I’ve finally begun paper trading. The process of testing and improving a trading system without putting any money down. I’m using Bullbearings to make virtual trades. It is the best UK fantasy game I can find. There is no shorting and no stops available which is a major downside. To get these I’ll need to sign up at a proper broker with a live-like trial area.
The FTSE did it’s best impression of a B52 with engine trouble last week. While I like this as it gives me an opportunity to buy quality cheap on the bounce I’m not sure what to conclude. These are more Warren Buffet like conditions. The system I am using partly relies on chart patterns and indicators which are not in evidence during an extreme and short fall. So I am without some of the main tools.
On Monday and Tuesday I made four virtual bets. I mainly used Candle Patterns and resistance bounces as these were all that was available in the extreme conditions. The Candle Patterns were a find. Especially the Morning Star which predicted big moves for Vedanta(VED) on the 31/7. I like the naming of these Japanese inventions……Dark Cloud Cover, Abandoned Baby, Three White Soldiers, Harami (pregnant)……very visual.
It was exciting to see Monday’s gains as the FTSE bounced back. I was very happy to see VED was the 5th best performer in the FTSE that day. It isn’t hard to pick winners when the whole market is bouncing but it’s nice to have picked one of the best. The power of the morning star!
I had made £340 from a £10,000 stake. Roughly 3%. Not bad for 1 day. Perhaps if it was real money I would have sold right then. But the time frame I’m looking at for investing is one to three weeks so I needed to hold to test my theories properly. After all the shares were in the mining sector and had strong upward trends prior to the FTSE flutters.
On Tuesday I set my alarm for 7am and put my laptop beside the bed. I slept through the alarm and was just logging in as the market opened. I quickly surveyed my watchlist and bought two more stocks. In retrospect this isn’t a disciplined approach. A bit blase. Crucially I didn’t check the market, sector or intraday feed when I bought! I bought too high as the intraday was dropping off rapidly and I wasn’t even aware of more FTSE jitters. Lesson learned.
By COP I was beginning to understand why trading is considered to be 80% psychology. Mondays gains had been wiped out and two of my picks were now in the top five losers on the BBC’s website! I felt doubt tugging at my ambitions.
On Tuesday I also built a spreadsheet with embedded formulas to help me identify trades where the maths & logic makes sense. Especially around Capital at Risk, number of shares to buy, Risk to Reward ratios, stop losses and exit points. This is so important. I backfilled it with my trades and saw I had made some mistakes, taken some unnecessary risks and gambled way too much on one trade and too little on another. All information that can be calculated prior to placing the order. I will use it from now on. This is effectively a trade log so I also added columns to describe the reasons I got in and will get out of the trade. Trade Logs are essential for reviewing and improving.
Now it is Wednesday and at 1pm and my stocks are sitting around £400 of profit. But now I’ve invested more this is only 1.3%. But none of my theoretical stops have been blown and I’m hoping these fluctuations will trend higher.
It’s an exciting rollercoaster so far. A good thing.
