AtticManTrader

AtticManTrader - Upgrades to WordPress

2009-08-04T14:33:00.007+01:00

After several months researching blogging platforms I've made the decision to move AtticManTrader Wordpress.

Blogger has been a great home for me but its time to move on.

Greenshoots

2009-07-12T21:25:00.004+01:00

It's been a fairly quiet time in the Attic of late. The FTSE is slowly edging further south. The breakout I discussed in late June has not materialised, but the market is now firmly heading south, albeit at a pretty pathetic rate.

There are analysis companies out there that base indices on the frequency of key words being used in the financial press. As the recession gathered pace, so the frequency of the word 'recession' increased. And now, as the talk of recovery gains momentum, so it is likely that keywords associated to improved financial conditions increase in their frequency.

My analysis tonight shows only a handful of potential long plays, but interestingly enough the majority of these companies are financial in nature (investment trusts, special vehicles etc). This is the first time this year that my analysis has delivered such results. The health of Financial Institutions can be used as a barometer to measure the overall health of the economy (who would argue, that on the way toward the depth of recession that this was not the case). Perhaps we are seeing genuine signs of recovery?

The dilemma I face, is that technically the FTSE is in an established downtrend which although not a powerful move (Remember the summer months are traditionally pretty quiet in the financial markets) it's a downtrend non the less.

My bullish stocks today are;

FSV (Fidelity Special Vehicle)
IPF (International Personal Finance)
JMG (JPM Emerging Markets)
WTAN (Witan Investment Trusts)

All the above are showing bullish 3 day price action, oversold stochastics, and in most cases reducing momentum on a short squeeze.

AtticManTrader TV - Trading Vids on YouTube

2009-07-11T00:11:00.001+01:00

Bulls gathering strength, and yet something is wrong..

2009-07-01T23:21:00.006+01:00

The FTSE is tough to trade at the moment.

The 100 index has threatened a breakout to the downside which has (at yet) failed to materialise. I blogged about a key day on 24th June that I thought was due on the FTSE. Since then the index has remained range bound. The short squeeze is losing momentum by the day and today saw a 90 rise - so where's this bad boy going next?

The weekly chart is still bearish, although it now looks less bearish than last week. The daily chart is giving nothing away. At times like this, it is hard to figure out what to do. I feel like I want to make some trades, but nothing is screaming at me to buy or sell. My position now is certainly a conservative one. I'm not a short term trader or a gambler so until I get a feel for the market and which way its going to swing next, I'm standing aside.

I will be keeping an eye on what I see as two key levels for the FTSE. 4,346 now represents resistance and 4,225 is the new support level. Should price break one of these levels with sufficient support (represented by higher than average volume) then I will go with that move. However until the trend is established, I'll only be investing small size on these trades.

My scanning software is still working well, but to be honest I really need to make some tweaks in order for it to be as useful as I want. It's currently giving solid signals, but it takes too long for me to wade through these signals and still have time for the fundamental analysis that I would need to do in order to find high probability plays. I need to find some time to write some more AmiBroker code in order to get this working...Task for the weekend (if only I hadn't agreed to build a bloody gazebo in the back garden!)

A key day for the FTSE approaching.

2009-06-24T23:10:00.004+01:00

Last week I blogged about the range bound nature of the FTSE. My view was that the market would move aggressively either up or down, once it broke the range 4518 to 4295. This range was duly broken to the downside on the 17th June (see chart below). Since then the FTSE has moved down with the pace of a drunken snail. However, something caught my eye on the chart that may signal further moves South.

Firstly, and most importantly a short squeeze fired on the 17th June. This is a significant event for the FTSE. The last time a short squeeze fired (19th Feb) the index went from 4,045 to 3,500 (A significant reduction of 13%). The second point of interest is the high volume day on the 19th June. The market ended up on this day, but the spread on the bar was nothing unusual. This indicates that the bears overpowered the bulls. This is consistent with a weak market. Today the FTSE closed at 4279 - just below the breakout level of 4295. Has this level now become resistance? The probabilities still lie in favour of further moves South. At this point I would tighten my stop to 4400 and look for a profit target using the Fibs (38% retracement is around 4132)

FTSE remains range bound - Which side are you on?

