Trading serious numbers - part 2

In March of this year I wrote a post about a blog that I'd come across called Barefoot Spread Betting detailing Oliver Tomahawk's attempt to double his money. Well, he did a lot better than that going from £30,000 to £105,000 in about seven months. After a quite period away from the summer doldrums in the market he's back, making a significant return to the market opening 18 trades and having £67,359.89 in the market from today. So far he seems to be doing alright judging by his Twitter feed.

His blog can be found below, where all his trades can be found, listed as and when they are made. He's not trying to sell a service, just putting serious money on the line, so for anyone who is serious about trading and serious about trading real numbers, it's well worth following.

http://barefootspreadbetting.blogspot.co.uk/

The QE conundrum, when will it end? Not anytime soon.

Current market sentiment has in part turned negative because of an interpretation of the last US Fed statement that seemed to suggest that QE would be tapered down at some stage in the months to come. Bernanke's statement was actually somewhat vague and didn't really say anything that should come as a surprise to the market.

From May 22;

...markets have focused on one thing he said in the Q&A session where he was asked directly whether the Fed could make a decision to wind down its bond-buying program before Labor Day. Bernanke’s response that the Fed could change course “in the next few [FOMC] meetings” depending on prevailing economic data caught markets a bit off-guard, and seemingly leaves a door open for some Fed tapering sooner than Bernanke’s prepared testimony would have indicated.

http://blogs.barrons.com/incomeinvesting/2013/05/22/bernanke-doesnt-rule-out-fed-taper-in-the-next-few-months/

Since then the markets have been falling fairly steadily, even on a Tuesday where after 20 consecutive up days, yesterday was negative in the US. So far there hasn't been that much damage to US markets by Bernanke's comments and in one sense, why would there be? The key words from the Fed are likely to be "depending on prevailing economic data", which is basically saying the same thing as before.

At some stage markets are going to have to find a way of doing business without QE, but until that happens, sell offs like the one in the last week or so are arguably not happening because of the fear of QE ending, that is merely the excuse. Surely those in the market know better than that?

If and when QE does end the most likely option taken by the Fed and other Central Banks will be a gradual winding down if and when economic recovery is supposedly under way and not until then. It is this balancing act that will probably be difficult to time because who really knows when that will be. Chances are the Central Banks don't know, but having started the game of QE they are the ones that have to live with it.

Interesting that markets are down a little today in part because US job numbers came in lower than expected.

U.S. stocks declined on Wednesday, extending losses into a second day, as data found U.S. private-sector job growth and productivity below expectations. 

“More attention is being brought to the economic data, so everyone can play Nostradamus and guess what the Fed’s next move will be,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, said of ongoing guessing as to when the Federal Reserve would begin tapering its $85 billion in monthly bond purchases.

http://www.marketwatch.com/story/us-stocks-extend-drop-into-second-day-2013-06-05

But hold on, surely the next move by the Fed after relatively weak numbers like this is fairly predictable? Chances are there will be no tapering and no change while the data is as up and down, some good, some bad, as it seems to be and you don't need to be Nostradamus to see that.

It's Tuesday, so the market must be up.

Well, it's the day after the bank holiday and following up a jittery end to last week, the market seems to remember that it's Tuesday and that means it's time to go up. Never as simple as that but the Dow is going for 20 in a row on Tuesday and today's action so far has been pretty strong considering that the end of last week suggested that volatility and uncertainty was back. Maybe it is, but for now it's still super Tuesday time.

Super Tuesday.

http://sevenpillarstrading.blogspot.co.uk/2013/05/super-tuesday.html

The Bernanke sell off, some sanity returns?

Yesterday was one of those strange market days. The big speech of the day came from Fed Chairman Ben Bernanke and at first the US markets rose as it all seemed quite tame with little sign that the Fed induced intervention was likely to stop. The market has been living off this form of money steroids for some time and like a drug, once on them it is difficult to withdraw. So, at the first hint that the Fed may be winding down its activities the market got a bad case of withdrawal symptoms and things seemed like the old volatile times before the most recent bull run. Down they went.

