Halleynet Headspace

As I “develop” in the shares and trading area, its important i keep careful notes on how I perform so i can learn from the inevitable mistakes. This stuff is not really suitable for here so I have created a new blog just for this purpose. Feel free to catch it here.

Those who know me, know I like to dabble in shares, and this last 9 months or so I have been getting into trading a little. There are many ways and instruments to trade- FX (Forex), Commodities, CFD’s, Shares, Investment notes, bonds, and Spread Betting. For a number of reasons I use Spread Betting. I am not and never have been a gambler, my limit is the lottery occassionally and maybe a horse in the National! (its like the kiss of death as it usually breaks its neck or gets shot or something!).

The Benefits of Spreads are- tax efficiency- its classed as a form of gambling by HMRC so your gains are tax free, there is no stamp duty or brokers commission (as such), and you have access to loads of different markes from one account  - the downside to this is you pay a little more in the spread than you would for CFD’s and shares, and you really can’t buy to hold. Trades need to be short term- by that I mean- from minutes to a maximum of 9 months. 3-5 days tends to be typical.

To be frank I have not been making money at this “game” but it fascinates me and the people I have come across who seem to be able to get it right more than not, makes me want to improve. At present I am “down” a little on my opening capital- I have a running trade I am well up on that if I factor into my balance- I am about 10% down overall. At best I have been about 25% up. Thats after about 9 months. One thing I took on board at the start was how essential money management is- and its essential not to lose more than a few % on any trade- but when you gain you want to gain big- your gains need to exceed your losses by at least 2:1 in amount.

I don’t trade large amounts but beleive me it still “hurts” when you lose even a small amount. A big problem is many markets have a minimum trade size that means getting your entry pinpoint accurate is essential when your margin is quite small.(otherwise your risking too much capital) I have done this a few times but still always set stop losses and am still here in the game. I feel this is an achievement and many noob traders get wiped out very quickly.

There is a lot of emotion and psychology in trading, and timing is everything- in “investing” you can afford to think about the purchase or sell for a day or two (usually) as a day here or there rarely makes to big a difference over 3-5 years. But in trading a split second is like a lifetime!. You need to be able to  buy when the instrument is falling and sell when its peaking- thats a real conundrum as fear wants you not to buy into weakness and greed makes you hold when  your in profit.

 To learn more I recently attended Tom Hougaards Hard Right Edge workshop in UCL London. I learned loads though to be frank much of it was hard to absorb fully on the day- it seemed simple at the time but when you come back and sit down with the very good notes, and then are faced with the trading screen its still hard. For me my biggest problem is probably lack of a system- ie a succession of triggers and indicators that lead me to buy or sell. And also fear- of losing - and being wrong.

Being wrong and losing are OK- its part of the mechanics of trading- there needs to be a loser for there to be a winner- though i sometimes feel there is a machine watching my every move and reversing the markets against me alone when I take a trade.

Tom’s workshop was excellent in that it related these emotions and trains of thought in such a way that you realise everyone is much the same, the difference is in how the “pros” can detach themselves from the emotion and trade mechanically- for that you need a system.

I feel Toms workshop gave me a couple of good base systems to get me trading more mechanically, and I do certainly feel more relaxed when taking trades on now. His colleague Dr David Paul also provided some terribly informative insights into mechanical swing trading and the psychology- I could listen to both of these guys for days.

I would highly recommend attending these seminars- though the down side is they are in London- I was fortunate I was down there anyway at the time so it kept my costs down a bit. You can read more about Tom Hougaard at Tradertom.co.uk and see him regularly on Bloomberg money Weekend, CNBC, and the BBC.

Since attending the workshop I have been monitoring some of the stuff relayed in the seminar and satisfied myself that it does work for real. Again in one instance I went to take a trade that I felt was set up perfectly (on the DJIA) and read the notes back before I did, which sort of put me off, making me hold off until morning, where the price was a good 100 points away by that stage! I should have took the trade though sometimes feel taking trades outside hours is akin to gambling again- I have been stopped out on a numbe rof overnight positions over the last year due to the spread widening and strange looping prices that have been quoted out of hours that seem to be fishing for tight stops. A couple of the trades I have put in though have come of quite well- a short in Gold and a Long on the Dax.

