, one of the prices hits an alert point.

Nothing happens.

I use the online chat facility with helpdesk and tell them what happened. Immediately, the representative blames it on daylight saving time. I just don't see the correlation. I questioned further and after a VERY long silence, the faceless person told me to turn my speakers up. I was then greeted by the words, "-@@@ has left the chat-". Bad bad bad! If this happens with an alert, what will become of me if the system "forgets" to execute one of my stop loss orders? Luckily, later in the day, one of my alerts was triggered, and I breathed a sigh of relief.

My open positions moved very little throughout the day, and I could see no other solid buying opportunities with my other 10 stocks.

Unlike in the diary which inspired me to start this, I finished ahead after day 1! Only $40 total, but a win nonetheless.

Off the mark

Hello and welcome to my CFD trading diary!

My name's Andy - a 22 year old Australian who grew tired of working for a heartless multinational consulting firm. I've quit my job to start up an online/consulting business with three other smart people. But then I realised, how the hell do I feed my bank account before our business kicks off the ground?


For those who don't know what they are, CFDs (Contracts for Difference) utilise that wonderful thing known as leverage, allowing you to profit from both bullish and bearish stock price movement. Read all about them here:

If I were to trade regular shares, I'd need a huge amount of capital to build up a diversified portfolio, which would still be very inflexible. Fair enough for the 50 year old corporate fatcats out there, but how does a 22 year old, recently graduated kid get that kind of dough?

I've started with just $6000 dollars in my trading account, with which I can make many concurrent short-term trades at only 5% margin requirement per trade. The challenge is to see how much money I can make trading Australian CFDs, whilst still keeping my risk levels relatively low. Apart from a smallish holding in BHP ($4000) and online savings ($8000), I have no other assets. Therefore, I have no intention of being a cowboy and blowing it all through stupidity...

Which brings me on to the inspiration for this diary - the diary of another. I picked up a book from Borders written by an Australian blonde woman who turned 13k into 30k in three months. The blurb sounded great, a professional CFD/technical analysis consultant taking a human journey toward wealth and enlightenment! But only three weeks into her journey, she'd flushed almost a third of her dough down the toilet. All due to a combination of undisciplined, poorly planned trading and emotional problems.

I found myself picking off all the stupid mistakes she had made that I thought I would never do. For instance, she only regularly traded a very small selection of stocks, and entered into positions when there was no clear signal. Impatience, blaze riskiness and superstition summed up her trading style. She did eventually improve (slightly), but it was a frustrating read. If this moron can do it I figured, then what am I waiting for! After reading the bit where she said men are bad traders because they have ego problems, I lost the plot and signed up for an account.

So here I am, $6000 in the bank, ready with a clear plan, a conservative approach and well aware of what can turn a good thing into serious loss.

Here goes...