Talking of bull runs, the Japanese market has been going great guns since the start of the new year, but yesterday gave it an excuse to sell off with traders banking profits on the back of some not so well received news from China and Bernanke's speech. Around 7% or 1000 points in a day, which after the most recent run doesn't look too bad accept that it is almost approaching crash territory, without anyone saying the word crash. Banking profits sounds better and at least it doesn't feel like a crash, at least until we see what follows.

Futures suggest another down day today in the US and the UK looks to have its first minus 100+ start to the day for some time. The fact is that this was needed to remove some of the froth that has been building in the market for some time. It's healthy that markets do occasionally fall during a bull run. Whether the psychology behind the bull run has been damaged only time will tell. Sooner or later equity markets have to stand on their own two feet without the assistance of Central Banks pumping money their way. We need to wait to see if and when this dip is bought or if this is the start of something else more challenging for markets.

Update;

FTSE100 currently off around 135 points.

ADVFN market report states the obvious which markets seem to have been ignoring for some time.

However, when faced with questions from politicians, the Fed chief did hint that a tapering of QE measures could happen “in the next few meetings” if the Fed sees a sustained improvement in the economy.

Simon Smith, the Chief Economist at FxPro said this morning: "The message is markets have to remind themselves that in many ways they are living on borrowed time and the Fed is doing their level best to prepare them for the fact that they cannot continue to buy $85bn of assets a month for ever. We could well be headed for a much more volatile summer."

Bernanke's comments saw the FTSE 100 lose as much as 1.7% in early morning trade, following similar falls for benchmarks on Wall Street overnight. Meanwhile in Asia, markets suffered much steeper losses overnight - with Japan's Nikkei diving a whopping 7.3% - as traders reacted to remarks from the Fed Chairman as well as some gloomy economic data from China.

Super Tuesday

What is it about Tuesday that investors and traders seem to like? 

In the US the Dow seems to enjoy Tuesday.

CAN’T wait any longer for that pullback? Just buy on a Tuesday – for the last 18 Tuesdays, the Dow Jones Industrial Average has risen every time. The winning streak began on January 15th, with the Dow since rising by more than 1,700 points. Over 1,400 of those – more than 80 per cent – have been added on Tuesdays, Bespoke Investment Group notes.

Such a winning run is unheard of over the last century, breaking the previous record (15) set back in the 1920s.

The following stat shows that the UK has its own Tuesday moments.

In the UK, Tuesdays have been bullish for some time, says the UK Stock Market Almanac. Since 2000, when the market has fallen on a Monday, the following day’s returns have been five times greater than average.

http://www.irishtimes.com/business/personal-finance/stocktake-rising-risk-of-melt-up-in-five-year-us-bull-market-1.1400770

So far today the US is just hanging on to a gain that will make it 19 in a row.

But there is also some history here.

Tuesdays are up a cumulative 77% since 2003. A distance second, Thursday sessions are up a 10.1%. And forget about Monday and Fridays: They’re down 1.3% and 2.3%, respectively.

This string is a bit less random if viewed through this longer-term lens, but good luck getting someone to explain it — adequately. The Stock Trader’s Almanac gives it a shot by saying that “traders have not been inclined to stay long over the weekend, nor buy up equities at the outset of the week.”

http://blogs.marketwatch.com/thetell/2013/05/21/goodbye-bullish-tuesdays-not-quite-as-market-sets-sights-on-19-straight/

So, making the most of Tuesday would have been a good trading strategy for some time, but will that continue now the cat is out of the bag and we now know? Probably, as in time most will forget and just carry on as before. That means that over time Tuesday will probably continue to be the day to trade, although it may have more meaning for shorter term day or swing traders than those with a longer view.

Quindell Portfolio, Bulletin Boards on fire, shares continue to fall.

The sorry case of the falling share price of Quindell Portfolio continues to heat up debate on various investment bulletin boards around the web. I spent a little time yesterday reading the comments on a couple of boards, it was almost a running commentary as the share price continued to fall, ending the day a little under 6p, just about half its price of 3 days ago as bulls and bears of the stock slugged it out.

What came across however, was the almost despair of those that were invested in the stock or who had topped up as the price fell. They were catching the proverbial falling knife on a regular basis, only to see it go down further as more sellers came in.

A company RNS was issued on Thursday night regarding the 30%+ fall that happened on that day. it was meant to put a line under events - it didn't.

