Spreadbet Mag v18 Generic

July 2013 | www.spreadbetmagazine.com | 63

Top 3 oil picks for 2013Peak Gold Myth or Fact?

They would need to actually have enough gold reserves before expanding their domestic money supply otherwise people would perceive gold as more valuable than the official rate seemed toindicate and no prizes for guessing how they would act yes, a rational person would exchange his currency for gold anticipating a rise in itsvalue. This would effectively led to a reduction of the money supply and thus frustrate the initialattempt to expand it. The gold standard enforced a prudent tight monetary policy and so soundmoney.

But, say Mr Bernanke and his ilk, why spend $20 when we could spend $20,000 by printing money? Thats right! The cost of printing money is relatively low and by putting the printers at work we canfinance wars, the welfare state and become really rich! If only it were that simple...

In recent years they have gone one step further and central banks have played a complicit game of helping the government raise money through the issuance (in the USs case) of treasury bills and the central bank then buys them with freshly minted notes to keep yields acceptably low. That is a great plan! Until the chickens come home to roost,usually in the form of late stage inflation.

During the American Civil War and World War I, the US government put the full convertibility between the dollar and gold on pause in order to be able to print money to finance the war bill.

In 1971, the standard was finally abandoned and off course; this came at a cost - inflation. Inflation that took around 10 years to really ravage the USeconomy and that required Paul Volcker to jack up interest rates aggressively to tame it. Something that those investors prepared to receive 2% on US bond yields presently should reflect back on and dust off their economic history books.

Whilst the US inflation rate averaged 1.36% during the gold standard era, it has since averaged 4.36% during the period from 1971 until today. It doesnt sound much of a difference, but whencompounded over 40 years it is a phenomenal knock to the purchasing power of a dollar note.

Gold prices exploded after being stable for more than 100 years. During the last 41 years, gold prices have risen by 3725%, a huge amount and almosttriple the returns from equities and where prices rose 467% over the same period.

When adjusting for inflation, an investment in gold yielded 575% during the period while the S&P 500 yielded 146%.

THE goLD STANDARD ENFoRCED A PRuDENT TigHT MoNETARy PoLiCy AND So SouNDMoNEy.

64 | www.spreadbetmagazine.com | July 2013

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With fiat currency being printed aggressively,demand for gold will only likely increase as people finally cotton on in a wider sense just how much their currency is being debased. With the goldsupply not expected to rise substantially and with the current pull back in the price likely to result in even less supply over the next two to three years as mine plans get mothballed, the adjustment will, inaccordance with elementary economics, have to be made through a substantial price increase.

During the last few decades, there have been no major gold discoveries. gold has become rarer and rarer and, in a little known statistic, only 1 in 6,300 gold projects effectively go into production. It is also becoming harder to find, the ore-grades are declining and production costs continue toincrease. In 1993, total exploration costsamounted to $1.2 billion and 55 million ounces of gold were produced. Ten years later, in 2003,exploration costs rose to $1.5 billion while gold produced shrank to 25 million. In 2010, exploration costs were out of control amounting to $5.7 billion and production still shrunk to just 20 million. With those supply side stats it doesnt take a genius to work out what will happen to the price again...

To us here at SBM, with the gold price now down nearly 30% from its peak, sentiment verydepressed, actual net shorts in the gold futuresarena and yet physical demand reaching newrecords, the fundamentals to buy gold and gold mining companies have never been better than they are today. In the case of the gold miners, you can buy assets trading at less than $10 EV/reserves in a variety of global jurisdictions, price to cash flow multiples of under two times and discounts to book value of almost 80% it is like being a kiddie in the sweet shop, so attractive are the bargains.

What with currency devaluations, declining gold supply and rising national debts, the only currency with a proven value store historically and in thefuture will be gold. Gold reserves in the US amount to $366 billion with gold valued at $1,400 per ounce, while government debt is shortly to surpass $17 trillion and the currency circulating amounts to $1.2 trillion. Thats something to think about for the longer term.

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Top 3 oil picks for 2013Peak Gold Myth or Fact?


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ZAk MiRiNTERviEWSFiNANCiAL MEDiA CoMMENTAToR LouiSE CooPER

Editorial Contributor

ZM: Welcome to the SBM grilling Louise! Lets get straight down to business: Recession,Depression, or the New Normal, where are we in the economic cycle?

LC: I think we are actually recovering in the UK. In fact, I have just written a piece entitled The UK Economy Has Just Reached A Turning Point, Unless It Has Already Turned! Predicting the actualinflection point of an economy is always incredibly difficult, no one gets it right. Famously LordLamont, the then Chancellor in 1991, got it right, but he got slammed for his green shoots by themedia and the electorate who were still feelingrecessionary pain. This is because most of the commentary and analysis at the time of theinflection point is still very negative.

ZM: So that is great, Norman Lamont called the greatest 15 year boom in history?

