Saturday, 23 January 2016
Wednesday, 20 January 2016
HEDGING YOUR POSITIONS (holding buys and sells)
How are we all doing in this turbulent time for traders? I will be honest and say I am not making a lot of money (but I have been making some) and it's times like this that I can honestly say I am feeling frustrated, worried and confused about where the market would go from here. As I write this Wall st is looking down the barrell of 300 point drop and its still 7 hours until the markets open.
One thing that has saved me is the fact that I had positions hedged on both the up and down so that took much of the impact of the recent falls over the start of the year. One thing I can be sure of is that without those sell positions there is no doubt I would have run out of liquid funds in my account and subsequently been sold out of the market (akin to a margin call)
Luckily I had a few sell positions .... (well not luckily, I keep them as a matter of principle) to offset any sudden drops in market and over the last 2 weeks it has come in very handy.
HERES AN EXAMPLE OF HOW THIS MIGHT WORK
Lets say you were following my strategy and you had 10 open positions going up, and you felt that the market was a little shaky.... or maybe you felt that the market was just "over bought" and was due for a correction you could take out some sell positions. lets say I took out 5 sell positions this would mean I have 10 going up and 5 going down. Lets say I go to bed at night (Australian time) and the market completely shits the bed and drops 200 points that means i loose $2000 worth of equity on the 10 x buy positions but I gain $1000 on the sell positions. So basically this halves the damage a drop like that can cause... Its a good little insurance plan for when these things happen .... I like to trade with at least a few sells positions offsetting my buy positions so that when a massive slide starts to happen (and lets face it... it seems to be happening every couple of months) i've got a little head start on it.
I can either close off the sell positions now and cash in my $1000 and hope the markets rebound maybe sell off 1 or 2 of those positions and wait till the market looks like its going to bounce back
The longer you've spent in the market the better your sense for these things will be but it does extend your trading range by a long way by hedging positions on both the ups and downs.
If you take out short positions at the bottom of the market it may save save you temporarily but then you have to unwind those positions as the market retraces its losses. If the market drops well below the point where you decided to hedge with sell positions it's much easier but if the market drops to the point where you opened up your sell positions then bounces back this can be rather difficult and leave you with a whole bunch of legacy sell positions that can be expensive to unravel later.
HERE'S AN EXAMPLE OF HOW THIS MIGHT WORK
Lets say you have the market tanks and you take out 10 positions to go down and you get it at the bottom of the market and the market retraces 300 points in the next couple of days you are now carrying a loss of $3000 if you don't unwind those positions before they get out of control, and you either have to throw in more money or get yourself in a bind that you can't get out of,,, but I think it's still worth the risk because if you find yourself in that situation generally speaking you would have been margin called anyway. This won't always save you but it does give you a fighting chance.
Generally speaking if you are going to do this (and it has helped me a few times... and bit me on the butt a few times) be careful ..... it is better to start hedging the bets before you are about to be margin called so you can stagger these things out ... and then close off any sell positions you might need to sell on the way up once you experience this you'll know what I'm talking about...
One thing that has saved me is the fact that I had positions hedged on both the up and down so that took much of the impact of the recent falls over the start of the year. One thing I can be sure of is that without those sell positions there is no doubt I would have run out of liquid funds in my account and subsequently been sold out of the market (akin to a margin call)
Luckily I had a few sell positions .... (well not luckily, I keep them as a matter of principle) to offset any sudden drops in market and over the last 2 weeks it has come in very handy.
HERES AN EXAMPLE OF HOW THIS MIGHT WORK
Lets say you were following my strategy and you had 10 open positions going up, and you felt that the market was a little shaky.... or maybe you felt that the market was just "over bought" and was due for a correction you could take out some sell positions. lets say I took out 5 sell positions this would mean I have 10 going up and 5 going down. Lets say I go to bed at night (Australian time) and the market completely shits the bed and drops 200 points that means i loose $2000 worth of equity on the 10 x buy positions but I gain $1000 on the sell positions. So basically this halves the damage a drop like that can cause... Its a good little insurance plan for when these things happen .... I like to trade with at least a few sells positions offsetting my buy positions so that when a massive slide starts to happen (and lets face it... it seems to be happening every couple of months) i've got a little head start on it.
I can either close off the sell positions now and cash in my $1000 and hope the markets rebound maybe sell off 1 or 2 of those positions and wait till the market looks like its going to bounce back
The longer you've spent in the market the better your sense for these things will be but it does extend your trading range by a long way by hedging positions on both the ups and downs.