2009-06-16T23:26:00.003+01:00

The FTSE 100 Index remains very much range bound. As the chart below shows, is been ranging from 4518 to 4295 since early May.

The big question is which way is she gonna go?? If I knew the answer, I wouldn't be blogging about it, I'd be trading it!

However here's a trading plan.

Place two trades.

1 Sell Stop @ 4,250 &

1 But Stop @ 4,550

Link the trades using an OCO (One trade Cancels the Other)

If the short trade fires

Stop = 4,550

Target = 4,048

If the long trade fires

Stop = 4,250

Target = 4,653

(Note: Long trade does not give a great Risk/Reward ratio.

Hunting Trip - returning home empty handed

2009-06-16T20:50:00.005+01:00

My Buy Limit on Hunting Plc (HTG.L) was filled today and although there is a possibility that this is a pullback, the volume spike of a couple of days ago (which moved the price upwards) has not been supported by further volume increases and price action.

I've moved the stop up to right underneath the trade (452.6p), so I expect to be stopped out at a small loss (0.7%) tomorrow.

AtticManTrader goes Hunting...

2009-06-14T21:11:00.006+01:00

My analysis this weekend suggests that sometime in the near future we are due a correction in the FTSE.

However, until such time as this becomes clear, I'm still trading in exactly the same way. Tonight I found a stock I'm interested in. The company is called Hunting plc (HTG.L). Hunting are in the Oil and Gas sector. They have had 4 or more years of consistent Net Profit growth (albeit on decreasing t/o). Their Debt/Equit ratio is low and they have recently made 2 strategic acquisitions.

What I really like about this company is the chart. Since the end of April, volume has been exceptionally low (pretty much the same as the whole of the FTSE), however in the last couple of days volume has spiked and the share price has responded accordingly. The company is still in the squeeze (see chart below), however if this squeeze fires, its likely to fire long.

My order details;

Buy Limit @ 463p (Pullback to just above 8EMA)

Stop - 438p (Below recent range - I'm giving this some room, if I'm wrong I'll likely exit before stops is hit)

Target - 496p (Top of channel)

Position size - £8/point. (£8 * 25pts = £200)

Max risk - £200 (1.8% of The AtticFund)

Analysis of the squeeze indicator

2009-06-10T21:07:00.001+01:00

One of my favourite TA tools is called the Squeeze indicator. I first came across the squeeze on the TradeTheMarkets website. The guys that run TTM, John Carter and Hubert Senters are both great believers in the squeeze. And there is no doubt in my mind that it is a pretty powerful tool.

The squeeze indicator combines three common TA methods into a single indicator.

The concept is simple.

Markets go through period's of consolidation before they breakout.When they break out they either break to the long side or the short side. The squeeze uses Bollinger Bands and Keltner Channels to identify these periods of consolidation. When this period of consolidation is over, a momentum indicator is used to indicate the direction that the market is likely to move in.

The graph below shows a custom AmiBroker Squeeze indicator which I've annotated to show the phases of the squeeze. The red square highlights the period of consolidation (indicated by red dots) - during this time the market is consolidating. When the green dot is printed, the squeeze is said to have 'fired' - What this means is that the Bollinger Bands having spent a period of time 'inside' the Keltner channels have now expanded, signifying increased volatility and therefore potentially price action. The momentum histogram on the Squeeze indicator shows Blue - meaning the market is bullish. You can see from the corresponding increase in price, that this Squeeze signal highlighted a successful bullish move.

Bored of trading? - Time to refocus on Trading Disciplines

2009-06-09T22:28:00.009+01:00

Part of the trading journey is in understanding and dealing with your own mind. Personally I go through periods when I simply lose interest in the markets.

In this post I will identify those reasons and develop a strategy for dealing with these reasons in an attempt to ensure they do not affect me for too long.

I lose interest for a number of reasons;

1. I've incurred a loss

2. I've had a consistent run of winners (I've dealt with this in another post)

3. I have a lot of other stuff on my mind

4. I'm run down

Incurring a loss

Incurring a loss is all part of trading. Knowing this, doesn't actually make it any easier to deal with this loss! No trading system is right all of the time. Anyone who has traded for any period of time understands this. But if your system has been extensively back tested (or indeed forward tested), then you should have a feel for what kind of Win/Loss ratio the system 'typically' experiences.

