Greenshoots

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.

Bulls gathering strength, and yet something is wrong..

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!)

FTSE remains range bound - Which side are you on?

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.

Dealing with Subconscious Profit Protection Syndrome

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?

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

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.

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

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......

Swine Flu - A traders view

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.

Top issues that traders need to deal with

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

AtticManTrader in the spotlight with TraderInterviews

A couple of weeks ago I got an email from Tim Bourquin. Tim runs TraderInterviews.com a website he created to record interviews he conducts with some of the best traders around - and he wanted to interview the AtticManTrader

So why was he contacting the AtticManTrader? Tim interviews traders in the top 5%. Because he was interviewing me, had I made it to the Top 5%!! Surely not? I dropped Tim an email, explaining my predicament but that I would be happy to be interviewed!

Tim explains at the start of each interview he conducts, that he believes all traders can help each other, so even if a single part of my interview strike a chord with another trader, then the interview would be a success.

It was kind of weird to here me on the other end of a professional interview. Tim sounds so polished, and I don't! I did realise after listening to the interview how verbose I have become. Why say 10 words when 1000's will do!!

Anyhow, check out the interview. I'd also recommend subscribing to TraderInterviews, as Tim has done some great interviews. 

Am I a long term or short term trader?

Today I had a moment of clarity. One of those penny-dropping moments that suddenly makes things clearer.

As you know, if you've been following AtticManTrader, I have been trying to move away from shorter, swing trading time frames and develop into something of a longer term trader. The reason for this was pretty simple - my lifestyle doesn't suit me constantly looking at the charts during the day.

However, as I begin to further understand myself as a trader, I realise that the constant interaction I have with the charts during the day 'suits my personality' as a trader. The fact it doesn't necessarily 'suit my lifestyle' is the reason I was trying to step up to longer time frames.

However, finding a system that suits your personality is one of the keys to success. Therefore I have a dilemma. My personality is geared toward constant interaction with the market, but my lifestyle prevents me from doing this effectively.

Today, during my penny dropping moment, I thought of a solution.

Do both!

I will continue to trade on a swing term basis to satisfy my 'trading personality'. I will have however, reduce my position size so that I'm not looking at the charts with the same mindset. If these trades lose, it will not affect my mindset. I will then (using a separate account), continue to develop longer term trades. This account I will NOT look at during the day!

This solution should satisfy both sides of my trading personna! Anyhow thats the plan! I'll keep you informed!

Autonomy Corp - the pain of trading

aarrgghhhh....b*ll#x

Autonomy Corp, rose 7.1% today to close at 1376. I blogged on 15th April (after my 1300 stop had been hit), that I was going to monitor this stock and 'see what happens'.

Well now it's bloody clear what's happened! The pro's forced the stock down, taking out the weak hands, before piling back into it on expectation that it was going to beat Q1 forecasts. Today, it duly beat Q1 expectations and rocketed upwards.

What is even more galling, is that last night I analysed the stock (as well as Centamin and Wellstream) , but decided to place orders for Centamin and Wellstream only!!

I'll say it one more time - b*ll#x

That's better, I've moved on now....(& for the record, its now too far from value to consider partaking!!)

Below - My analysis from 22nd April, looking at 68% Fib retracement

And the chart today, after its mammoth 7.14% gain!

Anyone got a story like this that the want to share???

Charter plc - A missed opportunity....

Charter PLC - A missed opportunity

In my blog post on 30th March, I highlighted Charter Plc as a stock I would be interested in getting involved in. I was waiting for a pullback, which duly occurred on 8th April (see point B on the chart below). My limit order was set at 432 (just so you know I'm not making this up, see the screen print I've attached of the Charter order!!). The stock made a low of 432.5 before continuing its move north. It now currently sits at 485.9p and is looking good for more gains.

I'm going to be waiting patiently for another pullback (secretly cursing that I missed this move!)

Thats trading though.

See my Charter order that failed to fill by 0.5p and which I then subsequently cancelled.

Some useful Trading Websites

I've been spending some time trying to work out what the bloody hell delicious.com is all about.

Am I getting old?  I used to be pretty clued up on stuff 'web related' - But I fail to understand how its become so big?

It's a website that allows you to store your bookmarks..............errr, thats it?? Well you can share them with others, but isn't that sort of like a crap search engine? (ok, so Google did buy it for a reported $30 million, so perhaps I'm just missing the point!!)

Anyhow, I'm sure some people find it useful.

It did get me thinking about some of my favourite URL's - mostly trading related. I thought Id share them here.

www.igindex.co.uk - A UK based spread trading company. Their platform is 'ok' and their spreads acceptable. You can't use their platform for day trading as it's pretty slow when the markets are moving fast. I've never had any problems using the platform for swing trading and if all your orders are limit you'll shouldn't experience slippage

www.futuresbetting.com - These guys have the quickest platform in the spread betting business. I have signed up for an account and tested their platform. Its delivered as a Citrix solution (so you are running the system directly on their servers) and it was quick. It wasn't the easiest platform to learn to use, but if you are day trading and need good execution speeds, guaranteed fills and small spreads, then Futuresbetting comes highly recommended.

www.equationIT.com - Probably the best trading website ever to grace the Internet.... Oh, ok, it's my website and I've not updated it for a while....but there are some useful sections, particularly the section on my trading room where I explain how I go about designing a strategy, managing risk, reporting trading activity and writing a trading plan. I'm in the process of re-thinking the direction of the website and I have a couple of ideas I'm toying with.