DISCLAMER:
If you take out short positions at the bottom of the market it may save save you temporarily but then you have to unwind those positions as the market retraces its losses. If the market drops well below the point where you decided to hedge with sell positions it's much easier but if the market drops to the point where you opened up your sell positions then bounces back this can be rather difficult and leave you with a whole bunch of legacy sell positions that can be expensive to unravel later.
HERE'S AN EXAMPLE OF HOW THIS MIGHT WORK
Lets say you have the market tanks and you take out 10 positions to go down and you get it at the bottom of the market and the market retraces 300 points in the next couple of days you are now carrying a loss of $3000 if you don't unwind those positions before they get out of control, and you either have to throw in more money or get yourself in a bind that you can't get out of,,, but I think it's still worth the risk because if you find yourself in that situation generally speaking you would have been margin called anyway. This won't always save you but it does give you a fighting chance.
Generally speaking if you are going to do this (and it has helped me a few times... and bit me on the butt a few times) be careful ..... it is better to start hedging the bets before you are about to be margin called so you can stagger these things out ... and then close off any sell positions you might need to sell on the way up once you experience this you'll know what I'm talking about...
Tuesday, 5 January 2016
EXAMPLE 1.0
BASIC EXAMPLES OF HOW A SHARE CAN MOVE #1
Example a fictional company called “ABC” is valued at $10,000,000 (10 mil) and issues 1,000,000 shares at $10 each that means that if you buy 1 share you own one millionth of the company if you were to buy 10000 shares you would effectively own 1% of the company
Some companies will pay a dividend which is a distribution of profits sometimes payed out to shareholders yearly or more often half yearly. Other companies might not pay out a dividend and choose to re-invest any profits into the company.
lets say ABC does pay out a half yearly dividend to its share holders of $0.40 per share (which is a fairly healthy payout rate) you would get two payments per year equivalent to this so if you owned one share you would get 2 x payments $0.40 or if you owned 10000 shares you would get $4000 twice a year, a total yield of 8% per year
Lets say another fictional company XYZ is valued at a similar amount ($10mil) and floats 500000 shares at $20 each but lets say each $20 share pays a dividend of $0.60 a share - still a reasonable payout,yielding 6% per year but not as good as ABC.
Based on these facts alone ABC holds a more attractive dividend yield than XYZ and on the surface would appear to be a more attractive option for investors.
Common sense would say that more people would be interested in buying “ABC” and the rules of supply and demand would take over and push the price of ABC upwards…. lets say over the course of the year it might go to $12 per share, which in the real world would not be out of the question. This equates to a 20% increase on the share price. Its market capitalization would now be $12mil
Would XYZ go up or down? Hard to say. 6% is still a good yearly yield and in market conditions of late will still return more than putting the same amount of money in the bank … real estate hasn’t done much over the last few years so where else are you going to put your hard earned money? XYZ while not as brilliant an investment as ABC is still better than many other options out there so maybe there is still a demand for it?? It might go to $22.00 per share over the course of the same year. This would equate to a 10 percent increase in the share price. Its market capitalization would now be $11mil
So which is the right choice? Well both shares did alright really, they both returned better than any other common investment (bank deposits and most real estate) and realistically any money you make is good, but ABC was definitely the BETTER choice.
Example a fictional company called “ABC” is valued at $10,000,000 (10 mil) and issues 1,000,000 shares at $10 each that means that if you buy 1 share you own one millionth of the company if you were to buy 10000 shares you would effectively own 1% of the company
Some companies will pay a dividend which is a distribution of profits sometimes payed out to shareholders yearly or more often half yearly. Other companies might not pay out a dividend and choose to re-invest any profits into the company.
lets say ABC does pay out a half yearly dividend to its share holders of $0.40 per share (which is a fairly healthy payout rate) you would get two payments per year equivalent to this so if you owned one share you would get 2 x payments $0.40 or if you owned 10000 shares you would get $4000 twice a year, a total yield of 8% per year
Lets say another fictional company XYZ is valued at a similar amount ($10mil) and floats 500000 shares at $20 each but lets say each $20 share pays a dividend of $0.60 a share - still a reasonable payout,yielding 6% per year but not as good as ABC.
Based on these facts alone ABC holds a more attractive dividend yield than XYZ and on the surface would appear to be a more attractive option for investors.
Common sense would say that more people would be interested in buying “ABC” and the rules of supply and demand would take over and push the price of ABC upwards…. lets say over the course of the year it might go to $12 per share, which in the real world would not be out of the question. This equates to a 20% increase on the share price. Its market capitalization would now be $12mil
Would XYZ go up or down? Hard to say. 6% is still a good yearly yield and in market conditions of late will still return more than putting the same amount of money in the bank … real estate hasn’t done much over the last few years so where else are you going to put your hard earned money? XYZ while not as brilliant an investment as ABC is still better than many other options out there so maybe there is still a demand for it?? It might go to $22.00 per share over the course of the same year. This would equate to a 10 percent increase in the share price. Its market capitalization would now be $11mil
So which is the right choice? Well both shares did alright really, they both returned better than any other common investment (bank deposits and most real estate) and realistically any money you make is good, but ABC was definitely the BETTER choice.
