Australian (ASX) Stock Market Forum

How to protect your capital

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Re: How to protect your capitol

hi everyone,

looking for some tips and tricks on protecting your capital.
To know what you are doing.

To then assume that even if you think you know what you're doing, that you could be wrong, and if wrong, there's still enough cash to keep going and learn from your mistakes [i.e. do not bet on how the market or your stock will move at what time]

Do not listen to people on forums :)
 
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Learn to use options. Collars are best way to protect your $ if you are worried about a crash. It's almost like an insurance policy for your portfolio.

Diversify into different assets- stocks, international bonds, gold, currencies and some real estate.

Consider dividend paying stocks as they tend to be less volatile.
 
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great responses thanks,

I currently trade options, I guess I was meaning to be more specific out my trading capitol.

I.e atm when i trade i only trade 20% of capitol on one trade. I exit any trade once i reach 20$ - 30 % profit,

and have a stop loss of 20 % .
 

IFocus

You are arguing with a Galah
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Bryan google trading risk to ruin using your numbers it wont be long depending on your win lose ratio.
 
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great responses thanks,

I currently trade options, I guess I was meaning to be more specific out my trading capitol.

I.e atm when i trade i only trade 20% of capitol on one trade. I exit any trade once i reach 20$ - 30 % profit,

and have a stop loss of 20 % .
You "only" trade 20% of your capital on a OPTIONS trade, that is enormous risk in my opinion, unless you were trading some deep in the money leap stock replacement. 20% loss on 20% of your capital is 4% of account per trade, that is if the loss doesn't gap through you which usually does with options. I hope you have very high win rate because losing streaks will wipe you out pretty easily.

Sounds to be you are undercapitalised to trade options to have to trade such a large position (probably ASX options - 1000 parcels & high brokerage I am guessing).
 
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You "only" trade 20% of your capital on a OPTIONS trade, that is enormous risk in my opinion, unless you were trading some deep in the money leap stock replacement. 20% loss on 20% of your capital is 4% of account per trade, that is if the loss doesn't gap through you which usually does with options. I hope you have very high win rate because losing streaks will wipe you out pretty easily.

Sounds to be you are undercapitalised to trade options to have to trade such a large position (probably ASX options - 1000 parcels & high brokerage I am guessing).

Currently paper trading with a account balance of 5k.

I am only trading Straight puts and Calls as Spread strategy will just destroy me with brokerage (however I am practicing those on the side)

I have a win to loss ration of 50 %. as follows l,W,l,W,W,L,W.

I have found that to trade with any less than 20% i basically break even due to brokerage.

I know the easiest answer for any one would be save your cash and start with a bigger trading balance.

Surely it must be possible (hard , tricky ) but definitely possible.
 
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Keep paper trading! :)

You are way undercapitalised!
how much did you start with Burglar ? If you don't mind me asking ?
having a large capitol is defiantly an advantage,
I may be undercapitalized, however that doesn't mean I wont make it not if i have a plan discipline and good capitol protection,

I am seeking advice on how to protect my trading capitol not to be told i will be stop out in 5 trades.
 
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...having a large capitol is defiantly an advantage,...
It certainly is!! Larger amounts of starting capital empower the trader to make much larger losses! (I speak from experience!)
I am seeking advice on how to protect my trading capitol not to be told i will be stop out in 5 trades.
When my friends ask my opinion on how to protect their trading capital, I usually opine that the best way to protect one's capital is to tuck it under the mattress and not trade it!!

For amounts too small for a real market, pairs (or spread) trading of synthetic products (where smaller position sizes are allowed) can sometimes prove to be an effective alternative.

As always, care needs to be taken in the selection of any FSP/broker. Many financial service providers have a well earnt reputation for nefarious practices. Any investor that chooses to depend too heavily upon the protections of ASIC does so at his/her financial peril!!!
 
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how much did you start with Burglar ? If you don't mind me asking ? ...
It is no secret,
I am easily the worst trader here!

I have had up to $30K in the market.
Over 14 years, I have irretrievably lost $18k.
I have been in the red three times.

But that has absolutely nothing to do with your reality.
 
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Paper trading is useful, but I think it gives a false sense of trading capabilities. It's easy to make money on virtual trading platforms, but you don't feel the emotional part of a trade when the money is not real.

It's ok to lose some money as long as that loss is manageable and you learn from those mistakes. Everyone loses money. I stick to simple option strategies- covered calls, collars and cash secured puts. I never get into naked option trades and have avoided trading on margin.


It will be tempting to use your broker's funds, but stay away from it. As you gain some experience, it is ok to get a margin account. I think the easiest way to lose $$ is by trading on margin.

Don't get too greedy. Mr. Market will kill you. I have lost too much money and I wish someone guided me when I started....
 
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Paper trading is useful, but I think it gives a false sense of trading capabilities. It's easy to make money on virtual trading platforms, but you don't feel the emotional part of a trade when the money is not real.

It's ok to lose some money as long as that loss is manageable and you learn from those mistakes. Everyone loses money. I stick to simple option strategies- covered calls, collars and cash secured puts. I never get into naked option trades and have avoided trading on margin.


It will be tempting to use your broker's funds, but stay away from it. As you gain some experience, it is ok to get a margin account. I think the easiest way to lose $$ is by trading on margin.