If you are currently encountering losses that 'conform' to your expectations and yet you still have trouble placing more trades, then perhaps your personality is not suited to your trading system? For example, your system has a W/L of 40% and your testing showed that at this W/L the system was still profitable - perhaps you need to consider a system that delivers a better W/L ratio. I for example, would struggle mentally, to trade a system that had W/L expectations of less than 50%, simply because my personality is suited to small but regular gains. After a series of losses it is wise to step away from the market's completely and ensure your frame of mind is positive before returning. The opportunities will always be there - even if you take a week off to do something else! Don't beat yourself up, just accept this as part of trading and get your head in the right place before returning.

I've had a consistent run of winners

I've termed this subconscious profit protection syndrome - this is certainly something that I suffer from! A previous post explains how I have identified and am dealing with this.

I have a lot of other stuff on my mind

We all seem to rush about at 300mph these days, and most of the time we are able to cope with juggling lots of balls at the same time. Sometimes however, it all becomes too much and a couple of the balls drop to the ground. This is perfectly natural in today's fast paced society. I deal with this in a couple of ways: Firstly, I accept that my plate is rather full and somethings going to give - this is normally my trading. Why? well that's simple, my day job pays the bills at the moment and together with my kids has to be my priority. Secondly, I re-visit my daily disciplines. Have you ever sat in front of the PC and simply not known where to start? Do you look at your list of favourite stocks from the previous night? Do you search out new trading opportunities? Do you update your blog? Do you work on a new strategy that you have been considering? If you have a set list of tasks (together with time estimates for each task) it becomes so much easier to perform these tasks.

I'm run down

Trading doesn't require the mental or physical fitness of a fighter pilot, but if you are feeling run down, there's no doubt that even the simplest of daily chore takes much more effort! Take some time off from trading until you are feeling better. Eat lots of veggies and drink lots of juice!

My challenge over the next couple of days is two-fold;

Update the daily disciplines to reflect the revised strategy

Eat lots of veggies and drink lots of juice.

It's off to Spain for some golf

2009-06-03T23:14:00.005+01:00

Tomorrow I take a well deserved break. I'm off to Spain for a 4 day golfing weekend.

There will be 12 of us, battling it out over 72 stableford holes to be crowned Tweksbury Champion Golfer 2009.

I'm leaving my Lonmin (LMI.L) long position open. It's currently trading around 1500, down 60 today, but overall the position is up 14%. I may take the odd peak at the market (In today's wired world, its hard to completely step away from everything!), but I don't plan on changing any of the trades parameters.

The markets in general do show signs of turning (steady upward moves on little volume would indicate no professional money is in the market), but I'm actually looking forward to focusing on some leisure time and letting the trade run its natural course.

A more detailed look at the revised strategy.

2009-06-01T23:07:00.006+01:00

Since I've been using AmiBroker, my strategy has changed a little. The basic principles of the strategy remain the same (Click here for my initial blog AtticFund strategy), but I've been able to re-introduce some of the technical indicators that I used to use on Tradestation.

Here is a revised overview of the strategy;

We are currently in a bull market - I'm only going long (there is the odd exception however, but only using a much smaller size)

Technicals (long only)

Scan daily charts using AmiBroker to find bullish price action, using a combination of OHLC over a set number of bars
Are stochastics overbought or oversold
Is volume increasing
What does the Squeeze look like (much more on the squeeze in a later post)

This scan normally reveals 20 stocks to investigate further...

Is the weekly chart bullish (pretty much without exception they all are at the moment)
How far from a value entry is the stock (I normally will not trade a stock that looks extended from its 8EMA)

Once I have my watch list, I then undertake some fundamental research.

Fundamentals

Company Activity - I only invest in companies I understand and that I'm interested in.

Profits and Market share - I only invest in companies that have grown (when going long) their market share and profitability consistently over the last 4 years.