The Company is aware of recent press speculation regarding the equity swap and an active short position in relation to the Company's ordinary shares. In light of this, the Board wishes to clarify that further to its recently reported record results, the Company has a strong balance sheet and continues to trade profitably with significant traction in the insurance sector.

The Company knows of no valid reason for the recent share price decline. Furthermore, the equity swap asset, which has also been subject to speculation, accounts for a small part of the Group receivables and is not a material contract in relation to the size of the Group.  This was issued as part of the funding for the acquisition of Accident Advice Helpline, announced on 3 December 2012 and was deemed to be the least dilutive funding mechanism at this time. It is not currently being exercised, and the Company believes that the counterparty will continue to not make any material transactions in respect of the Company's ordinary shares unless the share price is at substantially higher levels.

http://www.digitallook.com/news/rns/20886456-2564291/QPP-Clarification_regarding_press_speculation_html

What type of trader/investor are you?

It's fair to say that there are many different ways of trading and investing in the markets. Often, stereotypical images emerge to describe a trader, usually someone who is a day trader or very active. This is perhaps why trading is often seen as gambling as focus is placed on short term, fast gains, but it is often overlooked that there are many different ways to trade, over different time frames and using different methods of trading, it's up to each individual to find what works best for them.

Another false image that often emerges, especially between traders and investors themselves, is the idea that you are either a fundamentalist or a technical trader. True, many do simply concentrate on one as against the other. Chartists will tell you that all you need to know about a share is already in the charts, while fundamentalists will focus on things like value, growth, valuation momentum, etc. There is a tendency that never the twain shall meet and often one side will attack the other, Chartists are seen as the equivalent of tea leaf readers, while fundamentalists, because they might never look at a chart may often just buy because they think something is cheap on valuation, although the charts might show them that the company is in a nasty downtrend, if only they would bother to look.

As a trader/investor I've often wondered where I fit in all this as the system that I've developed tends to mix both fundamental and technical analysis. For example, I won't buy a share unless certain tick boxes are ticked when it comes to fundamentals. Occasionally, especially with "blue sky" growth opportunities, I will take a punt on the technology winning through, but even here I try to avoid one trick pony companies who basically will go bust if their one trick doesn't pay off.

Trading serious numbers

There is an old saying that you have to speculate to accumulate and in the game of trading if you are ever going to make serious money then ultimately you have to be prepared to risk serious money.

It might be possible, actually desirable, especially if you are new to trading or a day trader placing hundreds of trades a week that the amounts you are trading are relatively small. After all, if you are spread betting the FTSE100 and placing 10 trades a day, a few pounds a point can return you a decent amount if you are actually good at it.

However, if you are trading more long term and placing fewer trades in the process, then ultimately the chances are that a pound or two a point isn't going to return you big money. Yes, it can still be very profitable, but to make the big money, sooner or later the chances are that bigger stakes will have to be used.

Trading bigger amounts does require a psychological requirement that you do not fear doing this. Trading and investing probably has the same psychological effect on us as other things in life. If our experience is bad it effects us to the negative and warns us off next time. If our experience is good, the effect on our future actions is more positive. In trading terms this negative and positive reaction to prior events will play out in how we act in the future.

Which brings me to a couple of stories that I came across this week.  The first is a trade placed by the Naked Trader Robbie Burns, which chances are many of us would not have made. I mentioned in this post on Greencore Group how the share price had been affected by the horse meat scandal, at one stage falling nearly 30% in the day. I also mentioned that Burns had indicated on his site that if the company fell into the 80p region he would buy it big time. At that stage the horse meat scandal news had not hit the company, the following day it fell to below 80p on that news.

If you want to know the full story of what happened next, then I suggest you download the latest addition of Spreadbet Magazine (it's free - link here along with other free online trading magazines). Needless to say, the Naked Trader did buy big time and in the article he talks about how he made so far around £10,000 (on paper) on the bounce that came from what was essentially a falling knife of sorts. Accept that in his mind it wasn't really and he gives the reasons in the article.