Tuesday, 22 December 2015
Unfortunatley this article on the Australian Financial Review pretty much sums it up for us here in Australia and probably many others around the world.
Hopefully this year things level out a bit and the markets are a bit more predictable....
A DECADE TO WRITE OFF
Hopefully this year things level out a bit and the markets are a bit more predictable....
A DECADE TO WRITE OFF
Friday, 11 December 2015
CAPITALISING ON YOUR SUCCESS
Ok, things are starting to go good and you're making money consistently, everything is looking good.... What to do now?
SEPERATE YOUR MONEY
Diversify your money maybe put a set amount from your earnings into another place like pay off debts, especially if you have mortgage - maybe start another account (IG markets lets you have multiple accounts) and maybe trade something different like gold or an FX using the same strategies....
MINIMISE YOUR RISK
If you started (like I advised) on 1 x ASX200 contract on $2000 and you want to increase your earnings you can play 2 x ASX200 on each trade. I like to see my risk reduce each time I up the bet so maybe i wouldn't start trading on 2 contracts until I hit $5000 (and hopefully have taken back my initial investment in payments) and 3x contracts till I hit $9000 this means that If I was to get to an account balance of $9000 I'm probably making $150 per day (thats my average anyway) on trading 3 x contracts and this is where I find it becomes a very real and valuable addition to my income. $3000 per contract would give me an approximate trading range of 450-500 points which gives me a greater safety range than trading one contract per $2000 (which would give a 300-350 point range) the further along things progress I would maybe to to 4 x contracts on $16000 and 5 x contracts on say $25000 which would give you saftey margin of 650 points (approx) which is a fair trading range and will allow you to sleep at night without constant fear of being sold off in the event of a sudden dip or whatnot.
I view trading on 1 x contract on $2000 bit of a risk and in the last 2 months there's been two events where I would have been sold out. But unfortunately we all have to start somewhere, some start on less than but at the end of the day $2000 is not a lot of money but once you get past $5000 and then $9000 this is serious money to most people and its a good idea to minimise the risk (even though by now its not really your money your playing with) its a valuable lump sum and and even more invaluable tool to make a regular income out of NOT something to be taken lightly. It is better to have this amount coming in regularly Ideally i want to have this coming in as an income for the rest of my life, the actual dollar amount for me is not as important than the security of having something come in like clockwork every day or week but thats just me, you may make more money by upping your bets and taking a risk but you may also get sold out and have to start all over again
I'm now trading over $3000 per contract and it is this that managed to get me through the turbulence of the last couple of months hopefully soon i'll be trading on $4000 or more and believe me its much better for your heart and sleeping patterns :)
SEPERATE YOUR MONEY
Diversify your money maybe put a set amount from your earnings into another place like pay off debts, especially if you have mortgage - maybe start another account (IG markets lets you have multiple accounts) and maybe trade something different like gold or an FX using the same strategies....
MINIMISE YOUR RISK
If you started (like I advised) on 1 x ASX200 contract on $2000 and you want to increase your earnings you can play 2 x ASX200 on each trade. I like to see my risk reduce each time I up the bet so maybe i wouldn't start trading on 2 contracts until I hit $5000 (and hopefully have taken back my initial investment in payments) and 3x contracts till I hit $9000 this means that If I was to get to an account balance of $9000 I'm probably making $150 per day (thats my average anyway) on trading 3 x contracts and this is where I find it becomes a very real and valuable addition to my income. $3000 per contract would give me an approximate trading range of 450-500 points which gives me a greater safety range than trading one contract per $2000 (which would give a 300-350 point range) the further along things progress I would maybe to to 4 x contracts on $16000 and 5 x contracts on say $25000 which would give you saftey margin of 650 points (approx) which is a fair trading range and will allow you to sleep at night without constant fear of being sold off in the event of a sudden dip or whatnot.