Debt/Equity Ratio - I look for companies with a comparatively low Debt/Equity ratio

Volatility - Does the company trade with average volatility - I'm not interested in crazy volatility

What are people saying about the company - What is the talk amongst the professionals and independent traders?

Currently the markets are on a nice bull run, so going long is much easier than going short. I'm much more comfortable on the long side so it will be interesting what happens when the markets turn. The scan I undertake can be reversed to identify shorting opportunities, but I need to identify an indicator to give me a warning that the markets are turning (so I can start to look for shorting opportunities).

There's still a fair bit to be done on the strategy but for now I have at least identified and rectified my ability to locate potential investment opportunities.

Here's my strategy development 'to do' list;

1. FTSE 100 and 250 Weekly scan for Bullish / Bearish Direction

2. Weekly Sector scans for bullish / bearish Direction

3. Develop a bearish scan for all FTSE 100 & 250 stocks

4. Enhance the use of the Squeeze indicator to identify long and short opportunities

5. Develop a scan to be used on company fundamentals (this will reduce the time it takes to research companies)

Trading Update - Lonmin +16%, Talvivaar, Spice

2009-06-01T22:42:00.008+01:00

Trading Update 1st June 2009

Lonmin (LMI.L) continues to move North. When a trade starts to make a nice move in my direction(+16% on the trade - 2.1% for the AtticFund) I find myself considering closing the position in order to protect the profits without having any real exit signals. Lonmin still looks strong to the Long side and so I'll amend the parameters of the trade in order to lock in some profits, and I'll stick on in there and try and ride this bad boy higher. The annotated graph below should serve as a reminder of why I still like this stock (it's also the first glimpse of my AmiBroker Interface....exciting stuff huh!)

My attempted short on Talvivaar Mining (TALV.L) wasn't filled (thankfully!). The stock rose 13% today! I did write yesterday that it was an experimental short trade, and I stick by that. My position size would have been small. I was expecting a small retracement, but as the overall market conditions are bullish I do not currently want to be too heavily exposed to the short side. What actually happened was that Talvivaar came roaring out of the blocks and never looked like retracing. I guess this happens with a strong stock in a strong market.

For the time being I have canceled my order on Spice (SPI.L). I'm expecting a retracement, but it's not clear just how large that retracement may be. All the signals are looking bearish (Momentum reducing, Overbought RSI). I'll continue to monitor it and will look to get in when I see some signs that the current trend is likely to continue.

Trading Update - Lonmin +9% and a short opportunity.

2009-05-31T22:10:00.008+01:00

Trading update for Sunday 31st May 2009.

Lonmin (LMI.L) is up nearly 9% since I was filled on 27th May. (See AtticFund details here) Technically it still looks very strong. I've tightened my stop but will continue to give the trade some room.

I'm still waiting to get filled on my buy order for Spice Holdings (SPI.L). The stock continues to edge up, but I need a small drop to value for my Buy Limit to get filled.

My scan revealed a couple of potential shorting opportunities. The one that caught the eye is Talvivaar Mining Co (TALV.L). The RSI indicates that the stock is overbought and when coupled with reducing momentum and the last daily candle with a long wick, I'm expecting to see this stock retrace on Monday's trading. Given the overall market conditions are bullish, this is a small experimental short position.

My order details;

Sell Stop @ 332p (Below current close price)

Stop - 342p (If it's not going down, I'll know pretty quickly - hence a tight stop)

Target - 328p (Expect a small retracement to around this level in early trading)

Position size - £7/point. (£7 * 10pts = £70)

Max risk - £70 (0.06% of The AtticFund)

Trading Updates - AtticManTrader returns...

2009-05-26T22:28:00.017+01:00

After my period of self-imposed exile it's time to get back on the horse......

