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BRIEF INTRODUCTION TO STOCK MARKETS AND AUTOMATIC TRADING SYSTEMS FOR BEGGINERS

Brief introduction to stock markets and automatic trading systems for begginers

How to increase our capital?
Stock Markets and derivatives financial products advantages over other types of investment
Stock Markets and derivatives financial products disadvantages over other types of investment
Critera that can be follow to operate in Stock and financial markets
What is an Automatic Trading System?
What is the DrawDown?

Does an Automatic Trading System have better outcomes than an investor/trader?
Does an investor/trader have better outcomes than an Automatic Trading System?
Automatic Trading System advantages over an investor/trader
Automatic Trading System disadvantages over an investor/trader
Why vantages and disadvantages are exactly the same?
How much money to invest in Stock Markets?
Is there a minimum amount to invest in Stock Markets?
Can I make my living on Stock Markets?
How much money do I need to make make my living on it?
I have 10.000 Euros. Can I make my living on Stock Markets?
Why to invest following Automatic Trading System signals?
Why after reading all this I have the felling of not getting a clear answer?

 

Warning: If next is new or difficult to understand for you and even think you want to invest in Stock Markets, we suggest you to dedicate more than one year to its study and to all its derivatives products before making any deal with real money.

How to increase our capital?

If we have some cash, we have 2 ways to increase it, besides saving and working hard:

1.- We can lend a third person our saved capital with the aim of getting it back in a future date along with some interest. Examples of this would be lending money to a friend, making a deposit in a bank, buying a company or country debt. In this cases we are lending our money to a third with the goal of getting the money back plus some amount of interest.

2.-On the other hand, we can buy an asset (a painting, an apartment,...) with the aim/hope of being able to sale it later at a higher price.
Stock markets investment is in this category. When we invest in stock markets buying shares, in the currency markets buying other currencies, or in the commodities markets, through the different instruments avalibales (cash or derivatives), what we are doing is taking a position on an asset, with the hope of its revaluation, with the aim of selling it later at a higher price. Under our point of view, this is the hardest way to increase our capital (and the easiest way to lose it), but it also is the one who gives us more chances.
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Stock Markets and derivatives financial products advantages over other types of investment

We can highlight the following:
1.-There are many markets and assets on wich take a position (stocks, index, currencies, commodities).
2.- Markets are open almost everyday and some of them are open 24 hours a day.
3.- Bidiretionality. This is that it is possible to earn money either when prices rise (first we buy cheap to sell later on at a higher price) or when prices go down (first we sell with the hope of buying later on at a lower price), if we are in the right side. This is because in this markets we can sell something we do not have, with the obligation of buying it in a future date, so we sell something with the hope of buying it later at a lower price, getting a profit. This that can sound wierd (selling something we do not have), is not so weird if we think it twice: for example, if we go to an electronic shop to buy a TV, the seller can sell us the TV and order the TV to his supplier. So the seller is selling us something he doesn´t have yet, and taking the obligation to buy it to his supplier.
4.- Liquidity. Liquidity is the number of deals done by buyers and sellers in a market. In financial markets there are many agents buying and selling, so selling a stock is faster than selling a flat (there are probably more people ready to buy our stock rather than our apartment). In case we need to convert our investment into cash, asset liquidity is very important.
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Stock Markets and derivatives financial products disadvantages over other types of investment

We can highlight the following:
1.- The "high rate of mortality" of stok market investor, this is, most of people who invest in stock markets lose money in a long term basis, and the more he uses derivatives wich give leverage, the faster he losses.
Leverage is, basically, the capacity to percentually magnify the losses or the profits, with an amount of money.


