Trading

Is Trading For Me?

I believe absolutely anybody can trade shares and make money, but it's definitely not for everybody.

If you go into the markets with a lack of preparation expecting to make a fortune straight away, then you could be on your way to losing a lot of money. 

If you're able to do your homework, have patience, have the ability to think with a cool head, regardless of the situation, and learn from your mistakes then you have the main characteristics required to make a success of it. 

If you gamble a bit too much, think you might get too emotionally involved (i.e panic selling or buying if your share makes the slightest move up or down), then I doubt it's for you. 

Basically you need to be disciplined and as cold as an ice cube with your decision making.

Can I Afford It?

Well first of all, if you're thinking of investing anything less than £2,000, I'd perhaps wait and save a little more before you try internet share trading.

Whether you can afford it is down to you.

The best advice I can give is to stay in your job and invest some of your savings into shares.

Aim to make around 10 - 20% at first (so if you were investing £10,000 you'd be looking to make £1,000 to £2,000 each year). I built my money like this while working until I lost my job and decided to go full time.

My other piece of advice would be to start building several streams of income as well. Take a look at my Make Money page for the best ways to make money around your 9 to 5 job.

Several streams of income can really start to add up and you'll most likely find yourself making more than your current wage. 

Then comes that beautiful day when you can quit your job and start enjoying the work from home lifestyle.

Get Your Free "How To Select Shares" Guide Here.

How much could I make?

This again depends on the amount of money you invest.

If you look to aim for 10 - 20% on your investment you're doing very well.

So, £5,000 could become £6,000 and £20,000 could become £24,000. Much better than the measly interest banks are offering these days.

The trick is to allow your investment to build each year.

My aim is to turn £40,000 into over £1 million in 11 years (working off a 35% return each year). Go to my £1 Million Challenge page for more.

But if you invest £20,000 and manage to earn 20% each year then you'll be sitting on £123,830 in 10 years. This is a realistic goal.

If you become a real stock market whizz and managed to earn 50% each year then your £20,000 investment would be well over £1 million within 10 years! 

Not a bad return.

How Do I Trade Online?

Here's a list of things you need to get started:

An internet connection 

Which I'm guessing you have since you're reading this!

A stock broker 

I use the online stock broker Hargreaves Lansdown, who are excellent and have a great app for your phone to check share prices when you're out and about. An account is easy to set up and they charge from £5.95 to £11.95 commission per trade (depending on how frequently you trade). Find out more.

For spread betting (see below for more info on how this works) I like CMC Markets. Again, easy to set up and great apps. Find out more.

Access to real-time prices

You'll need to be able to get live prices on your computer and phone.

The best one for me is ADVFN. Here you can set up your own Monitor of shares you want to watch, see the latest news, latest buy and sell prices, live trades and a vast amount of interesting tools.

You can register for free. This will give you limited time access to the share prices you want to see, which is good if you just want to have a quick look at your holdings every so often.

If you want unlimited access then you can just upgrade to the Silver service, which is definitely worth it.


What Tools Are There To Help Me?

ADVFN has some great tools such as on it's "Toplists" page. Here you can see a whole range of things that are happening in the market. The one I'm usually drawn to is the Breakouts list, particularly the 52 week breakouts. This means the yearly price range a particular share has been moving up and down in has gone up above the price range and is usually a good indication of further moves upwards.

It also has Level 2, an extra service you can buy. This shows you the order book information for a particular share you're interested in or you may hold. 

The reason for using this service is to help you buy or sell at the right time, by using the system to see if there is more upside or downside to the share. This can save you a whole lot of money when trading.

It takes a while to get your head around it, but once you've got the hang of it, it can be invaluable.

I would recommend it for full timers.

Another fantastic tool is Stockopedia, which is absolutely superb. I really find this the best tool when doing my research.

It simplifies everything and gives ratings on stocks (based on quality, value and momentum), provides screens of stocks that pass the tests of the masters of share trading, allows you to create your own screens with your own checklist, provides chart signals for shares and has lots of training facilities for you to understand more and more about share trading.