My AmiBroker software is now spewing out buy and sell signals and although some further tweaking is required, I'm able to quickly locate potential stocks to invest in. Purchasing AmiBroker has definitely improving the efficiency of the AtticMan Trading operation. I can upload and analyse over 400 End of Day prices in about 10 minutes. I'll go into more detail on exactly what and how I'm scanning, but in essence the strategy has not changed since I blogged about it earlier this year

Orders placed tonight;

Spice (SPI.L)

Utility Support Services.
Income growth yr on yr (04-09).
Weekly and Daily uptrend.
This is a low volume stock, so spread may be an issue.
Rating - Strong Buy

My order details;

Buy Limit @ 64p (Pullback to just above 8EMA)

Stop - 51.47p (Below recent Trading Channel)

Target - 80.47p (Potential Resistance)

Position size - £13/point. (£13 * 13pts = £166)

Max risk - £166 (1.5% of The AtticFund)

Lonmin Plc (LMI.L)

South African based Platinum company.
Income growth yr on yr (04-09).
Weekly and Daily uptrend.
Looking for Pullbacks to 1314 for entry.
Rating - Strong Buy

My order details;

Buy Limit @ 1315p (minor pullback to 8EMA)

Stop - 1215p ('Artistically placed' below 4 day lows)

Target - 1631p (Potential Resistance - Triple Top)

Position size - £1/point. (£178 - note: not using guaranteed stop on this one at extra spread would be 10 points)

Max risk - £178 (1.6% of The AtticFund)

Stocks on the watch list

Fresnillo (FRES.L)

Mining & associated activities (Non-ferrous minerals).
Income growth yr on yr (04-09).
Weekly and Daily uptrend.
Looking for Pullbacks to 654 for entry.
Rating - Strong Buy

McBride Plc (MCB.L)

Personal Care products.
Steady income growth yr on yr (04-09).
Currently too far from value entry.
High Debt/Equity Ratio is concern.
Looking for Pullbacks to 130 - (will then reassess)
Rating - Medium Buy

Homeserve Plc (HSV.L)

Insured repair & Emergency services to the home.
Steady income growth yr on yr (04-08).
Loss in 09.
Currently too far from value entry.
Looking for Pullbacks to 1277 (will then reassess)
Rating - Medium Buy

Telecity Group Plc (TCY.L)

Pan European data centres.
Steady income growth yr on yr (06-08).
Looking for Pullbacks to 282 (will then reassess)
Rating - Medium Buy

Premier Oil Plc (PMO.L)

Oil and Gas exploration.
Steady income growth yr on yr (04-08).
Looking for Pullbacks to 1041 (will then reassess)
Rating - Medium Buy

Dealing with Subconscious Profit Protection Syndrome

2009-05-25T23:12:00.007+01:00

or 'ceasing to trade after a period of success'

The AtticFund has an 'ok' start. Up 7.7% after 6 weeks. It's not bad and its not great.

But I find myself in a 'mental place' that is preventing me from getting invested. There are a number of reasons for this.

1) I'm protecting the profit
2) I've booked some profits on positions that have subsequently made huge advances in my favour - When this happens its really hard to remind ones self that the market doesn't care one bit how I have traded in the past. It does not care that I've left money on the table. However getting into a stock that was 40% cheaper only a week ago (even when the system is still giving you a buy signal) is bl*ody hard!
3) My stock selection methodology needed revisiting (This is in hand and so I'm just left with the reality of dealing with my current mental state - God I sound like I need to be sectioned!!)

Here is what I plan to do in order to overcome Subconscious Profit Protection Syndrome;
1) Acknowledge that I have an issue with getting back into the market after a period of relative success - When I get this feeling remind myself that the market doesn't give a sh*t about me and what I have/haven't made in the last couple of weeks.
2) Forget any trades that I made (that subsequently moved big time in my favour, by removing them from my watchlist and ceasing to follow their activity - until such time as they reappear on the watchlist because they conform to my trading parameters)
3) Record my feelings in blog as this helps me to understand, clarify and move forward

Lovely Jubbly - Personnel therapy session complete....

AtticManTrader - has he stopped trading?

2009-05-25T22:39:00.013+01:00

It would appear that activity in the Attic has dwindled to a standstill!

No blog posts since 10th May and no trades since the 5th May!

There are two reasons for this lull in activity.
1) After a period of relative success, I find I subconsciously protect my account by reducing my trading activity - I call this Subconscious Profit Protection
2) I've been refining my strategy

Let me go into more detail.
Reason #1 - Subconscious Profit Protection
This is not the first time that I have ceased to trade after a period of relative success. It seems to be a defense mechanism that is built into my subconscious. I need to work on this, because I do not want to stop trading after successes, what I want to do is protect profits whilst continuing to work the account. At least I've identified this personality trait. How I deal with it is the next step.

