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Potential new financial system


Godders

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Hi all, For a while now, I've been interested in financial spread betting, and have been researching it for the last few years. I think I've now come up with a system that I'm happy to trial, and if there are no objections, I'd like to trial on here. I do fully appreciate that this is more a sports betting forum, so if people aren't happy to have a financial system on here, then I'll happily trail it privately. Reason I'd like to make it public at this stage is to A) provide some motivation to actually properly do the research, and B) look for other people's opinions given I'm still learning my way through the markets! What am I proposing? This is primarily a trend-following system. I will identify trends on weekly charts, and look for "value" entry and exit points on daily charts. This means that positions will be held for a number of days, but they will be opened in the direction of long-term trends (i.e. a Buy position if the weekly chart is showing an uptrend, a Sell position if showing a downtrend). Positions will be opened as I would if were spread betting for real. Any equity listed on the FTSE 100 is a potential candidate for trading. How will I measure success? I have a couple of proposals here. I would like to provide some form of yield calculation for direct comparison to other systems on here. However, I'm unsure which way to go... I could use Muppet77's yield calculation from his Total Corner Spreads thread (i.e. profit / (money won + abs(money lost)) (credit Muppet77)). Or, since I will be placing a stop-loss on every position I open, I will effectively have a set amount of risk on any one trade. I could, potentially, measure yield as Total profit/total maximum risk - I think this calculation is more in line with the yield calculation for fixed odds systems on here. Does anyone have any opinions on which way would be best? Money-management First off, I would like to point out that I have absolutely no investment experience, and that this will be a PAPER-TRAIL ONLY! I do not advocate putting any real money on my selections. The starting bank will be £3,500 (as this would likely be my starting bank if I decided to do this for real tomorrow), and the maximum downside risk will be 2% of the bank. How is downside risk calculated? Each trade will have a stop-loss set when the trade is placed. This is an automatic instruction to close the position if a set price is hit. The idea being that if the trade moves against you, you will only lose the difference between the current price and the stop-loss price multiplied by the stake per point. As an example, lets say I want to open a position in a share that's trading at 500 points, and I will place the stop-loss at 450 points. In theory, the maximum I can lose on this trade is (500 - 450) = 50 points. I want my maximum risk to be 2% of £3,500 (or £70), so I will BUY 500, at (£70/50) = £1.40 per point (in spread betting on UK Equities, 1 point = 1 pence. I find it easier to think in terms of points so I don't get confused between pence and pounds!) Overnight Financing It is almost 100% likely that I will have to leave my positions open overnight. This means they are liable for an overnight financing charge levied by the spread betting firm. The calculation is usually the total value of the position at the close of the markets, multiplied by the Base interest rate (set by the Bank of England) + 2%, then divided by 365 (i.e. to give the daily finance charge). As an example, lets say that I've opened my position as above, and at close of trading, the share has risen to 510 points (the current bast rate is 0.5%). The total value of the position is £1.40 per point * 510 points = £714. The annual financing charge will be £714 * 2.5% = £17.85. This means that my overnight financing charge on this position will be £17.85/365 = £0.05. This calculation is done on a daily basis and on all open positions, so when calculating yield, I will use profit/loss after all charges have been taken. I'm currently backtesting this over the last few years, but so far it's looking promising. Assuming that there are no objections to this, I plan to start on 4th Jan, when the markets open after the new year.

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Re: Potential new financial system Sounds interesting, I am keen to learn more about financial spread betting, so I will be following with interest. Do you plan on sharing the details of the system with us? or just proofing your bets? You may want to drop by muppets corner thread, we are discussing how best to calculate ROI for spread betting systems at the moment. Best of luck mate.

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