LC: The point I would make from that is whether that was just guesswork or skill? Still, he said it at the right time and virtually nobody ever does.

ZM: But rather than Sinatra singing NormanLamont, we have the stock market as a guide with the general rule being that it is normally 12-18 months ahead of a recovery. That is why we have had the FTSE 100 hitting multi year highs.

THE ouTgoiNg BANk oF ENgLAND govERNoR MERvyN kiNg HAS BEEN HiS MoST oPTiMiSTiCREgARDiNg THE ECoNoMy iN SEvEN yEARS WE HAvEiNCREASED gDP ANDREDuCED iNFLATioN.

Louise Cooper is a qualified Chartered Financial Analyst (CFA). She started her career in 1992 at goldman Sachs in London as an equity research salesperson advising fund managers on their portfolios. After that she moved on to become a business andfinancial broadcast journalist, mostly on air with the BBC World Service. More recently she was a markets analyst at BgC Partners and has now set up her own bloggingbusiness at coopercity.co.uk. She regularly appears in the media commenting on the financial events of the day.

LC: The outgoing Bank of England Governor Mervyn King has been his most optimisticregarding the economy in seven years we have increased GDP and reduced inflation. He has not spoken so confidently since the start of the crisis. If you look at the book This Time Is Different, normally peak to trough GDP in a financial crisis is two years.

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ZM: But if you ask small companies, they will tell you that they still have a Credit Crunch!

LC: Yes, but If you look at the Great Depression in the U.S., credit contracted for years and foreveryone. We have not had that magnitude of acontraction.

ZM: So everything has been done right?

LC: No, not everything, but the banks had to be bailed out. My concern is that they have not been bailed out enough and that the UK still does not have a strong banking industry. In fact, what they have done is reduce competition in an alreadyuncompetitive industry. Politicians love to do this kind of thing, but it just creates a mess like theCo-Op issue we are seeing now. So what happens is that strong banks take over the weak, and the weak pull down the strong.

ZM: But the result of the intervention is that we have had a rip-off situation for the consumer for five years: base rates at 0.5% and mortgages of 4% APR, it is a joke. You have the bonuses and the scandals to boot.

LC: There was no choice; the economy would have gone to hell if they had not bailed out the banks.

ZM: So there was no way of allowing say Alliance & Leicester to go bust, compensating depositors and ending the story that way.

LC: It is not the depositors that worry me. It is the credit in the economy.

ZM: But how can you be sure that we are not in a Japan situation where we just see false dawn followed by false dawn for 20 years?

LC: The thing about Japan is that they did not do very much on the QE front for years, and also they allowed deflation to take hold. Japanese asset bubbles in property and equities were significantly worse. For instance, it was said that Japanese stocks on a 100 p/e was quite normal at the time. Madness! It is also a relatively closed economy they dont hire women, it protects its industries etc. So no, I dont think we are Japan.

In a normal recession it is less than a year. But, for a true comparison to our current one it is better to look at the 1929 Depression as this crisis was aglobal one and then the peak to trough period then was four years. The UK had its peak Q1 in 2008 and so, in fact, this is proving to be a longer lived crisis than even then.

There was also no triple dip back in this recession, it actually being a double dip and in contrast to all the newspaper headlines that have been shouting doom and gloom. That was actually wrong

ZM: What would / should be the catalyst forproper economic growth, not just the dancing around the flat line we are still seeing GDP figures margin of error notwithstanding?

LC: A more confident consumer. As well as this, businesses have not spent cash for years, they are hoarding cash, but as soon as they get any sign that things are improving there is going to be a stampede to spend. The reason why profit margins are so high is simply because they have not been spending.

ZM: Does this mean that the macro strategy has been correct to get us where we are now bailing out the banks / QE / interest rates down to zero? Or are we in fact here despite the intervention, not because of it? Isnt it the case that without all the misguided Keynsian meddling we could have been where we are now three years ago, i.e. on the cusp of recovery?

LC: I disagree with that absolutely. The banks had to be bailed out, and more capital still has to be put into them.

ZM: Was that to save depositors or the credibility of the banking sector?

LC: It was to save the economy, to avoid a Credit Crunch.

ZM: But we had a Credit Crunch.

LC: We had a proper Credit Crunch post Lehman Brothers but central bankers reacted quickly.Without this the fall out would have been much worse.



Zak Mir Interviews - Louise Cooper

ZM: Are we going to break the cycle of boom and bust?

LC: No, not at all!

ZM: What about gold as a hedge against the bad times?

LC: I find gold odd as an investment, withpaper gold via ETFs even more peculiar given that one of the attractions of the metal is that there is a fixed amount of it which is why it is preferable to paper currencies. There is not enough gold around to back the ETFs and that is a potential scandal waiting to happen. Even more intriguing is the way that the gold of most countries does not lie in the countries it belongs to. Basically, in my opinion, you would only buy gold if you thought the world was going to hell, which I dont think it is.