Answers on postcard....

Reason #2 - Strategy Refinement
I've acknowledged elsewhere on this blog, that my method of stock selection needs improvement. I've never had a trading strategy that allows me to auto scan 100's of stocks in order to find a pattern that then provides me with a short-list of stocks to analyse further. I've been addressing this - and recently purchased a license for a product called AmiBroker. So far, I've been mightily impressed with its functionality. I've been working on developing code to auto-scan a list of FTSE companies in order to provide a short-list of stocks that I can investigate further. I'm progressing well, but I have to say, that my coding skills are somewhat rusty and it is taking a little more time than I'd planned. I hope to start trading with the system in the next week or so.

Leveraged vs Non-Leveraged Trading - A simple example

2009-05-10T22:23:00.008+01:00

I met a friend for a couple of beers last night and during the course of our conversation I realised that he knew very little about the advantages of Leveraged Trading over traditional Non-Leveraged Trading.

I thought a post with a couple of examples may help.

This example describes how you can use Spread-betting as a way of leveraging your trading;

In both examples I have £3,000 to invest;

An example of a traditional Non-Leveraged Trade.

I'm interested in a stock that is trading at 13p. For my £3,000 I can buy 23,076 shares.

The stock goes to 16p. My investment is now worth £3,692 - A return of 23%

An example of a Leveraged Trade.

Based upon the same example as above. I want to control the same amount of shares in the 13p stock, but I want to use a leveraged product. How would this work?

My leveraged trade needs to 'act' as though I have 23,076 shares. Meaning for every 1p rise my leveraged trade will need to move by £230.76p (23,076 *0.01). So I simply 'go long' (or buy) a spread trade at £230/point. I now effectively control 23,076 shares.

The spread-betting company I use would ask that I deposit £750 in order to open this position (Each spread trading company have differant ways of calculating deposit requirements). The remaining £2,250 I decide to invest in a low risk bond or some other non-corrolated market.

The stock moves to 16p - A 23% gain in the stock price, but a huge 93% on my deposit of £750.

The Risks

Obviously there are risks involved in this type of trading - for example if the stock falls to 1p, in the non-leveraged example all that happens is my investment is now worth £230, whereas in the Leveraged example I would have been asked to deposit more funds in order to cover the loss.

Spread-betting in the UK is not subject to income tax, making it additionally attractive. However is does carry additional risks which do need to be fully understood before it's sensible to start trading in this way.

Software Sector - Due a correction?

2009-05-10T15:00:00.003+01:00

I'm sat in front of the screen listening to Sinatra whilst browsing through the charts. My little boy is having his afternoon nap just a couple of yards away - he looks so peaceful. A beautiful way to spend a Sunday (for me and for him!)

The weekly software sector chart has caught my eye. The chart is very bearish - (candlestick with a very long wick) Is the sector due a correction?

This will act as a warning sign (filter) for me. I'll tread with caution when considering software stocks over the next couple of weeks

Solarworld AG - A real ray of light?

2009-05-05T21:55:00.007+01:00

In a previous blog post, I mentioned Solarworld AG (SWVG.DE) as a good friend of mine had invested in the company as part of his mission to manage his own investments.

Today I decided to take a closer look at the charts (for more information on Solarworld, click here)

Starting with the weekly chart (below) - first things that jump out are:

1. It's trending up, and has been since late Feb/early March this year.

2. It's trading above the 8 and 21 EMA which is bullish

3. 3 candles ago, a bullish (Doji) candle formed. It's bullish because it has a long tail, indicating selling pressure, but closed nearer its highs indicating that buyers won.

I've noted my observations on the graph below;

So, the weekly is telling me its bullish.