I continue to learn!

Its been a rout of late, as anone with share will tell you. I am currently mainly in cash though have a few shares I am sitting on (quite content to ride it out on) and also one I made a bit of a stupid mistake on so I am just having to ride it out for the long term.

On the upside I have sold Ascent Resources for an aggregate 88% gain in three months or so, got out around 31p and they have since droppe dint he recent panic to the low 20’s. They might be worth looking at again when it blows over (if it ever does). My long term hold Kenmare, I was stopped out of unfortunately. This is a quality little company I have been into since 10.5p. They are due to start becoming cash generative next month but the shares  have been hit by a slide in miners generally. I decided to cut and run with my profits before more turmoil took over. They peaked at 67p recently but have dropped back- and I got off at 54p.  ( I had over 54000 shares in a range from 10.5 p to 50p) I would think about buying back in- long term they have very good prospects but I may be repositioning the portfolio and looking to others for better forward gains having banked profits.

Centamin- I sold out for a modest 15% or so profit before watching them hit 60p or so. They were tipped for a buy out this side of the year. Whetehr that ever comes int he credit crunch days I dunno but of late they are back at 40p again, and if things calm down may buy back in as I think most of the downside is realise din recent falls.

Jubilee Platinum- this has been a sore one. This company has valuations as high as 220p a share and I have been in and out since 33p, recently they went to 129, and I was sitting on a bucket load in both my ISA and dealing account. They started to slide recenly and having been in and out and the charts looking quite supportive I decided in my wisdon on the last drop back to sweat it out- I was several ‘000 up , what could possibly go wrong!

They continued to slide then CEO Colin Bird decided to punt over 1/3 of his holding at 108p “apparently” to diversify his portfolio, and to provide stock to brokers to increase liquidity in South Africa (They are dual listed) The shares were then rated a sell in Shares Magazine and have since tanked. Now at 70 p- ouch ouch. I got out of some  for a 25% loss but stil have loads in the ISA and will nee dto ride this out now I think. There has been no bad news really and prospects are still good, but Bird selling was a cock up I think. I seen recently on a BB he posted to another member that the house broker said that his sale had not done anything to undermine the valuation of the company and JLP had not suffered any worse in recent turbulence than any other equivalent company. My arse it hasn’t. As ever though at these levels, they may make a buying opportunity.

I am still long in

Mercator Gold
EMED- been resilient so far and looking for a multi bagger here in the next year or two
Sirius Exploration- a real punt
Kryso Resources
IImia Investments- a well run investment co with loads of cash
IQE: A tech co in wafer fab with a growing order book amongst the big boys
Glencar Mining- A small miner not much happeneing here right now
African Eagle- A dog in my portfolio- everyone should have one! woof. Probably a buy right now but I got in at 18p and they are now at 13p. But they have prospects longer term so I sit it out.
On the spreads its been a bit up and down. I am roughly break even right now. I got fed up withthe crap platform offered by Barclays (City index) and have switched to IGIndex who have an excellent platform. As a result I have been taking small trades in the DJIA, FTSE. I have had some successful trades in VOD, BHP Billiton, and RIO. and a mixture of results in DJIA and FTSE. My one bad loss has been in NOP. So far I remain close to break even point so nothing to fret about and learning a load all the time. This is a very tricky market to play right now- for example the DJIA took a leap in 60 seconds of 300 points on Friday when the Fed announced and emergency rate cut. If you were in and long you wer elaughing all the way tot he bank, if short you were crying- I was just a spectator!

Interesting shares for trading- Maypeley- these have been tanking for months, and have risen recently but will probably tank again.
VOD, trade in a range of about 10 points so good for small but steady profits.