Find out more on Stockopedia and their 14 day FREE trial.

Get Your Trading Head On

Always remember: Unemotional and logical is the best way to trade. Be like Dexter (without all the killing obviously!)

The market is very good at playing on the emotions of fear and greed. They love to get you selling your rising shares too quickly and hanging on to your losing shares too long.

When you win, someone else somewhere loses. When you lose, someone else somewhere wins.

It's psychological warfare and you'll either love it and enjoy the competition or hate it and go running for cover.

Don't Follow Others

Never buy a share just because Billy Imabigtrader tells you to buy something. (That's a fake name by the way - so please don't search for him).

By all means look into the share, check the company's financial health, value, growth prospects and if it looks good then decide on a good price to buy and wait for that price. if it doesn't reach your price and moves up, don't jump in thinking you've missed out. Just let it go and look for other shares.

The amount of "tips" I've seen from the so called "experts". Half go up and the other half go down. You don't hear much about their loser list, they just shout about their winners.

The best advice is decide on a check list of what you think makes a good company, wait for shares to qualify on your list and then look more closely at those shares. Look for the positives and negatives and weigh up if it's worth investing and at what price.

You can build checklists on screens at Stockopedia.

Spread betting

Simply, instead of investing in a company you can bet on a company's share price going up or down.

The bookmaker doesn't charge commission, but makes money from the spread between the buy and sell price.

The best things about spread betting are:

  1. It's tax free (as it's classed as gambling)
  2. You can bet on shares to go up or down (shorting - see below)
  3. You can bet on markets or commodities going up or down.
  4. You can trade with 10% of the actual share price cost.*

For example, this last benefit means you can actually trade a share that would normally cost you £1,000 to invest in for only £100. You could have the same exposure to the share, with only 10% of the cost. This is because you are placing a bet per point to rise or fall.

*Please be aware though. If the share price plummets and you haven't set any stop losses with the bookmaker, you could end up owing more than your original stake. Always be aware of what you could potentially lose.

Have a look here on CMC Markets for a much more in depth explanation.

Shorting

Spread betting allows you to go short. This is the opposite of investing in a share.

You now expect this share price to go down.

I'm not a big shorter myself, but when the markets start to tumble (and at some point they always do) instead of sitting back watching all the share prices plummet and waiting for the storm to abate, you might as well make a few quid.

In an up market, you can still make money shorting by looking for bad signs in a company (again the opposite of what you're doing buying shares). 

Profit warnings, high P/Es (price to earnings), Company's with high debt levels, trading statements with negative outlooks and suggesting challenging periods ahead. These are not all dead cert signs to send a share price down.

A good website to keep your eyes on is shorttracker.co.uk. This site lists the top shorted stocks in the UK by Fund managers. 

Have a look at one or two of the stocks and try to find out why the fund managers are shorting so heavily.

This is also handy to look at before picking up a share to buy. If it's in the top 10 on the list, maybe have a look at the company again. It's price could be forced down in the short term, so it may pay to hold off or even disregard altogether.

Could I Lose Money?

OH YES!!!

And at some point you will.

I have lost money quite a few times and I will again.

The trick is to try to make those losses as small as possible.

RULE TO REMEMBER - cut losses quickly and let your winners run.

You should consider setting a "stop loss" with your stockbroker each time you buy a share. This will instruct them to sell if your share goes down to the set price, stopping you from taking a huge loss.

Just make sure you give your share a bit of space to go down lower, as you're hardly ever going to buy at the lowest price. Consider each share and think to yourself what you're not prepared to lose from your investment and set your stop loss above this point.

If you don't like leaving it to someone else to "stop loss", then just make sure when you buy your shares you make a note of both your "take profits point" and "cut losses point".

Seriously, taking a few small losses, stops you wasting time on a losing share and keeps you grounded and fully alert when searching for your next investment.