there are a hundred answers to this and i bet i have not
thought of all of them but the simple one to start with is- what
suits your or my situation.
when i started learning to trade i had a very busy work life and
not much time for trading and the first course i bought was very
big on "getting to know the instrument you trade" as in how it
moved daily ,weekly, yearly. so i did and have since , so i am much
more comfortable knowing a couple of indexes well, than trading a
new stock every couple of days. i also concentrated on swing trades
that lasted a week or three and therefore took less time to manage.
i still do that but when i have time now can comfortably trade
indexes for just a day or two as well.
so to your specific question, yes an index may move slower than
stocks but i tend to look for longer trades anyway and no you do
not have to place a larger bet if you use instruments with leverage
as in futures or CFD's. you sure do not have to be right more
often.
when you say "bet" i assume you mean how much money you need in
your account to make a trade NOT how much we are
risking.
if i had $5000 in my account i could trade $10000 worth of stock
, if that stock moved 10% i make $1000.
with $5000 i can trade 1 mini s&p futures contract- it makes
me $50 for each 1 point the spx moves. to make $1000, spx needs to
move my way 20 points. a 20 point move in spx is around a 1.5% move
at present. so i need a 1.5% move in spx to make the same profit as
a 10% move in a stock.
another thing to take into account is that indexes are not as
volatile as, especially small stocks. once moving in a direction
they are more likely to continue, smoothly for longer. that is a
generalisation, but if you think about it it makes sense, they are
slower because they represent a collection of many stocks, and
because of that they do not jump around as quickly as some
individual stocks can.
Just keep in mind that instruments of leverage are a double
edged sword. When you put up $5,000, as you say, through one
of these instruments, you are in fact risking more than when I put
up $5,000 to buy shares in a stock. Here's why: We always
have to keep in mind we could be wrong and we may lose the trade.
So, if I put up $5,000 on a stock and the position moves
against me by 1.5%, I lose $75.00; but if you're wrong by 1.5%, you
LOSE $1,000. In effect, you are putting more at risk than I
am (risking $1,000 to make $1,000).
Your play offers greater leverage than mine, which is great if
your right (and yes, you do need to be right more often than I do).
My approach is different. Having been a professional
horseplayer, I see value in risking little to make a lot.
Stops help me do that since my downside is limited while my
upside is open-ended.
Anyway, best of luck trading whatever you're most comfortable
with.
now you have opened a can of worms!
Why the obsession with AAPL??
Posted by morgan8 on 17th of Nov 2012 at 08:30 am
there are a hundred answers to this and i bet i have not thought of all of them but the simple one to start with is- what suits your or my situation.
when i started learning to trade i had a very busy work life and not much time for trading and the first course i bought was very big on "getting to know the instrument you trade" as in how it moved daily ,weekly, yearly. so i did and have since , so i am much more comfortable knowing a couple of indexes well, than trading a new stock every couple of days. i also concentrated on swing trades that lasted a week or three and therefore took less time to manage. i still do that but when i have time now can comfortably trade indexes for just a day or two as well.
so to your specific question, yes an index may move slower than stocks but i tend to look for longer trades anyway and no you do not have to place a larger bet if you use instruments with leverage as in futures or CFD's. you sure do not have to be right more often.
when you say "bet" i assume you mean how much money you need in your account to make a trade NOT how much we are risking.
if i had $5000 in my account i could trade $10000 worth of stock , if that stock moved 10% i make $1000.
with $5000 i can trade 1 mini s&p futures contract- it makes me $50 for each 1 point the spx moves. to make $1000, spx needs to move my way 20 points. a 20 point move in spx is around a 1.5% move at present. so i need a 1.5% move in spx to make the same profit as a 10% move in a stock.
another thing to take into account is that indexes are not as volatile as, especially small stocks. once moving in a direction they are more likely to continue, smoothly for longer. that is a generalisation, but if you think about it it makes sense, they are slower because they represent a collection of many stocks, and because of that they do not jump around as quickly as some individual stocks can.
Thanks, Morgan. As you say,
Posted by RichieD on 17th of Nov 2012 at 10:36 am
to each his own.
Just keep in mind that instruments of leverage are a double edged sword. When you put up $5,000, as you say, through one of these instruments, you are in fact risking more than when I put up $5,000 to buy shares in a stock. Here's why: We always have to keep in mind we could be wrong and we may lose the trade. So, if I put up $5,000 on a stock and the position moves against me by 1.5%, I lose $75.00; but if you're wrong by 1.5%, you LOSE $1,000. In effect, you are putting more at risk than I am (risking $1,000 to make $1,000).
Your play offers greater leverage than mine, which is great if your right (and yes, you do need to be right more often than I do). My approach is different. Having been a professional horseplayer, I see value in risking little to make a lot. Stops help me do that since my downside is limited while my upside is open-ended.
Anyway, best of luck trading whatever you're most comfortable with.
all agreed richie
Posted by morgan8 on 17th of Nov 2012 at 11:52 am
answer is i will risk $200 to make $1000 but not 1:1, and will not risk 2.0% of account on a trade.
so how does the switch from horses to stocks work for you, is there some crossover?
aapl has become a good trading vehicle because --
Posted by roger on 17th of Nov 2012 at 10:35 am
1. Since its recent top, the volatility has increased, obviously, and that creates opportunities long and short.
2. Its large enough that it trades in somewhat predictable patterns instead of all squirrely.
3. large enough capitalization that even small intraday swings can net a nice profit using margin.
I find that 3 time frames are enough to swing trade it and only 2 for intra-day.
swing trading - 2hr//15min/1min, or 30,10,1
intraday trading - 5,1 works well
Just look for oversold / overbought in 3 or 2 time frames.