Page 47 - e_tr08_2012

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47
08/2012
www.tradersonline-mag.com
TRADERS´
STRATEGIES
Tony Loton
Tony Loton is author of
the books “Stop Orders”
published by Harriman
House, “Position Trading”
(Second Edition) published
by LOTONtech, and “Better
Spread Betting” at
www.betterspreadbetting.com
positions rather than placing
a series of risky bets
one-after-the-other.
3. Properly equating leveraged-up
spread bet stakes with the
equivalent investment risks.
Let us look at each of these
rules in turn:
• Rule 1: Individual equities lend
themselves to longer term
fundamental analysis as well
as to shorter term technical
analysis, and it is possible to
ascribe the short term changes
in their share prices to the news
that drives those changes.
Many companies pay dividends,
even (indirectly) to spread
bettors, and these dividends
might help offset the financing
charges levied on rolling spread
bets. There are many more
equities than there are indices,
commodities or currency pairs,
so there is greater scope for
diversification.
• Rule 2: Whereas traders tend
to stake a prudent less than
five per cent of available
trading funds on each serial
trade, traditional investors
tend to compose a “portfolio”
of perhaps 20 different stock
holdings with five per cent
of their investment capital
allocated to each. These
two approaches need not
be mutually exclusive – one
for traders (including spread
bettors) and one for investors
– and it may even be possible
to combine them in a “best of
both worlds” approach that
diversifies over time and across
assets. Establish individual
equity positions as each stock
becomes attractive rather than
attempting to diversify all-at-
once (and falsely) by piling
into the FTSE100 or other
index that actually represents
“one basket” for your trading
eggs as opposed to the many
baskets that these indices are
often portrayed to represent.
• Rule 3: Many new and some
not-so-new spread bettors
do not realise that when they
put up a deposit of £500 (for
example) to support a £1-per-
point bet on a stock index
priced at 5000 they are actually
making the equivalent of a
£5000 “investment”, because in
either case they stand to lose
£2,500 if the price of the index
halves to 2500. So do not make
the trade if you do not have
the additional required capital
stashed somewhere else in
case of emergency – unless
you have a guaranteed stop
order fixing your risk absolutely
at the £250 you deposited with
the spread betting company.
As your confidence and
success grows, you might
relax this rule by taking a
more actuarial approach to
letting diversification (Rule #2)
F1)
“Better Spread Betting” Potential Profits
Taken with permission from the book “Position Trading” (Second
Edition) by Tony Loton, this figure shows the potential profit that may
be achievable when spread betting individual equities over a longer
time frame during a sustained bull run.
Source: Tony Loton