ZM: Moving onto your career in the City, you have worked at the Vampire Squid Goldman Sachs and other leading houses. Has the City changed in a positive way since you started 20 years ago? Have the increasing regulations improved it and the internet delivered a level playing field for private investors? Is there a positive message, or is it the same slimy place it always was?

LC: I didnt think that Goldman Sachs was slimy; I thought and still think it is a high quality outfit.

ZM: Even though it doesnt have a great image as far as the ordinary person in the street?

i FiND THAT vERy oDD, CoMPARED To oTHER STiLL vERy DiRTy PLACES iN THE CiTy. ovER THE yEARS i THiNk PRoFiTS HAvE CoRRuPTED, A LiTTLE LikE WiTHPRoFESSioNALFooTBALL PLAyERS. LC: I find that very odd, compared to other still very dirty places in the City. Over the years I think profits have corrupted, a little like with professional football players. When I started, it was a lucrative profession, but not indecently so. I think the Credit Bubble meant it became an insanelyprofitable place for individuals and that corrupted a lot of morality in the City. This was combined with bad regulation the regulator lacks the abilities and resources to do the job properly, in my opinion.

ZM: But isnt the real problem that it is the idea of regulating itself which is a joke? It is just a bad idea, it would be best to have nothing at all and just rely on the Civil Courts.

LC: I think you need regulation. But the light touch regulation approach was a joke, especially in the middle of a Credit Bubble. All of a suddentraders were given millions to play around withbecause money was so cheap.

ZM: Because the markets change so quickly and because it is such a complex area regulation isalways going to be one step behind, is that what you are saying?


ZM: So shouldnt we have just building societies and hedge funds?!

LC: Building societies are dangerous too, just look at Nationwides balance sheet: 8bn ofregulatory capital and 154bn of loans to customers. How many of those loans need to go bust to wipe out the 8bn?

ZM: If building societies and gold do not appeal, where would you put your money?

LC: That is the problem because inflation is highly tempting for indebted Governments and acts as an invisible tax that people do not know they areexperiencing. With inflation at 4-5% and 0.5% on deposit, savers are getting hit with the Cypriotsavings tax without realising it. My own fear isinflation and that there will be a tolerance ofinflation to deflate the deficit, and I think that isgoing to be everywhere. Equities are a partialinflation hedge and perhaps the best choice given the alternatives of bonds and, say, London realestate which is already in a bubble.

ZM: You have been in the City for a long time now, what is the next move for Louise Cooper?

LC: I have my CooperCity blog. I think that some of the quality of the analysis out there for theretail investor is not high. Clearly, my background is advising the professional institutional investor and thanks to my journalism background I think I have the ability to explain highly complicated subjects in an understandable, professional way. I also love my independence and I can say what I think because I work for myself.

LC: What the regulators need to do is hire really smart people. If you look at the wage scales at the FSA you will realise that is not going to happen. If you are going to have a regulator you are going to need well informed, smart, well paid people.

ZM: Yes, but those people want to work in the City; they dont want to work for a regulator.

LC: Not necessarily, but you need to pay people well, and in fact you need to pay for information, like the SEC does in the U.S. If a company gets fined as a result of the information you provided to the SEC, you get a percentage of the fine. Brilliant! Bywhistle blowing here you likely destroy your career and therefore there has to be an incentive. Why bother?

ZM: At the moment we appear to have too much of the wrong regulation and not enough of the right type.

LC: I agree with that. To me the complexity within the current banking regulation with the distinction between casino and investment banking andretail banking is wrong. Retail banking is actually more dangerous, it can bring a bank down. Aproperty bubble will bring a bank down far quicker than a bunch of derivatives traders.

ZM: At what point in the economic cycle isbanking a decent business? They seemingly never lend at the bottom and they lend too much at the top.

LC: If you look at banking p/e ratios they have only ever traded on sub market ratings. When I joined the City they were on p/es of 8 to 10 when the market was on 15. They also dont trade on much of apremium to asset value as the stock market does not regard the earnings as being of sustainable quality.

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PATEL oNMARkETS As i write this for SBM readers, i am presently in Luxembourgspeaking on where to invest now for the Rothschild Private Bank.

And, in the face of all the anecdotal evidence with regards to the number of successful traders (90% blow up rate within a year where leverage isconcerned, particularly in the futures arena is anaccepted, if shocking, figure!), i am hearing from a lot of people that they want to take up trading full time. So, let me give you some advice...

If you need 30,000 per annum to live on, and think you are nearly as good as Warren Buffett and so should make 20% per annum in profits, then you need to have 150,000 cash to trade with. Well ignore tax for now. Of course, some years you will not make 20% and you will have to go a whole year without food and water.

To make life easier you may try to achieve 10% on 300,000. But most dont have 300,000speculative money hanging around.