One to watch FT (France Telecom- these have been moving steadily against the general market direction. Hese look to be range bound over a longer period and I doubt we will ever see the upside of 25euros needed for some share option schemes I have. Currently they look to be consolidating round the 20-21 euro mark.

But you can see in 5 years have basically done nothing.

Here you see the near term view and the channel they occupy.

The daily RSI is at 55 which is a good buying position andthe 21 day Moving Avrage is close to forming a golden cross. This would be a buy signal. IMO.

 Finally note there is a gap between1450 and 1550 (this chart is in pence not cents) and this might need to be closed though it did occur a few months back.

Well after literally years of consideration I decided to put a small fund into a spread trading account and give this a go. Why?

Well fundamentally the inital reason I looked at it again was that I was long on a number of shares I have bought over the last few years and had the pleasant  situation of needing to crystalise some gains in the 2006-7 tax year, so whenI come to do the same with more later in the year (assuming the prices on these stocks have held!) that I don’t get stung for 40% CGT.

Someone mentioned to me that while I sold some shares I had made some nice profits on, and with the belief that these share still have some way to run, that I could take out a long position on the spread markets to stay in while my money was out. (for the uninitiated if you sell shares at a profit and then buy back in again within 30 days this is classed as bed and breakfasting- so for CGT purposes its like you never sold them at all and you pay tax based on the original purchase price). So though I wanted to keep these shares I wanted to realise the profits.

What I wanted then to do was take up an equivalent long position on the spreads market which would not have any tax impact- as the position is notional in shares terms.

For example lets imagine I held 13000 shares in some equity at a price of 95p/share- so selling nets be a total sum of 95p x 13000= £12350. I could then open an equivelent position in the spreads market  based on the same number of shares. When you buy or sell on spreads its  based on points- in shares 1 point is 1 penny. So the a £1/point trade is the same as having the exposure to the movement of 100 shares. £1= 100pence.

So to hold a position of 13000 shares I need a £130 / point position.  Is this not risky well no more risky than holding the same shares, if the shares had dropped 2 pence on a day while I held them- I had notionally lost 2p x 13000= £260. The “loss” was notional because as long as I hold the asset (the shares) there is no financial impact. The difference in spreads is that the difference is real- there is no asset. So on the same day with a £130 point position I would have “lost” £260. This is real money though again could be considered notional in a short term sense because as far as the spread trading firm is concerned- my position is open until I choose to close it- but you need to have th emoney available to fund the loss! In otherwords if I did not have this money in my account they would call me up and ask me for it to be deposited. if you don’t deposit in due time your exposure is closed and you need to pay up. This is called a margin call.

Also due to liquidity factors and risk the amount you need on account to open such a positon requires a deposit of a set amount - in my case it was 30% of the value of the actual shares- in otherwords about £4000.

So did I do it. Well I opened the account, but it took so long and I had so many problems along the way- bank errors etc that the share I wanted to keep exposure to moved ahead considerably (ouch ! so I missed out on a nice fat gain on my holdings) AND in the spreads market. What now? Well I have dipped in and out the shares again in an ISA (again a tax free location) and have started trading the FTSE100 on spreads. Its been a roller coaster ride in only my first week but so far I have made a modest gain on my starting capital- I have also seen my first losses so don’t think its a one way street!

Share tips- well I don’t really make tips but if you want to know what I am currently holding heres my current list:

Vodafone
Ascent Resources
Kenmare Resources
France Telecom
Centamin Gold
Mercator Gold
African Eagle
Glencar Mining

And Watching

Jubilee Platinum
Barclays Bank
Royal Bank of Scotland
Chaco Resources
Gold Oil
HMV

And on spreads keeping a close eye on the spot Gold price, FTSE100 and DJIA. I am trading the FTSE pretty well daily, its been on a steady up and while I maintain a medium term view it will see 7000 before the year end its current rush seems to me a bit over bought and I will be shorting where possible.

Stay lucky- will post more on this next week.