2.- Another disadvantage is the adiction it can create. It can become in gambling addiction.
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Critera that can be follow to operate in Stock and financial markets

There are many criteria: some people invest with their fellings, with rumors, with moon calendar, following news, following advices of people supossedly instructed, following the directions of a IT programm, with Fibonacci numbers, etc, etc

And, wich is the best criteria between all of them?
The best is, no doubt, the one that makes us win money. If, for example, we have a monkey with us that show us in a newspaper which companies buy and which sell, and is right, for us is as valid as being friend of Warren Buffet. This is because the only thing we want to do in Stock markets is to win money. We do not pretend to be smarter than anyone..
It is worthless to guess right a 90% of times, if when we loss, we loss more money than the previous won.
If our goal is being smarter than anyone, we would take IQ test against hens, we would beat hens in many tests (well, at least that is what we thing...), but, would we make money?
And if our goal was to hit many time, we would go to a casino and bet black and red at the same time (we would hit many times, but would we make money?).
So, our only aim is to make money.

Usually, when an investor begins to invest in Stock markets, he/she starts buying and selling stocks. To select the companies, he/she normally follows the news on newspapers, advices of people that are supposed to be experts, or the evolution of the stock in last weeks. Then he/she will be more interested in technical analysis to identify the right moment to buy or sell, and maybe will be interested in macro analysis (general situation of the economy) or fundamental (company value and accountancy books). This will settle the kind of investor we are: technical, macro, or value.

Then, he/she will try to "boost" his/her success trading with derivatives, with more risky instruments that allows win and lose more in a shorter time.

When time goes on, we will realize that we are very influenced by our emotions, fellings and third opinions when trading, and some of us will want to take objective and automatic decisions. For doing so, we need to establish objective entry and exit rules to desing an "automatic trading system" and trade with it signals. This website is for this kind of people.
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What is an Automatic Trading System?

Basically, is a group of rules put together in an PC software, that, according to predertemined parameters obtained from stock markets, generates buying and selling signals, telling us when to buy or to sell a share. Automatic Trading Systems can even send to the markets orders by they own, following the preprogammed parameters
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What is the DrawDown?

Let´s imagine that we have a 10,000 EUR account ready to trade on a automatic trading system
It is worthless that our investment system makes us win 1 million in 1 year if, for instance, in March we are losing 3 millions. In March we would be "dead" (in financial terms). This is know as DrawDown
DrawDown is the loss our account is suffering from its last maximum.
Maximum DrawDown is the maximum loss that our account had have from a maximum.

Let´s see the following example:

Value of our account on Day 0 = 10,000
Value of our account on Day 1= 9,500
Value of our account on Day 2= 4,500
Value of our account on Day 3= -12,500
Value of our account on Day 4= 1,000
Value of our account on Day 5= 5,000
Value of our account on Day 6= 14,000
Value of our account on Day 7= 29,000

At first glance, we could congratulate ourselves due to our account raised from 10,000 to 29,000, however, we have lost 22,500 (from our initial 10,000 to -12,500 on day 3, so we lose 22,500), so we would be "dead". So, the 3rd day we would say goodbye to trade: Game over. Please insert coin (in others words: refund your account)

So, for us, the begining, the end and the middle of the movie is so important.
We don´t care that the handsome guy of the movie would have marry the girl at the end of the film if, in the begining (or close to the end, we don´t care), the guy dies.
Likewise, we can also see the importance of having capital enough to cope with the string of bad outcome
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Does an Automatic Trading System have better outcomes than an investor/trader?

No necessarily
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Does an investor/trader have better outcomes than an Automatic Trading System?

No necessarily
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Automatic Trading System advantages over an investor/trader

automatic trading system doesn´t have emotions
automatic trading system doesn´t suffer afiction of gambling
automatic trading system is disciplinated
automatic trading system doesn´t suffer stress
automatic trading system doesn´t have fear
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Automatic Trading System disadvantages over an investor/trade

automatic trading system doesn´t have emotions
automatic trading system doesn´t suffer afiction of gambling
automatic trading system is disciplinated
automatic trading system doesn´t suffer stress
automatic trading system doesn´t have fear
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Why vantages and disadvantages are exactly the same?