Then we come back to the 90% of privateinvestors who lose money trading the markets. Still, you reckon you are in the top 10%.

Next comes time. How are you going to generate that return? You could spend every second trading. Maybe 10 trades a day. Maybe they cost you 10 each. Thats 100 in commissions or other costs. That is 500 a week, or 2000 per month, or 24,000 a year. So now you need actually to make not 20% on 150,000, but actually closer to 40% on 150,000.

Or, you may say that you want to reduce those costs by trading less frequently, but still look to make 15% say. This is more realistic. You would look to pick a basket of stocks expecting a 15% rise over 12 months. That seems to put less strain on your time andlimited skills and experience.

Alpesh Patel

Alpesh Patel is the author of 16 investment books, runs his own FSA regulated asset management firm from London, formerly presented his own show on Bloomberg TV for three years and has had over 200columns published in the Financial Times.


Patel On Markets

But how many stocks? Which ones? The number should be manageable. So lets say 15. Any fewer, and if one does poorly, it will have a heavy impact on your whole portfolio. Any more, and if one does very well, it wont have enough of a positiveimpact. of course they should not all be in the samesector, or even geographical region, otherwise its really one stock disguised as 15...

But which ones? What moves? What doesundervalued mean and where do you find it? Online websites? Magazines? The pub? You can start with magazines like this one. Look for the reasoning of the commentator.

Stories told by stock commentators can beseductive and attractive and alluring aboutprospects of discovery. Remember not to be greedy and lured into such fantasies. go for solid analysis, not hope. Learn what price-earnings ratios are and why they are important.

Do all of the above, aim with a portfolio of 15 stocks aiming for 15% (once they hit your target decide whether another 15% is likely over another year) and if they drop 25% sell them no matter what excuses, and you might, just might, get out alive.

But what when you dont have that kind of capital and need greater returns? This is why spread betting is popular. You use leverage, based on a notional sum, and trade more frequently and avoid tax (you hear G8 tax dodging spread betters!). But know, that more leverage, less time, for more return equals more risk. Do not kid yourself. Just know the numbers.

If all else fails then look for a managed service with a good investment thesis and returns record and let the professionals do the job for you. I for one will be intrigued to see how www.titanip.co.uk performs over the next year and that, uniquely, uses a spreadbetting wrapper to attempt to generate tax freereturns.

Alpesh Patel

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To MAkE LiFE EASiER you MAy TRy To ACHiEvE 10% oN 300,000. BuT MoST DoNT HAvE 300,000 SPECuLATivE MoNEy HANgiNg ARouND. THEN WE CoME BACk To THE 90% oF PRivATE iNvESToRS WHo LoSE MoNEy TRADiNg THE MARkETS. STiLL, you RECkoN you ARE iN THE ToP 10%.

PATEL oNMARkETS


School Corner

USING ELLIOT WAVE THEORYIN TRADINGBy THiERRy LADuguiE oF E-yiELD

i have been using Elliott wave analysis for years to forecast the stockmarket. i remember the first time i came across Elliott wave analysis was in 1997, after reading a book called Technical Analysis of the FuturesMarkets. As i began to count the waves, i quickly became a devoted Elliott wave analyst.

SCHooLCoRNER


The signals that work for me are triggered when my sentiment indicator and the Elliott wave confirm each other. This is how it works:

There are two indicators to measure sentiment - BTI and 34-day BTI.

Rising BTI = bullish sentiment = short term trend is up

Declining BTI = bearish sentiment = short term trend is down

To reduce the number of false signals the 34-day BTi is used as a filter

Sentiment becomes bearish when the daily change in the BTi turns from up to down AND the 34-day BTi is declining. After a bearish signal has beentriggered, both the BTI and 34-day BTI will continue to decline. This combination of declining indicators indicates that sentiment is bearish. During thisperiod most stocks will perform poorly, the FTSE 100 is likely to go down.

Sentiment will turn bullish when the daily change in the BTI turns from down to up AND the 34-day BTI is rising. As long as both the BTI and 34-day BTI continue to rise I assume that sentiment is bullish. During this period most shares will outperform the broader market and the FTSE 100 is likely to rise.

Statistics show that when sentiment is bullish, the FTSE 100 goes up by an average 1.5% and whensentiment is bearish, the FTSE 100 goes down by an average 0.6% in the following month.

My sentiment indicator gives me the direction of the FTSE 100, for example, when it is bullish, I assume that the trend is up. This helps me interpret theElliott wave count on the chart. The trend remains in place until sentiment reaches an extreme. On 22 May, the 34-day BTI reached an extreme above 400 (extreme in bullish sentiment), that was signalling an imminent trend reversal. The FTSE 100 did turn down on that day and lost 8% in the following three weeks.

