LESSONS LEARNED OVER FOUR YEARS
LESSONS LEARNED OVER FOUR YEARS
Firstly, apologies for being so lazy and not updating this column enough. I could blame a dodgy knee, but that's probably not enough is it?
So I am going to make an effort and update here more often with some thoughts.
The new edition of my book "Naked Trader" has just been published - Naked Trader 3. For a next day delivery copy, you can order it from the ADVFN bookstore here.,...ADVFN bookstore
In it are a plethora of ways you can use ADVFN to help your trading. The great thing about the ADVFN website is there really is everything you need on it and the new book, I hope, explains many of the interesting ways you can use it to great effect.
For example one of the unsung features of ADVFN is "Highlight Phrases". To find it click "News" and you'll see "Highlight Phrases".
I use this to highlight positive and negative words in company statements; and to quickly find the debt and dividend payment dates, see the book for the full set of words I use...
Also, I got thinking about the differences to the market since I wrote edition 2 in 2007 and this edition in 2011.
The biggest difference has to be the volatility in the market.
This is caused by a number of factors. One of them is high frequency robot trading in which robots push share prices up and down using algorithms. Another is automatic stop losses, which many people now set – this usually means a share price move is exaggerated by stops being hit.
All this means having access to Level 2, I use ADVFN’s, as it is more and more important so you can see the real action.
One new tool that has arrived since 2007 is Deutche Bank's Supershort (SUK2), which makes it possible to go short inside a tax free ISA.
I have used this tool endlessly to make money from big FTSE down moves. It goes up nearly twice as much as the FTSE goes down, though there is also a time factor so it should be used as a shorter term tool. A whole chapter on this is in the new book.
What else has happened in the intervening years?
Spread betting continues to be good for me. The main difference between now and 2007 is that competition has made spreads a whole lot tighter.
For example it's now possible to trade the FTSE nearly spread free or just a point. Spreads on shares themselves are so tight it really is possible to trade tax free using ISAs and spread bets, using spread bets more often because of the tighter spreads.
Downside over the last four years? Well, volatility makes it much harder to place stops.
In my 2007 edition I suggested 10%. However, in the current volality in top shares, it is not nearly enough and 15% could be nearer the mark, or cutting losses really fast could be an even better move.
The volatility makes it really hard for ‘buy and holders’. But one thing is still for sure; value in a company will still come out over time. For example, my long-term buy in Telecom Plus has still made me a fortune despite the market gyrations.
Another thing has changed in the four years; small oil and mining shares were all the rage then. Recently that has changed and many have got burned. Traders took way too much risk and used too much leverage.
Also, attitude to debt has changed recently. In 2007 debt didn't matter, it was almost seen as a good thing.
Things have changed big time now. Debt is bad. Use my highlighter system to home in on debt. Avoid anything with a massive debt as the market simply does not like this now.
In summary, what I have learned in the time betweeneditions? A number of things as markets always change.
All in all the main changes I have made are:
- Act more quickly to take small losses
- Keep punts in small oil stocks to low stakes
- Use SUK2 and FTSE shorts to make money from downside
- Stay away from companies with big debt
- Enjoy life - money isn't everything!
I wish all of you the best in the current tricky conditions and if you buy it hope you enjoy the new book!