So now lets take a closer look at the daily chart and take into account other stuff like Support & Resistance;

General observations;

1. Its bullish and in a nicely formed uptrend

2. It pulls back nicely, and (in the main) respects the 8EMA (good buying opportunities)

3. Nothing on this graph indicates that this stock is due a major correction.

4. The 1,800 Level of Resistance became Support

5. The stock pushed through 2,000 at the 2nd or 3rd time of asking

6. 2,200 is potentially setting up to become a level of resistance

7. 2,400 is potential resistance

So, that's all well and good, but how to trade it? Well that depends if and when you got into the stock and what time frames you trade!

If I had planned to invest in the long term in Solarworld and the fundamentals are unchanged, then there is nothing technically to convince me to exit the position.

If I had hit a predetermined profit target, I would book some profits and move my stop to around 1,800 in order to protect my gains, and then let the remainder of my position run.

If I was looking to get invested in Solarworld for the first time (which I am now seriously considering), then I'd look for pullbacks to the 8EMA (likely to be around 2,050-2,100). I'd invest 2% (as always!), with my initial target around 2,400 and my stop around 1,800 - giving me a respectable Risk/Reward ratio of 1:1.4.

Do you have the mindset of a Pro or Amateur Trader?

2009-04-29T20:40:00.000+01:00

As we progress along our journey toward being successful traders, we often find the biggest issue we have to deal with is ourselves.

This is not a profound statement - anyone who studies trading is forever being reminded that trading is '20% about the system and 80% about the mind' And yet how many aspiring traders really understand this statement? I'd suggest that not only do very few aspiring traders fully understand this, but that a good portion of traders who believe they've developed the mindset, only believe this because they are going through a purple patch in their trading and making money.

What happens to these traders when their purple patch ends and they experience a run of losers? Is their mindset sufficiently 'mature and developed as a trader' that they accept this inevitable string of losers and simply buckle down and keep trading their plan?

I know I have a long way to go before I could look you in the eye and with 100% confidence tell you I had developed 'the traders mindset'. There are a lot of things that I do right as a trader and I know I am developing the mindset, but there are still things I do wrong, that remind me I have a long way to go.

Developing the right mental approach to the market takes an incredible amount of experience and understanding - there is no real substitute for this. You need to experience the euphoria of a great trade, and the downright misery of a bad one. You need to learn to put these emotions aside and move on. And that is incredibly hard.

How many of us have seen a stock rocket 10,20 or even 30% in our direction right after we closed our position for (what we thought) was a very nice 5%? How did that make us feel? For me, when this happens I still work out how much I left on the table and think 'if only'! What I should be doing is firstly patting myself on the back and reminding myself that I took a profit, and then working on improving my exit strategy.

And what about the times when our stops are taken out only for the stock to rocket once again in our direction? How does this make us feel? For some of use, we blame the professionals, they obviously went fishing for our stops! But who put the trade on? Us or the professionals? If you accept responsibility for your trading then you are well on the way to developing the right mindset.

Most traders will have heard of Mark Douglas - the man is rightly credited with writing one of the best books on Trading Psychology available - Trading in the Zone. I constantly remind myself what Mark's key messages are;

Anything can happen.
You don’t need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Every moment in the market is unique.

Thinking about what these messages really mean gives me an inner calm when trading, and that is absolutely vital towards success.

For me, a big part of developing a traders mindset is in having a trading plan. And not just something you have thrown together because 'every trader needs a plan', but something you have developed over time that deals with all the aspects required to make you successful. A good trading plan covers off not just strategies you will use, but also financial requirements, rewards systems, hardware and software requirements and your trading disciplines (to name but a few).

Trading is a really tough way to make a living, but would you really expect a profession that offers unlimited upside to be easy to master.

AtticManTrader's journey continues......

Trading Update - A lesson in drawing Trend lines

2009-04-28T22:31:00.000+01:00

I was filled today on my Wellstream (WSML.L) order as the market continued to react to Swine Flu fever!

I've been drawing trend lines on the graph all day (I know, I am trying REALLY hard not to look at these blo*dy things during the day but...). Take a look at the trend line defining the bottom of the upward channel that I drew on Wellstream yesterday when working out where to place my Buy Limit

Check out the badly drawn channel base trendline - Note how it is drawn directly through a couple of candles....

Now, check out a much more accurately drawn trend line, that doesn't cut through candles. Note how the stock respected the trendline today

As you can see from the second graph, Wellstream hit support today at/around 505 which, looking at the second graph, does more clearly indicate the channel base.