Elliott wave theory was discovered by Ralph Nelson Elliott in the 1930s, he was an accountantturned-stock-market-analyst who noticed that the stock market followed a recurring and predictable pattern; he called this pattern the wave theory. in thefinancial markets, these patterns take various shapes, the most common being a cycleoccurring in eight waves, consisting of five waves up and three waves down.

The most important aspect of Elliott wave theory is that it works well with investor sentiment. In general the end of a five-wave pattern coincides with anextreme in sentiment. For example, at the top of a five-wave sequence sentiment will be extremely bullish and at the bottom, sentiment will beextremely bearish. This makes sense if you think about it, the more a market rallies the more it makes investors feel safe and the more investors join the rally. This explains why bullish sentiment increases as the rally progresses.

But as we know, rallies dont go on forever as we have seen recently - I am referring to this years stock market rally that ended on the 22nd May. On that date, and during the previous weeks leading upto the peak, bullish sentiment reached an extreme on various measures. Ironically its when there are too many bulls that the rally ends. Bullish sentiment is healthy for the stock market as it enables the rally to continue but too much of it is never a good thing. in fact, excessive bullish sentiment is a sell signal.

This led me to develop my own sentiment indicator a few years ago, the Bullish Trend indicator (BTi). I was looking for a way to measure excessivesentiment. The BTI does the job. Today, my primary tool to forecast the stock market is SentimentAnalysis, and when combined with Elliott waveanalysis it can be a powerfully accurate tradingindicator. I trade mainly UK stocks and the FTSE 100 index. My secondary tools are technical analysisindicators like the relative strength momentum and the MACD.

ELLioTT WAvE THEoRy WAS DiSCovERED By RALPH NELSoN ELLioTT iN THE 1930s, HE WAS AN ACCouNTANTTuRNED-SToCk-MARkET-ANALyST WHo NoTiCED THAT THE SToCk MARkETFoLLoWED A RECuRRiNg AND PREDiCTABLEPATTERN; HE CALLED THiS PATTERN THE WAvE THEoRy.

Using Elliot Wave Theory in Trading


School Corner

BTI SENTIMENT CHART

During the decline sentiment turned bearish on 5th June. As I write sentiment is till bearish but this time the FTSE 100 has fallen too fast and bearish sentiment has reached an extreme on my indicator - see chart below.

This, to me, means that we will see a big bounce. The main support area is around the 200-day moving average near 6150. Whether or not the FTSE 100 declines to that level remains to be seen, but I do expect a bounce to 6500 in the short term to relieve the oversold condition. I will then monitor my sentiment indicator, if it stays bearish during the oncoming bounce it will be another signal to prepare for the next leg down.


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Special Feature

WHEN THE BEST TRADE iS No TRADEBY THE MARKET SNIPER

The feeling was always one of, if being a lecturer or trader with extensive experience, it was almost my duty to have a view on all markets, otherwise what was my purpose?

I no longer feel this degree of discomfort inexpressing this view.

In attaining this level of comfort, I had alsosubsequently differentiated between:

1. Market Commentary/Commentators Most of this type of opinion appears to have a very after the fact tone, and is usually in the form of post event analysis for the news wires.

2. Basic rudimentary opinion This may have anexpression of mild directional bias only, with a fewsupporting technical observations.

3. Justifications for a trade These vary per trader, but my feeling is that the better trader you are, the more detailed and specific these will be. By definition this type of opinion proposition is pretty rare.

in the past, when approached for a view on a market by my students or other traders, i felt a degree of discomfort when expressing, especially repeatedly across various markets, that i had no strong overriding opinion or trade.


When the Best Trade is No Trade by the Market Sniper

Some examples of what I seek in a trade before it is taken are:

(a) An explicit high probability assessment of an anticipated directional move.

(b) The nature of the anticipated move is impulsive and brisk.

(c) A volatility constriction which permits a tight entry-to-loss stop set up and a fast move to a high reward-to-risk ratio and realised losses. What I dont want is the long bleeder type trades that sap you emotionally over an extended period as you watch it move against you/go nowhere.

Additional trade overlays include those where Iperceive a substantial imbalance in supply ordemand for a certain period that supports the dominant and brisk market re-adjustment and,importantly, a trade idea where pending orders may be used and the entire trade idea may be expressed in advance of being triggered, including loss stop placement and targets.

As a trading technical analyst, where every piece of analysis should contribute some detail to thequestions Is there a trade? or What is the trade?, I have observed with my own students that most new and intermediate traders have insufficientdistinct and separate justifications for a trade plan.

I dont care for item one above, certainly not before a new trade; at best market commentary isinteresting in a historical sense for the story of why or what commentators believed was the reason why. But that, sadly, is about it. What I want to know is whats going to happen?!

Basic rudimentary opinion as described in item one is just that, non-committal and luke-warm in nature. It does not inspire me to detail an elaborate if and but response where multiple price behaviourpermutations still remain possible, and for those reasons I avoid reading these too.

