Hi

When using pull backs to enter trades, is the pull back defined as the closing prices are lower/higher than each of the previous days or should I be looking for price highs/lows to be higher/lower than previous.

Also, if for example I was looking to go long if a stock goes above 100p, what would you enter into your spread betting platform. Would you adjust the entry price taking into account the spread of the spread betting company of stick to the price of the instrument?

Thanks for your help and please excuse my beginners questions

Mark

Hi Mark,

I hope I can help with your second point.

Personally, I wait until the underlying mid price has risen above 100p. I then set a limit order to buy at 100p. This means that I buy at the price I want to and effectively eliminate the cost of the spread. Alternatively, I set an alarm to alert me when the underlying price has fallen below 100p and then enter using a market order. Occasionally this allows me to get a much better entry price.

The disadvantage with these methods is that you need a slight pullback in price otherwise you will miss the trade. Personally, I am quite happy to just wait for another trade and don't feel at all frustrated if a trade I've missed starts going in the right direction. I prefer to be patient because I believe that the spreads in spread betting erode a significant percentage of your profits if you are looking to capture small gains.

Peter

Dear Peter
though I recognise the psychological reasoning here, that's all it is, isn't it? Psychological.
Afterall, when you pay 100p the underlying is actually at 95.
And if you had just "paid" the spread and not miss out on a trade it would go on to make money and average out exactly the same as with your way, wouldn't it?
What I am trying to say is that there is no way to escape paying the spread in reality is there?
Or am I missing a point here?

Best regards

Isee

Malcolm has been very kind in answering my questions in this area in great detail in the member's forum (see 'TDS qn re spread adjustments' and 'TDS qn re entry adjustments'.

Suppose your system triggers when the underlying price rises one tick above yesterday's high. You have thoroughly backtested your system and know that if you set your stop loss one ATR away from this entry point and shoot for twice your risk, then the 'theoretical' expectancy is of the system is 0.3 (i.e. forgetting spreads).

I believe that if you use the method outlined in my original answer to enter the trade you will find that your actual expectancy (return per pound risked) will be closer to 0.3 than if you buy at the spread betting firm's higher buy price.

I fully appreciate what you mean when you say that you cannot escape the spread. Nonetheless, I think that my (Malcolm's!) entry method balances the probability of success in your favour. So, in that sense, it isn't just psychological.

To put it another way, it's better to buy something at a cheaper price!

Peter

There are always trade offs it would seem. Peter has summed up one approach which I have described in the members forum. Wait for the trigger to be hit then use a limit order to enter, effectively by passing the spread betting firms spread on the entry, and also avoiding being put into a trade when the underlying doesnt get to the trigger point (which is the obvious danger of using a stop order). I like this approach a lot.

There is a trade off however, which is exactly as Peter has described, you run the risk of never getting filled on the trade. Using this approach you have to condition your thinking not to get upset about missing the trade, which means in turn dealing with what Mark Douglas describes as one of the four main error inducing fears in trading: the fear of being wrong, the fear of losing money, the fear of leaving money on the table, the fear of missing out.