LESSON LEARNT: Draw your trend lines against what you see, not what you want to see! I used to used a Line in Close graph to draw Support and Resistance levels. I'm going to experiment with this approach once again.

Check out the updated portfolio to see how badly Wellstream behaved on its first day in the AtticFund!

Swine Flu - A traders view

2009-04-28T09:55:00.000+01:00

This time last week, I'd never heard of Swine Flu and now I can't open a paper, watch a TV show or read an Internet page without being told how I 'must wash my hands after a handshake' to prevent being taken out by this deadly beast.

I'm not here to talk about the medical, moral or humanitarian issues surrounding this potential pandemic - I'll leave that to more mainstream sources (Click here to link to the World Health Organisations statement on Swine Flu).

What I want to do is consider what effect Swine Flu may have on the global economies and what traders can do to protect their accounts from any potential fallout and maybe even position their accounts to make a profit.

First lets put some context around this outbreak of Swine Flu.

There were 3 pandemics in the 20th Century.
'Spanish influenza' in 1918 killed between 40m & 50m
'Asian influenza' in 1957 killed 2m
'Hong Kong influenza' in 1968 killed 1m
'Ordinary flu' kills about 0.5m to 1m people every year (That's about 12,000 Brits)
If 1918 figures are extrapolated to current populations then 'Swine Flu' would kill 180m to 360m worldwide

As we know, fear and greed move markets. Right now fear is the predominant emotion - just look at the volume of news focusing on the issue - this fear is causing global markets to drop.

Fear is the last thing the markets need right now but what is the likely impact? If this fear continues and if 'Swine Flu' does become pandemic, then global economic costs could be huge.

Which sectors will feel the pinch and where can we look to invest to protect our hard earned cash?

Businesses that rely on cross-border trade, with just-in-time supply channels will suffer. Sectors like trade, travel and retail will all be adversely affected. A reduction in travel will affect airlines, holiday companies and energy suppliers. Companies with exposure to volatile emerging markets could also be disproportionally affected. As demand decreases, so the commodity markets will suffer. Expect to see companies involved in commodities (whether that be extraction, refining, distribution or retail) also hit.

There will be sectors that benefit, such as pharmaceuticals and I'd also expect to see a renewed interest in Gold. Bond yields are also likely to rise (they just work in the opposite direction of the stock market).

Whatever happens, I'll still be looking at the charts and following my system. But, I will be keeping in mind the bigger picture as long as the situation remains a news worthy item.

Trading Update - Wellstream

2009-04-27T23:49:00.000+01:00

Today Wellstream (WSM.L) traded down on very low volume.

The stock looks to be consolidating and a pullback is very much on the cards.

Since 17th April average daily volumes are down to less than 10% of average April volumes. But what does this mean? Well, from my point of view, it means that the 'prices moves' the stock has made since the 17th April have no real conviction behind them (eg there is no professional money in the market) and more importantly, the large down day on 20th April was not a reversal, but a pullback.

So, revised Wellstream order

Buy Limit @ 535p (A minor pullback required for a fill)

Stop - 485.85p (Well below potential support - giving this trade some room)

Target - 606.85p (My initial target - depending on how/if it gets here, I'll make a decision)

Position size - £3.75/point. (£3.75 * 53pts = £198.75)

Max risk - £198 (less than 2% of AtticFund)

Top issues that traders need to deal with

2009-04-27T11:00:00.002+01:00

The idea for this post came to me as I was beating myself up on a number of things I should have done last week but didn't. It is by no means definitive, so please add your thoughts and comments!

Every trader leaves money on the table, its just part of trading
If you miss an opportunity in the market, there will always be another one
No-one is right all of the time
Finding something that makes you money is more important than being the cleverest guy in the room
Once a trade is over, its over. Close the chart and move on
Systems fail - Be aware of this and have plan to deal with this reality
Planning to get into a trade is as simple as clicking a button. Planning to get out is the hard part
Each trade is a unique occurrence - past performance has NO bearing on future performance (I sound like a disclaimer :))
An edge is not a guarantee of success