Don't get too greedy. Mr. Market will kill you. I have lost too much money and I wish someone guided me when I started....

Thanks guys,

I Have 5 k to begin with I'm using a trading platform with real time data. My brokerage fee is $45 and I will only trade straight Puts and Calls. I will not borrow money to trade at this point or for the foreseeable future.

I agree That paper trading does not allow me to train my emotions. But it does allow me to see if I can trade on a basic level.

My strategy is
trade puts and calls till i have 15k
introduce spread trading @ 15k ( i currently paper trade spreads as well separately.)
 
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...But it does allow me to see if I can trade on a basic level.
NO!!! It doesn't!

This is a popular misconception with newcomers to the market. There is often a chasm of difference between the theoretical and practical arenas of human endeavour - trading is certainly no exception!!!!

Paper trading can be useful for eliminating some of the more obvious duds from amongst one's trading strategy candidates, but beyond that, it will tell one precious little about one's capability as a trader!!!
 

ROE

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Keep paper trading! :)

You are way undercapitalised!
5K is too low, fee will eat up most of your profit.

I dont trade options, I use it to generate income only, so open but NEVER close...so I just pay one way ticket
fee and even then I think it is too much for my liking ..most of my options expire worthless ... > 90%

Just straight long and short stocks Minimum 25K parcel max 100K
 
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Thanks guys,

I Have 5 k to begin with I'm using a trading platform with real time data. My brokerage fee is $45 and I will only trade straight Puts and Calls. I will not borrow money to trade at this point or for the foreseeable future.

I agree That paper trading does not allow me to train my emotions. But it does allow me to see if I can trade on a basic level.

My strategy is
trade puts and calls till i have 15k
introduce spread trading @ 15k ( i currently paper trade spreads as well separately.)
Bryan - just do it. If you want to eventually trade successfully then you have to start. Just like anything in life. Just do it. The best lessons are not the ones that you learn second hand but the ones you experience yourself. $5000 is not a lot of money at all, but that means it won't hurt if you do lose it all. Keep learning as you trade and record your hits and misses and review them. And keep your mind open for new trading tactics etc.
Good luck. Trading can be very rewarding but only if you keep at it.
 
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... I may be undercapitalized, however that doesn't mean I wont make it not if i have a plan discipline and good capitol protection,

I am seeking advice on how to protect my trading capitol not to be told i will be stop out in 5 trades.
I've been around the block, read a post or two.


1 in 10 get there (wherever that is).
Of those, 1 in 10 stay there.

Some get there twice.
Some never give up trying.

"Winners are losers that never gave up."!

I'll write whatever you want to hear.
Though I prefer truth to fairy tales.
 
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Thanks guys,

I Have 5 k to begin with I'm using a trading platform with real time data. My brokerage fee is $45 and I will only trade straight Puts and Calls. I will not borrow money to trade at this point or for the foreseeable future.

I agree That paper trading does not allow me to train my emotions. But it does allow me to see if I can trade on a basic level.

My strategy is
trade puts and calls till i have 15k
introduce spread trading @ 15k ( i currently paper trade spreads as well separately.)
5k to 15k from profits or from other income ? If you can triple your money trading calls and puts don't bother introducing spreads - don't make it more complicated if its tripling your money.
 
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5k to 15k from profits or from other income ? If you can triple your money trading calls and puts don't bother introducing spreads - don't make it more complicated if its tripling your money.
I can triple my money by keeping it in the bank at 3% p.a. if I'm willing to wait more than 30 years!
 
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starting out by doing long option strategies will probably be very unforgiving. getting just the direction right is not enough. you have to get the magnitude of the move and the timing right as well. it's hard enough getting just the direction right as it is. if it doesn't move as much as you were expecting or as soon as you were expecting, your return could end up being -100% on the trade, even if you do get the direction right.

when i started out trading options i mainly did covered calls and cash secured puts, so IMHO those are a less harsh (but by no means gentle!) introduction to trading options. it lets you think things out beforehand, perhaps deciding ok i would sell my stock if it reaches this level, so i will sell covered calls here, or i think this stock is well supported at this level and i would be fine to buy here, i will sell puts at that strike.

i found those strategies much easier to deal with from an emotional point of view, at least when starting out. even if the stock price moved beyond the "point of regret" at expiry, i would just rationalise it and think well without the benefit of hindsight i was planning to sell the stock at this level anyway, at least with the covered call i collected some premium. although you'll surely need more than 5k trading capital to short options.

but if you really want to start out trading long options with 5k capital, the very first thing you should do is get yourself a decent broker. $45 brokerage will kill you - that's almost 1% of your capital eaten up per trade, and that's before you've even crossed the spread! if it's ASX options you're looking at, trust me - you cannot assume they will give you the mid every time. if the MM really isn't interested in dealing that particular contract, he will not fill you until you go all the way across the spread.

plus, you will have to pay that brokerage again (and cross a second spread, probably a much wider one) on your winning trades, because if your long call is ITM at expiry, you won't have the capital to take delivery, so to realise your profit you'll probably have to shove in a sell to close order at expiry. brokers have been known to simply abandon clients' ITM call options at expiry if they do not have sufficient cash to take delivery of the stock. and when it comes to ITM puts - without margin they probably won't let you take on a short stock position at all. those obstacles are not impossible to overcome, but i would say they will probably make your trading life very, very difficult.
 
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