Vantages and disadvantages are the same because we do not know who would have earn more money and suffering less (having lower DrawDown). We do not know beforehand if being fearful or excited would be good for the final outcome and DrawDown.
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How much money to invest in Stock Markets?

Money invested in Stock Markets should be the money that is not needed (not spare money, because we think money never spares).

We think that never, and when we say never, we mean NEVER EVER should we ask for a loan to invest in stock and derivatives markets.
Another totally different thing is the margin that we get from our broker in order to be able to trade with leverage.

When saying "not needed money" we mean money we don´t need to eat, paying the rent or mortgage, paying children´s school, buying a car, etc.
So, we have money to our daily expenses, we have money for unforeseen expenses, and even though, we have some aditional savings.
But, if we have money for expenses, for unforeseen expenses and aditional moeny, our life is amazing and everything goes well,....aren´t we fine enough? why do we want to get in trouble and risking our money? Well, this question is to be answered by you
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Is there a minimum amount to invest in Stock Markets?

Yes, 1 cent. However no broker will open us an account with 1 cent; in fact fees will be higher than that solo cent
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Can I make my living on Stock Markets?

There is a lot of people making their living from Stock Markets, but few investors risking their own money can live of earnings from markets
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How much money do I need to make my living on it?

There is not a fixed amount. In fact, even though you invest 1 million EUR, it is possible that you are not capable of making your living on Stock Market. And it is possible that at the end of the year you had lost most part of your invested money. Obviously, it will depend on your outcomes.
It is like any job in wich you are paid for goals, not for worked hours.
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I have 10,000 Euros. Can I make my living on Stock Markets?

Probably not. Either you are a really lucky guy, or you sell products related with Stock Markets, but probably what you withdraw from Stock Markets won´t be enough to live. Bread and fish trick happened just once.
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Why to invest following Automatic Trading System signals?

We don´t see any reason to do so. We do not see either reason not to do so.

When people trust in an fund manager, they usually do it because of their past outcomes, because they think fund manager is a funny guy, because are attended by a good seller, because in the bank someone told them that the fund was really good, because the fund manager studied in the most expensives schools and is able to speak 5 languages and is paid a lot of money for doing his job, and we probably think that if he earns a lot of money he probably deserves it, etc.

When people trust in an automatic trading system, only pay attention to its past outcomes (automatic systems don´t speak languages, are not funny, etc)
However, in an automatic system past rentabilities does not assure futures rentabilities. And in the case of the fund manager, does anyone assure futures rentabilities?

In fact, part of money of some investment funds are assigned to be traded by automatic trading systems.
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Why after reading all this I have the felling of not getting a clear answer?

The reason is because there is not clear answer.
Stock Markets and finances are probably sectors in wich are the best and the best paid: matematicians, physics, lawyers, economists, IT, closers, etc, etc

However, despite being so many matematician, is the sector with higher uncertainty.
Despite being so many physics, there is not any immutable law to act according.
Despite being so many lawyer, nobody can say that what can be done today, will be possible to do tomorrow (sometimes, markets regulators don´t allow to take short positions).

It doesn´t exist any rule that tell us what to do depending the circumstances.

Stock Markets is a place where are the best, the best paid, and people like us. So, it is the most difficul place to make our living.

If all the above sound wierd to you, we suggest you not to invest in Stock Markets.

Would you do a brain surgery before getting some instruction? Maybe you would put a bandage. Well, Stock Market is something similar
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Dislcaimer: the information on this web does neither pretend to give any kind of buying or selling stock and/or derivatives recommendation, nor any kind of operative. The outcomes of its application are entirely responsibility of the persons who apply them, rejecting the webmaster any kind of possible responsibility because of them.
The outcomes here shown are based on past data, and past data does not indicate future outcomes.
Past rentabilities does not assure futures rentabilities.
This web only pretends to inform about the outcomes of the automatic syistems operated, and of its operations
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