The advantage retail traders have over institutions

Your average Joe retail trader fails to realise that they actually have major advantages over theinstitutions, brokers and market makers.

Number one on that list is the right to say No Trade.

Remember, many institutions or market makers are obliged to offer a spread on many underlyinginstruments all the time. This even applies whenuncertain of their view, or just before possible market moving events. If they get it wrong, many tradersobserving and then acting will be piling up substantial winning positions at their expense.

imagine the mental and psychological burden ofhaving to open shop every day and every rival and client is watching and waiting for you to slip up on a pricing of a market so that they can all wade in and clear you out.

Some of these market makers must make a market on the most lightly traded small cap shares with high Betas and massive potential swings. There are not many sympathisers out there for the dreaded market maker but, I have to admit, I am one of them!

I have noted too that relatively novice traders feel what I can only describe as compulsion to trade. It is difficult to go to work, supposedly to trade, and to do what is seemingly on the surface nothing. It doesnt feel like trading to just observe, analyse and plan trades. We want to place some skin in the game, a view(s) expressed! But real trading is about sitting and waiting in the lair for the good risk:reward set up,having the capital to back and then pulling the trigger.

My own experience is one of far fewer trades open at one time than when I first began trading: usually none open at all 35% of the time (over a period of a year), one trade idea open 30% of the time, two trades open 25% of the time and three trades open 10% of the time, never more. This is what works for me; whilst hardly a bench mark of good form, major deviations from this over the course of a year would raise concerns of over trading or lack of selectivity in my opinion.

Even in benign non-directional markets, we will look for signs as to the future direction and generally jump in early.

REMEMBER, MANyiNSTiTuTioNS oR MARkET MAkERS ARE oBLigED To oFFER A SPREAD oN MANyuNDERLyiNgiNSTRuMENTS ALL THE TiME.


We are taught to trade with the trend and to the range highs and lows when ranging or chopping. I suspect this is encouraged by brokers who earn on the churn; their line being that there is a strategy for every market. In short there are nocircumstances or market conditions where we shouldnt be all in! We know better. Aside from a strongly trending market like that seen on USDYEN recently, and where we should have wide stops and remain with it as long as possible, many of the other timescales in the market cycle we should not be in the market at all.

Other manifestations of this rookie error that shows a lack of appreciation for the No tradeadvantage is a full suite of open trades on their market blotter.

There is no broad portfolio of trades theory,especially when leverage is involved. Each idea must stand up on its own. I suspect this tendency of many traders is in the hope that if enough trades are placed, one will be a home run a form of asymmetrical optimism bias.

Keep the number of stocks you own to acontrollable number. Every once in a while you must go to cash, take a break, take a vacation. Dont try to play the market all the time. It cant be done, too tough on the emotions. JesseLivermore

Jesse Livermore was a bucket shop punter who made and lost a fortune on no less than sevenoccasions in 1920s New York, I believe, and his bookReminiscences of a Stock Operator is, in myopinion, the best trading book there is out there. Heres another classic (and true) quote:

There is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily orsufficient knowledge to make his play anintelligent play.

In short, sometimes it pays to just sit and wait for the high probability trade that meets multiple & specific criteria, and to not generate losses in between these events.

There is a lot to be said for the empowering position of getting square, namely being entirely flat on all open positions. It allows a market neutral mentality without any legacy biases that may once have hadjustification, but now fails to hold. Think about this statement for a moment all those of you that have been cut out of loss making positions thecommon comment from many traders at this point, even if it means they have taken a loss, is that they feel relieved. Well imagine cutting yourself outinstead of it being done for you if a trade(s) is notgoing your way. Take some time away and thenreassess youll be amazed how, in many instances, you probably wouldnt get back into the trade.

institutions and market makers cant do this. They have to be there. This is the major advantage you have as a retail trader and it is an advantage you should be aware of and not squander.

THERE iS A LoT To BE SAiD FoR THEEMPoWERiNg PoSiTioN oF gETTiNg SquARE, NAMELy BEiNg ENTiRELy FLAT oN ALL oPEN PoSiTioNS. iT ALLoWS A MARkET NEuTRAL MENTALiTy WiTHouT ANy LEgACy BiASES THAT MAy oNCE HAvE HAD JuSTiFiCATioN, BuT NoW FAiLS To HoLD.

Special Feature


When the Best Trade is No Trade by the Market Sniper

Here are some guide points for controlling overentering trades, revenge trading and othercompulsive responses:

Trading is a game of increment, not home runs (one big hit outside of the park).Remember that.

Cease all trading for the week after threewithin limit losing days. you havent got the right view on the market less is more so switch the computer off. To spend fi ve days in a row reducing balance is confi dencedestroying and emotionally destabilising. Put this in as a commandment.

Good luck.

Reduce the number of trades. Take thenumber of trades taken in a week (or month), an average of the last 10 weeks (or month), then allow yourself just 60% of your average. Cross them off on a piece of paper as you use your new maximum allowable amount; you will become more selective with what you trade.

