July 3, 2009
Posted: 1513 GMT
LONDON, England - Several days have elapsed since my very useful meeting with Robbie Burns, a.k.a. the Naked Trader. Robbie's advice and encouragement have helped me narrow down just what sort of trader I'm going to be as I try my hand on the money markets.
I’ve decided that I'm not going to trade currencies or indexes as I don't have the time to sit in front of my computer all day waiting to take advantage of intra-day price movements. Also, I don't have nearly enough experience with the trading platforms to get in and out of positions quickly.
I won't be trading commodities for the moment either. I just don't know enough about the commodities markets, but I will start to follow gold in the hope that one day I'll feel that I know enough to spot opportunities. That leaves just shares - and UK companies in particular. As a financial journalist it's what I know best having followed the ups and downs of the stock markets, day in day out, for the last 15 years.
So, I'm not going to be a day trader. In reality I'm going to be somewhere between a swing trader, who looks to take advantage of medium-term price changes, and a trend trader, who looks to take advantage of longer-term price trends.
Now that I know who I am, I suppose that the moment of truth has arrived. It's time for me to stop paper trading and commit my own money to a position.
I've spent the last few days looking for companies that fit Robbie’s exacting criteria. I've been getting up at 5am and going to bed after midnight, trawling through data on the web.
So far I've come up with a list of eight companies that I think are worth watching using technical analysis - but I'm only part way through the list of FTSE 250 companies. I'll be researching and adding to my list for weeks to come.
One of my companies, which is in the defense sector, is due to release its annual report in the very near future. The "fundamentals" (i.e. my research into the company – its profit/loss, previous performance and outlook etc), look good and technical analysis is giving me a strong buy signal.
Heck, let's go for it!
When the market has settled, around 40 minutes into the session, I place a "long"spread bet, meaning that I expect the share price to rise, at £1 ($1.63) a point. I place a trailing stop loss below the level where I think it may be triggered by normal market "noise." And that's it. I'm in.
Because of the stop loss I know that my total potential loss on this trade, if it goes against me, will amount to £28 ($46), which represents a little more than two percent of my total available capital.
A heart-stopping moment comes several days later when the World Bank releases its revised economic outlook for 2009 and the markets head south. But luck is on my side. My company's share price holds firm. The next day the company releases a very healthy annual report and the share price rockets nearly 100 points in a day! The next day it rises even further and the day after it rises again.
I'd love to be able to report that I rode the price rise all the way to the top, but I didn't. I played safe and got out 88 points higher, realising a profit of £88 ($144), improving on my risk-to-reward strategy of 2:1. With time and experience I'll learn to ride the price and take profits when the market tells me that the share is overbought. But for the moment I’m happy to have made money. It feels great.
So, my first trade was a success. I'm under no illusion though – not every trade will go my way. In fact, I'm prepared for the majority of trades to go against me. But, as Robbie Burns was at pains to point out, the trick is to micro-manage my positions so that I get out of negative trades long before they can seriously erode my capital, while riding the winners. The aim is for profits to outweigh losses. This way seven out of 10 trades could go against me - but I could still make money.
I haven't traded again since my first success. I'm in no hurry, much to the frustration of my colleagues, who can’t understand why I'm not making or losing a fortune. I'm still steadily building my list of companies to watch and I'm waiting patiently for trading signals. I'll go at my own pace and won't trade recklessly, jumping in and out every time I see the vaguest of opportunities. I want to be sure that I have the best possible chance of winning before I go in again.
In the meantime I am the angler, watching his lines for a bite.
* How does Adrian Finighan fare in his career as a rookie trader? Watch Quest Means Business Monday to Friday: 1800 GMT London, 2000 CET, 0300 HK.