I view trading on 1 x contract on $2000 bit of a risk and in the last 2 months there's been two events where I would have been sold out. But unfortunately we all have to start somewhere, some start on less than but at the end of the day $2000 is not a lot of money but once you get past $5000 and then $9000 this is serious money to most people and its a good idea to minimise the risk (even though by now its not really your money your playing with) its a valuable lump sum and and even more invaluable tool to make a regular income out of NOT something to be taken lightly. It is better to have this amount coming in regularly Ideally i want to have this coming in as an income for the rest of my life, the actual dollar amount for me is not as important than the security of having something come in like clockwork every day or week but thats just me, you may make more money by upping your bets and taking a risk but you may also get sold out and have to start all over again
I'm now trading over $3000 per contract and it is this that managed to get me through the turbulence of the last couple of months hopefully soon i'll be trading on $4000 or more and believe me its much better for your heart and sleeping patterns :)
Thursday, 3 December 2015
SAFTEY RULES ON LEVERAGED TRADING
SAFETY RULES ON LEVERAGED TRADING
Here are some "Mental Health" and "Safety" ideas I have learned from the last 5-6 years playing on CFD markets. Read them, they are important and will quite probably save you heaps of grief and stress
Here's some safety rules and general advice for anyone using CFDs:
Here are some "Mental Health" and "Safety" ideas I have learned from the last 5-6 years playing on CFD markets. Read them, they are important and will quite probably save you heaps of grief and stress
Here's some safety rules and general advice for anyone using CFDs:
Don't use borrowed money to play on a Margin or CFD Platform - The events of huge market swings have become all to common now and there is no point loosing money and still having to pay off a loan
Only play with money that you can afford to loose - And chances are you WILL loose initially. I did, everyone I know who plays on the CFD platforms has lost their money on the first few ventures into this world. The trading environment is tricky right now, it has been for a couple of years and shows no sign of easing up. It takes a while before people have grasp the real concepts of highly leveraged trading instruments and how badly they can be affected by leveraged markets
CFD trading and to a lesser extent Margin lending is stressful - If you don't have the head for it better to find out now than after you've invested a large lump sum into it. You WILL have sleepless nights - it will pre-occupy many of your thoughts and take up a lot of your waking hours. Be warned. CFD trading is a much different head space to just a slow buy and hold strategy and is not for everyone. It is risky and if you are naturally adverse to risk this is NOT for you
Take out winnings regularly. Eventually you will start to make money, I take out 50% of what I earn on an almost daily basis so if a huge market swing comes along and wipes out my trading fund I can say to myself at least I had that income coming in , and hopefully I have made back my initial investement (which for me usually takes a 2-3 months)
Keep an Emergency Fund Put a little aside to start trading again from scratch in the event of a market swing going against you and wiping out your trading fund. then you can start again and keep the cash flow coming in.
DIVERSIFY - if you find that you're making a lot of money dump it back in a non leveraged portfolio or use it to pay down loans mortgages etc.... use some common sense,,,, don't go spending it all on hookers and crack!
TIMING IS EVERYTHING
Ok, we've reached a situation where Gold is at its lowest point in 5 years... (Dec 3, 2015)
Do you think it will go up or down? (I think it will recover from here in the short term, but thats just my opinion) so what do we do? If you DO think it will go up consider buying some gold, or the shares that have taken an almighty beating because of the gold price drop, if you have access to the australian markets BHP, Newcrest Mining NCM and Fortescue Mining FMG have taken some huge hits.
Also Oil, and Iron Ore, Silver and many minerals have copped what we Australians' call a 'flogging' . Here's some home work for you, check out the share prices companies that mine/distribute/resell oil, gold, ore etc... and look at how they are doing in the sense of where they are for the year, last few months and last few years.
In my opinion there are some bargains going begging. Go have a look!!!
UPDATE: Ok, I made a prediction a couple of days ago that gold will go up, as it took a beating and was poised to go up. 2 days later it went up by $30.00 per ounce (approx) which means I made a nice little bit of extra cash and did it quick. I don't usually trade gold so now I'll get out (runs off down the pub) and withdraw my recommendation. I still think Gold will go up in the long term from where it is now, but for my interests and strategies I'd rather sit on on the sidelines for a while and wait till it cops another hammering and make a decision then.
Do you think it will go up or down? (I think it will recover from here in the short term, but thats just my opinion) so what do we do? If you DO think it will go up consider buying some gold, or the shares that have taken an almighty beating because of the gold price drop, if you have access to the australian markets BHP, Newcrest Mining NCM and Fortescue Mining FMG have taken some huge hits.
Also Oil, and Iron Ore, Silver and many minerals have copped what we Australians' call a 'flogging' . Here's some home work for you, check out the share prices companies that mine/distribute/resell oil, gold, ore etc... and look at how they are doing in the sense of where they are for the year, last few months and last few years.
In my opinion there are some bargains going begging. Go have a look!!!
This is the gold chart from today , covering 2007-2015 where it finished on around 1050 per ounce. In all honesty it could go lower but I don't think the downside risk is much bigger than the upside gain, but thats a choice for each individual investor, i'll be taking a short term position on gold ;)
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