Of course, to make that much money in such a short space of time requires the type of stakes that most spread bettors would probably shy away from. It requires a willingness to take on a level of risk which many probably couldn't handle, but in the case of the Naked Trader we are talking about someone who has already made a large amount of money from trading shares. As his returns got bigger he has clearly increased his stakes.

Which brings me to the second story which can be followed in this blog, Barefoot Spread Betting. Again serious amounts are being staked in the experiment and thus far serious returns being made.

Now, such stories should always come with a financial health warning. Anyone starting out in trading or investing should start with amounts that you feel comfortable handling. There is nothing wrong in starting small and building up, in fact in 99.9% of cases it is probably advisable. Trading and investing is a confidence game, which will often only come with experience and time. Trading big amounts is not advisable for those without the experience to take on that risk. It is great to read about those having success, but the trading game is also full of those that have lost big and it's not something we should forget.

Trading or gambling? The risk addicts.

Pretty good article in the Financial Times this weekend about trading and gambling that is well worth a read.

http://www.ft.com/cms/s/2/788c1930-6b3a-11e2-9670-00144feab49a.html

Investors still lacking market confidence?

As we head towards 2013 with the FTSE approaching another attempt on 6000 and US politicians still talking over their fiscal cliff, it shows how much a confidence game investing and trading in shares is that a recent report suggests that investors still haven't totally bought into the recovery in markets since 2009 regardless of how strong it may look.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. “There’s just so much evidence of this recovery broadening.” 

http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html

What applies to the US could equally apply to the UK. The FTSE may be knocking on the door of 6000, but that is still some way off the 6750 or so back in 2007 and a long way off the almost magical 7000 mark back in 1999. So, it has been a tough 12 years or so for UK shares and tougher to make money when there are so many bigger issue economic matters that always seem to put a stop on the possibility of markets going higher, they seem to be in a constant state of trying to get back to where they once were mode.

The fact is, and the internet, forum and blog comment is often a good guide to this, many people will have missed this bounce since 2009 because they probably thought worse was to come, the financial and economic world was at an end, never ending crisis to follow. Plenty of evidence shows how poor shares have been as an investment in recent times in the UK.

Some observations on choosing a time frame to trade

This is a follow up to the post what time frame are you trading/investing in.

Choosing a time frame to trade that fits your personality and psychological makeup is one of the most important steps to make if success is to be achieved in the trading game. Some people like action, fast moving markets and volatility while others prefer a more slower, cautious approach. It's difficult to be able to do both and can be a nightmare if you get involved in a type of trading that you are simply not suited to, so it's better to find out as early as possible what time frame of trading you feel comfortable with. However, each time frame that can be traded throws up its own questions, so based on my own experience I thought I would post a few observations.

First, short term trading. I found very quickly that this did not suit me. To be a good short term trader, day trading where you may be using the tick,1, 3 or 5 minute chart, you have to be able to handle volatility and market noise. Many of the market moves over the very short term time frames are noise, with many potentially false signals, not only do you have to be able to trade quick, but also get rid of potential losing trades quickly. On shorter time frames potential big moves while they do happen tend to be rare. While it's certainly possible for those with the right psychological makeup to make decent money on perhaps just 5-10 winning points a day, no one should kid you that it's easy. If you like action then this time frame may be for you, but by and large, at least according to many reports, most traders, especially spread bettors who choose this "action" type day trading tend to lose.

Buy high, sell higher, the hardest way to invest or trade?

I came across an interesting article today which tells us a lot about our own psychology when it comes to investing or trading. Although the article itself is not about investor or trader psychology, it suggests that the way our mind works isn't always in our best interest when it comes to the investments we make. We like to buy cheap, we like to buy something undervalued and often we are tempted to catch falling knives. In short, we think that cheap is the way to go and look for strategies that fill that desire. Of course, it can work, value investing has its place. Finding undervalued, unloved sectors or companies can pay big dividends if you are prepared to wait, sometimes many years, while avoiding the dreaded value "traps" that the market lays for us.

However, there is another way, but it is a way that most investors and traders almost intuitively try to avoid, buy high and sell higher.

No one likes to buy things that are expensive, that look overpriced, that keep going up and up, sometimes with no logic to it, accept they are going up.

Here are some quotes from the article;

I want to share with you an incredibly simple strategy today... one that has consistently crushed the markets.