Dis­ci­pline needed

How not to trade like a loser

Finweek English Edition - - MONEY CLINIC - MARC ASH­TON marca@fin­media24.com

AS SOME OF YOU may know, I’ve been par­tic­i­pat­ing in the Global Trader “What’s Stop­ping You?” trad­ing com­pe­ti­tion over the past three months. The the­ory be­hind the ini­tia­tive is to em­power re­tail in­vestors to take charge of their fi­nances and un­der­stand their ap­proach to their in­vest­ments. It kicks off with a quick as­sess­ment of your per­son­al­ity and makes some broad com­ments on in­vest­ment types that might be suit­able for you, and I think that’s quite an im­por­tant step to take. Mine came back sug­gest­ing I’m some­thing of a volatile trader who tends to trade for the sake of trad­ing rather than ex­er­cis­ing much dis­ci­pline.

Up front, I’ll say I’ve proven to be some­thing of a loser when it comes to spread trad­ing, hav­ing con­trived to drop roughly R9 000 try­ing to “beat the mar­ket”. Truth be told: if Global Trader hadn’t given me R10 000 to trade, I’m not sure I’d have had the con­fi­dence to start trad­ing their prod­ucts again. For that rea­son I tried to make a con­scious ef­fort to chat to my ded­i­cated sales trader about each of my trades be­fore I launched into them.

Two and a half months into the com­pe­ti­tion I felt much bet­ter about my­self. I hadn’t man­aged to lose any money and was up about 7%. How­ever, one thing ob­vi­ous to me was that I was spend­ing a lot of time star­ing at my com­puter screen – some­times till US mar­kets closed – to be up a cou­ple of hun­dred rand.

I made some cal­cu­la­tions and worked out that if I’d traded twice in the com­pe­ti­tion by rid­ing out po­si­tions on Sa­sol (bought at R336) and Stan­dard Bank (bought at R104) I would have made more than triple the money I made by trad­ing ev­ery day. Makes you think.

Be­low are a cou­ple of ob­ser­va­tions I’ve made for those think­ing about tak­ing up spread trad­ing.

Don’t come home from the pub on a Fri­day af­ter­noon af­ter a few drinks and con­vince your­self you’re Gor­don Gekko II. I did that once and in a click of my mouse but­ton I’d com­mit­ted 80% of my cap­i­tal to a long po­si­tion on the Nas­daq when I meant to com­mit 8%.

Just be­cause there are 50 plus prod­ucts or mar­kets to choose from doesn’t mean you have to trade them all. Stick to things you know and feel com­fort­able trad­ing.

If you have to get up at 4am to check what the Nikkei is do­ing and how that might in­flu­ence your yen trade and you need to buy pro­tec­tion for your soy­bean trade, which is fall­ing out of bed, then you’re over­do­ing it.

Lever­aged trad­ing is very stress­ful: re­mem­ber two trades out­per­formed trad­ing ev­ery day.

With lever­aged prod­ucts you can be blown out of the wa­ter with a share, com­mod­ity or cur­rency mov­ing 1% to 2%. I found it good for san­ity to com­mit some ex­tra mar­gin to my stop-losses to give me a bit of peace of mind.

In my hum­ble con­clu­sion, spread and con­tracts for dif­fer­ence (CFD) trad­ing is a mug’s game for a large per­cent­age of in­vestors. If you have im­ages of your­self em­u­lat­ing Michael Dou­glas then you’re prob­a­bly bet­ter off putting some money on the soc­cer or rugby: you’re at least po­ten­tially go­ing to make money (un­less you’re back­ing Liver­pool or the Lions).

How­ever, if you’re pre­pared to be dis­ci­plined, recog­nise your own lim­i­ta­tions and take the time to work out how the prod­ucts work, they can be a nice way of get­ting into trad­ing or in­vest­ing. If you’d like to try out the Global Trader “What’s Stop­ping You?” as­sess­ment, you can find it at www.wsy.co.za.

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