www.tradethemarkets.com - The guys that run TTM were instrumental in my trading development. I attended a weeks trading course with John Carter and Hubert Senters in 2006 and can say firsthand that not only are they good guy's but they make serious cash trading the global markets. Hubert is a short term trader with John focusing on swing trading. I don't follow them so much now, but I'm sure they remain as dedicated and professional as always. Visit their site and sign up for the free video newsletter.

www.finspreads.com -  Another UK based spread trading company. I have an account with them and have never made any money! - Probably why I'm not so keen on them. A friend of mine works for them and doesn't paint a good picture. The platform is not bad however. I've done some simple comparisons between this platform and IG Indexes offering and both have their good points, with IMHO IG just shading it (in terms of functionality, speed etc)

http://www.inspectd.com - Look at real historic stock graphs and decide whether to buy, sell or hold. A simple but rather nifty website that could help you begin to understand stock patterns and how to trade them. Try just trading in the direction of the moving averages and see if you can make any money. My first 15 trades and I'm up $57,000 - Easy, easy easy!!!! :)

The Naked Trader - Run by a chappie called Robbie Burns (he has also written a book of the same name). He seems to know his onions and I may well one day attend his course. I particularly enjoyed the section 'escape' which explained how he created 3 separate revenues streams in an attempt to replace his salary.  Interested in his 'business model' - may look to shape equationIT around this.

Thoughts from the FrontLine - Run by John Mauldin, a leading financial expert, this is a pretty hardcore website. I've signed up to his newsletter which is emailed to me weekly. His research is exceptional and his understanding of the global financial markets second to none. Some of his articles are a little heavy going, but he's commenting on a pretty heavy subject!

Traders Laboratory - Run by James Lee, this forum based website is perhaps the least bitchy of all forum based sites! There's some excellent content, specifically around Volume Spread Analysis. Beginners are welcomed at Traders Lab. The site suffers from spam from time to time which is a little worrying, but James appears to be proactively dealing with it.

Stock Chase - Just stumbled across this site and it looks pretty interesting. The site collects comments made by analysts on certain stocks. You can then form a picture of how the professionals view the markets.

US Economic calendar on Nasdaq.com. I use this to see what kind of market moving events are occurring in the coming week.

Newsmap - A really cool heatmap showing hot news topics. All very useful for getting an understanding of who's talking about what.

Elite Trader - I used to spend a fair bit of time on this site, but got so dammed pissed off with all the negativity and bitchiness on the site that I don't visit it much at all these days. If all traders are this unpleasant, I'm glad I'm doing it from the comfort of my own home. Don't waste your time posting any advice or questions on this site. If you post advice, you will be shot down, with every man and his dog questioning your credentials. If you ask for help, you'll likely find rude responses either questioning your question or suggesting that you spend hours searching the content as 'newbies AWAYS ask that question' - AVOID.

BritishBulls - A friend of mine recommended this site to me. It was created by someone he knows. The concept is pretty cool. BritishBulls uses a trading algorythm across many many UK stocks and automatically posts his recommendations. you can see how, if you had followed his recommendations what £100 invested would be today. I like the fact that this website is making money for its owners with minimum day to day effort. Great Idea.

My trading business

So a bit more about my trading business. I've been interested in the financial markets for many years. A couple of years ago I got interested in the US markets. A friend pointed me in the direction of a couple of US websites that really sparked my interest. I spent many hours researching trading, from market selection and strategy development to money and risk management. 

I began trading my own account in September of 2007. I followed my rules as closely as possible and was meticulous in the recording of my trading (being a software developer by day, I was able to develop some pretty cool databases that enabled me to record my trading in great detail). 

In January of 2008 I created equation Interactive Trading to record my trading experiences. I wanted to create a website that was totally transparent and was an honest and real account of my journey as a trader. I decided to 'open' the doors to my trading room. I published details of my trading strategy, how I developed strategies, my trading plan and my daily and weekly analysis. 

As we all know by now, the credit crunch really kicked around March/April of 2008. The strategy central to my trading plan hadn't been designed to manage these volatility levels and I decided to cease trading and wait for volatility to return to pre 2008 levels;

In 2008 the S&P 500 Index moved up or down by more than 5% in a day on 44 occasions – 22 of them in October. The index had only demonstrated this degree of volatility on 34 occasions in the previous 57 years.

The credit crunch was not great timing for my fledgling website. Suddenly I had very little to post! In fact, you'll see that my last posts were made around May of 2008. I was frustrated because I was keen to keep developing the business, but at the same time, my trading plan prevented me from trading my core strategy. I could have developed some "credit crunch friendly" strategies, but trading no longer felt like trading. It felt like gambling.

During the downtime, I've had a chance to reflect on exactly what I want equationIT to become and I'm currently in the middle of a re-design. The website will re-launch and will become much more personal. I have other money making interests (and some none money making interests!) that I will share on this website. Some current ideas I'm mulling over;

• Include details of my eBay activity - with enough focus this can be a valid revenue stream
• How to merge together all my 'online' interests (Facebook, Linkedin, Amazon reseller,  ei42 reseller etc) to act together as a central marketing device
• Change all the text from 'us' to 'me'
• Make the website about 'my journey' from a suit to a successful 'trader'