July 1, 2009
Posted: 1043 GMT
LONDON, England - Today is the last day of school and it's when I get to place my first trade. Before that happens though I'm back in the classroom for perhaps the most important lesson of all - risk, money management and analysis.
Ryan O'Doherty, my tutor at CMC, explains the concept of risk-to-reward ratios. He explains in far greater detail than I can go into here that I should only ever commit a small portion of my capital to any trade and that I should be looking for a risk-to-reward ratio of 2 to 1. So, I should be willing to risk, for example, £50 ($82) if there is a reasonable chance of my profiting by £100.
How do I know that there is a reasonable chance of my doubling my money? Well that's where fundamental and technical analysis come in.
Fundamental analysis means finding out everything I can about the instrument I'd like to trade. If it's a share, for example, what shape is the company in? What does their latest company report say? What sector does it operate in and how are other companies in that sector performing? What is happening to the market in general? What in the news could be affecting the company or the wider share market in general?
Technical analysis involves studying the performance of a particular instrument over time by using graphical indicators such as moving averages and price oscillators. Study technical analysis long and hard enough and you can spot the best moments to buy and sell, Ryan explains.
Ryan asks me if there's a particular trade I'd like to place there and then. It just so happens that shares in Barclays Bank have tumbled on this particular day as a foreign investor has sold a large number of shares. I know that Richard Quest has bought Barclays shares on behalf of Quest Means Business and is following their movement over time on the program. It seems reasonable to suggest going long - that means that I expect the price to rise - on Barclays.
A few taps of the keyboard later and I'm in. My first trade is placed. I commit £50 from my pot of imaginary money, looking to make £100. I set a stop loss 50 points below the price at which I came in and that’s it.
The price of Barclays dips further throughout the day. My heart sinks as I watch the price ticking ever lower, though fortunately it gets nowhere near triggering my stop loss. I try to put it out of my mind and get on with the rest of our filming schedule, but I leave CMC later with a knot in my stomach and a sense of failure hanging over me. This wasn't the way I wanted the “classroom” part of my training to end.
* How does Adrian Finighan fare in his career as a rookie trader? Watch Quest Means Business Monday to Friday: 1800 GMT London, 2000 CET, 0300 HK.