Page 48 - e_tr08_2012

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48
08/2012
www.tradersonline-mag.com
TRADERS´
STRATEGIES
reduce your risk of a total or
substantial wipe-out, and this
will be made more possible if
you build a portfolio of two-
and three-digit priced equities
rather than four-digit priced
indices and other instruments.
A Better Spread
Betting Trading Plan
The three rules detailed above
define the overall ethos of taking a
more investment-like approach to
spread betting individual equities.
But as a spread bettor you are
essentially a trader rather than
“buy and blindly hold” investor, so
you need a trading plan that fine-
tunes the trading tactics. Such a
trading plan might look like this:
Setup and Entry:
Look for
individual equities that are
potentially oversold in the short
term and which offer good long
term value, and buy them at the
best price ideally at the bottom
of a trading range just above a
support price.
Stop Orders:
Equalise risk
across positions by combining
stop orders with position sizing,
and/or by utilising tighter stops on
higher priced (three-digit) equities
compared with wider stops or no
stops on lower priced (single-digit
equities). Allow stop distances
to widen before trailing from
break-even onwards, and apply
a guarantee retrospectively on
high-risk positions if the spread
betting company allows it.
Position Maintenance:
Besides
trailing your stop orders, look
for opportunities to pyramid
performing positions by placing
additional bets “on the dips” for
little additional risk when existing
positions are close to stopping
out.
Exit:
Allow individual positions to
stop out of their own accord, and
maintain diversity by recycling the
profits into new prospects before
pyramiding the best performing
positions.
Risk- and Money Management:
Deploy up to 100 per cent of
trading funds in diverse parallel
positions rather than serial
trades, but try to keep some
F2)
Initial Draw-Down Equity Curve
This figure shows the kind of initial draw-down that may occur while building
a portfolio of equities spread bets during a bear market or flat market.
Source: Tony Loton
Strategy Snapshot
Name of strategy:
Better Spread Betting
Type of strategy:
Equity Position Trading in a Spread Betting Account
Time horizon:
Minutes (if you call it wrong) to months (if you get it right)
Setup:
Looking for oversold stocks that have long term value
Entry:
Buy on a dip, ideally at the bottom of a trading range and just above support
Stop loss:
Tight initially on high price 3-digit equities; wide or non-existent on single-digit equities
Profit taking:
Not used, except possibly to half-close a double position
Trailing stop:
Stop distance allowed to widen, and not trailed until at least break-even; ideally “guaranteed”
retrospectively if the spread betting company allows it
Exit:
Usually by each equity position stopping out while others run on
Risk and money management:
Up to 100 per cent of trading funds may be risked simultaneously across a diverse “portfolio” of
bets, and up to 50 per cent draw-downs are possible, so overall account size should be limited
as a proportion of the trader’s overall “net worth”
Average number of signals:
Proportional to the number of individual equity markets offered by the spread betting company
Average hit rate/profit
to loss/return per month etc.:
Longer-term investment-like returns rather than daily or monthly banked profits