Do full, detailed pre-calculation positionsizing and risk-to-reward analysis beforeentering, it will force you to think about your stops and accept where you are wrong. It also increases discipline.

Each week review your full personal Profi t and Loss statement performance and assess all records to show you are within limits, andreward yourself for sticking to the rules even if it is a week of controlled losses.

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Francis Hunt is the founder of The MarketSniper and the Hunt volatility Funnel set up trading technique. His next three monthTrading Metamorphosis Program commences 6th/7th July with a theory weekend.

you can email [email protected] or call 07833096952.


Special Feature

FTSEDAyTRADER.CoM

My SToRyi started spread betting in 2007. The hours were long and the

returns were, to be blunt, rubbish. i in fact blew my entireaccount up twice, but as i started with small stakes was able

to dust myself down and start again. it was only in 2010 that i turned the corner and, i am pleased to say, have been

successfully trading the FTSE ever since. Spread betting is great its hard work, but its also highly rewarding.

By NiCk HiLSDEN

Unfortunately, too manypeople fail as they start off somewhat gung-hothinking its easy and, in an open industry secret, very quickly blow their accounts with no chance of thencoming back... They say 90% fail thats probably light, and the sad fact is that the smaller your account the less

I then wrote an ebook on my strategy and, to my continued surprise, it actually sold via the site.

Spread betting is hard whether its stock,indices, forex or anything else. After all, if it was easy, everyone would do it, right? However, get it sussed, stay emotionally detached, be technical, be savvy, be calm, be sensible basically the opposite of every emotion you will feel when you trade and generally you will do OK.

What i have learnt?

I am a great believer in the KISS principle Keep it Simple Stupid and apply that principle to all my charts. Too many indicators just lead to you ending up like a rabbit in the headlights. I use pivot points, support and resistance and trend channels on adaily timeframe for my analysis and this has served me well, even in a market that is supposedly QE and sentiment driven! ill also let you into a secret do the opposite of whatever they say on the BBC news about shares and the FTSE if they say the market is tanking and get their big red arrow charts out (an appearance from Robert Peston is evenbetter) Buy shares and the FTSE a stance again i know that the editor of this mag agrees with.

likely it is that you will make money. I feel fortunate that I remain in that 10% (or less).

Whilst trading for myself pretty much full time, I needed to learn about a product called WordPress, which is a website creation software. It was always my plan to set up a website with a topic thatinterested me and it made sense therefore to do a trading site, which can be found atwww.ftsedaytrader.com. There are hundreds of sites out there of course, but as my main aim was initially to just learn to use the software; I initially planned to simply write about what I had learnt and what I was thinking vis-a-vis what the FTSE was going to do next. From this small acorn and effectiveself-imposed checks and balances on my trading, to my amazement, my website traffic grew.


FTSEDayTrader.com My story


They can of course be plotted over any time frame, but I find doing the last 10 and 20 daily sessionspretty reliable. Trading at the extremes of these channels has also been very beneficial in recent months. You wont get trades every day, but,generally, the handful that you do trade should do well. Below is an example of a recent FTSE Raff chart.

If the headline says the FTSE is rocketing and is on its way to... oh, lets take the other weeks 7000 level that they mentioned, get SELLING! (FTSE was at 6800 at that point; it subsequently fell to 6300, a 500 point drop in two weeks).

Raff ChannelsOf course, its not just that simple (if only!) and one needs a local and global view of everything going around one, the internet is your friend for this! One of my favourite indicators are Raff channels and I plot these on the daily chart over 10 days and 20 days creating a nice two line channel that often marks price extremes.

Special Feature

RAFF CHART


We have recovered from the QE being taperedrumour-driven drop to 6300 and whilst the trends are down currently it feels like there might just be one last push higher. The FTSE didnt make anyrecord highs whilst other markets like the DAX & Dow and S&P did. I certainly feel that a test ofpossibly 6830 is possible in the next two to three weeks (time of writing 10 June).

if you would like to learn more about me and my strategies, please visit the website www.ftsedaytrader.com

My other favourite common sense trading tip is when you are in a trade and (hopefully) in profit, get stops to breakeven as soon as possible. Trailing stops are a good way to lock in profit and remove the emotion from a trade, which is one of thehardest things to overcome.

outlook

Everyone is aware of the Sell in May mantra now (as was covered extensively by this magazine last month) so I expect that we will probably see some more bullishness for a little while just to try and wrong foot as many as possible (as the market is wont to do!), probably towards mid/end June time.

FTSEDayTrader.com My story

TRAiLiNg SToPS ARE A gooD WAy To LoCk iN PRoFiT AND REMovE THE EMoTioN FRoM A TRADE, WHiCH iS oNE oF THE HARDEST THiNgS To ovERCoME.



JoHN WALSHSMoNTHLy TRADiNgRECoRD

As you are aware, we recently hit new highs with the DOW and were very close to touching the all time high for the FTSE, but we have since seen a pretty sharp retracement, certainly in the UK. But, for me, it has been a great trading month for many reasons. It was in fact brought to my attention a few days back that I have now been trading my account with my own money for fully six months sincewinning the Trading Academy competition (I won at the end of November and took December off and started full time in January) and, notsurprisingly, a lot of fellow traders seem to beinterested in how I have done in that time,wondering whether the win was a fluke, or if indeed I had the necessary mettle as a trader to survive.

As I have stated previously, February was my worst month ever. In the very short space of time that I have been trading on my own, I lost almost 60% of myaccount in a single morning during that dire month. Shocking I know, and which was down to me doing everything I was taught not to do if you want tosucceed at trading: averaging down, letting emotions dictate your strategy, chasing losses and increasing my trade size to levels well outside my comfort zone. You name it I did it, which made a bad situation a lot worse (as these things tend to do). Net result was thatemotionally I was unable to trade indices from then as I felt I had lost some of the confidence that is needed when doing battle in the markets and which helped me do well in the past.

What a month! its the only way i can start to describe what has taken place since my last article.

For those of you that read my monthly piece, you will know that i mainly day trade indices (DAx, FTSE and DoW) and i also like to trade with a little more of a long term outlook when it comes to equities.

TRADING ACADEMY WINNER


i NoW TREAT TRADiNg AS A BuSiNESS iNSTEAD oF JuST A HoBBy oR PAST TiME WHiCH i MAy HAvE BEEN A LiTTLE guiLTy oFF iN THE PAST.

John Walshs Monthly Trading Record

And so I decided to just trade equities again with somewhat more of a longer term outlook instead of going after the fast money with the indices. That worked out fine and so I then decided I was ready to start trading indices again (sucker forpunishment, eh?) and, so far, things have gone very well. I have managed to recover all the losses on my account and am actually up 15%. Not surprisingly Im very pleased with this and of course hope to build on it.

What have I been doing differently since I started trading equities again? I now treat trading as abusiness instead of just a hobby or past time which I may have been a little guilty of in the past. As in any business, the key to success is hard work and tenacity. Trading is no different. Another element that I have brought to my trading is to set myself short term goals such that I now aim for 10 points a day whether that be from one trade or 10, and once I have achieved that I close down for the day so that by the end of the week I have made 50 points which I look to just keep building on.

The most important lesson I have re-learned, and which I have tried to live by in the past butsometimes failed to do so (particularly during Feb!) is to trade what I see not what I or my ego thinks. I now never try to call the highs or lows and I wait for confirmation before entering the trade, be it on the Long or Short side.

Moving forward, I plan on sticking to what I have learned so far and to keep on learning (you never stop learning in the markets, I hear) through talking to other traders and reading lots of the stuff out there to help us, be it books or online (some of the guides given away here by SBM are really informative and written by seasoned traders. Best of all, they cost you nada!).

I also plan to increase my trading of equities (my true trading passion) and to add US equities to my portfolio (the research has already begun).

Anyhow, thats enough from me for this month, I hope you enjoy reading this as much as I like to write it and I look forward to returning next month to keep everyone up to date with how Im doing with my trading journey.

Please continue to follow me on Twitter@_JohnWalsh_ where i try to keep everyone up to date with my trades as they happen.

Remember, you control the trade; the trade does not control you.

John


A new special feature

MARkETSiN FoCuS


Markets In Focus


Competition

Guess the FTSE month end value to win

1000


Guess the FTSE month end value to win 1,000

in keeping with the betting and trading theme of thispublication, Spreadbet Magazine offers entry to ourcompetition to all readers.

Simply click the link at the bottom of the page to arrive at our competition page.

Insert one entry as to what level you believe the FTSE 100 will close at on the last trading day of the forthcoming month.

PLEASE NOTE THE CLOSING DATE - The last day for entries is the second Friday of theforthcoming month. For this months entries - July 12th is the closing date.

Rules

1. Only one entry is allowed per person. If multiple entries are found to be made, that

partys entries will be voided in full.

2. Entries received after 5pm on the closing date will not be allowed.

3. If there are multiple winners, the 1,000 will be split amongst them.

4. Entries must be made to the nearest one decimal point, ie 5456.8.

Enter the competition

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AiM oil& gasrevisited

in next months edition...

The e-magazine created especially for active spread bettors and CFD traders Issue 19 - August 2013

LEgENDARyFiDELiTy FuND MANAgER JEFF viNik PRoFiLED

ZANAgA iRoN oRE - APoTENTiAL TEN BAggER?

AND MuCH,MuCH MoRECoMPLETELyuNiquECoNTENT!


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Thank you for reading, we hope your trading is profi table during the forthcoming month.

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