This is the Second Part in what should be 3 chunks regarding what is a pretty complicated and hefty subject - before getting stuck into this, I would strongly suggest reading Part 1 which you can find here:
http://wheeliedealer.weebly.com/blog/wheelies-new-improved-index-trading-system-part-1-of-3 Trade Types I am particularly looking for As with all things in Trading and Investing it is extremely important to strive for simplicity and in line with this I essentially have 4 different ‘Types’ of Trade Setups that I am particularly after; and they can be grouped into 2 different types - Long and Short. In the Final Part of this Blog Series I intend to produce some Examples using real Charts of these types of Trades so Readers can get a much better appreciation of what I am going on about.
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Anyone who has read some of my Blogs and Tweets and followed what I get up to with my Trades cannot have missed my obsession with trying to Hedge my Long Portfolio of Stocks using Short Spreadbet Positions on Major Indexes.
This is all about trying to lower Downside Risk - in essence there are 2 types of such Risk - ‘Stock specific’ which can be diversified away by holding a number of Positions and by such things as Sizing to Volatility, diversity of Strategies, diversity of Sectors, diversity of Stock Types (Income, Defensive, Growth, Value, etc.). The other Risk is ‘Market specific’ - this can only be practically reduced or largely mitigated by the use of Index Shorts - which is what this Blog is about.
The first draft of this Blog was called something like ‘Is it possible to be too cautious’ but I decided that this was a pee poor Title and I have gone for something more racy - after a lot of waffle at the start of this Blog, as we get further in it should all start to make sense.
Simplistically, I tend to write 2 basic types of Blogs - one is sort of more Research-based and takes a lot of time and effort but is probably in some ways easier to write in terms of WheelieBrain power, and then another type where I write from my own thinking and these tend to be quicker to produce but need focus and tend to require some planning and structure to make them work. Don’t get me wrong here though, in fact the Research-type ones need a clear Structure and once I have a Skeleton of Headings I can then start filling in the text - these tend to be ‘Buy Rationale’ Blogs. The other type tend to need me to turn off the TV and to have the Radio down low and I need to summon up full power from my ‘Slow Brain’ - and by a bemusing quirk I tend to flow better when lubed by Tea (and probably not Beer !!)
I am pretty bored with this Hedging Disaster which befell me for most of 2016 and I am sure Readers will be equally deflated at the tedious prospect of yet more words from me on the subject; but I feel a pressing need to punch the keys and just give the whole sorry business some ‘closure’.
Regular Readers / Twitter Followers / Podcast Sufferers etc. will be fully aware that I have made some poorly executed Hedging Trades against the FTSE100 and Nasdaq 100 Indexes which have dogged my Portfolio Performance throughout 2016 and how I finally Closed Out most of them just before Trump got elected - taking advantage of a slight dip in the Markets. For a bit of clarity on this, if you look at the ‘Trades’ page on this Website and find the entries for early November 2016 regarding the FTSE100, Nasdaq 100 and XUKS (ETF), there is a reasonable explanation of the pain which caused me to bite hard on a chunk of wood to mollify. There are also copious Blogs I have written about Hedging and if you click on the appropriate ‘Category’ in the column on the Right Hand Side of the Blog Page, you should find plenty on the subject. You can also use the Search Box on the Homepage to track them down.
I’m expecting this to be a short Blog - partly because it shouldn’t take much text to extol the theory but also because it is 10.40pm on a Saturday night that I am starting on the First Draft and I am running behind massively and I don’t want to be here into the small hours scribbling - although tonight there is the advantage of the Clocks changing so we gain an extra hour. I would prefer to spend that snoozing though…..
The topic here is that when an Asset makes a big move lower or higher (sometimes a move higher applies but I find it is far rarer - probably because the Media prefers bad news stories over what could be seen as a good piece of news), I tend to find that the Financial Media and then the Mainstream Media seem to latch onto the Story and give it huge publicity - but the real bit I want to focus our attention on here is that at the same time we often get some ridiculous Forecasts about how low or high the Asset will go.
Is it possible to be too cautious? I think I am learning the hard way this year that being too cautious is very possible and can be expensive. I have had a really tough year with Returns (or rather, lack of) and although a big chunk of this has been down to a sucession of Profit Warnings from big Positions, another aspect has been down to me taking a very cautious stance this year. It has hurt in 2 ways - the most obvious is the drag I have suffered from large Short Positions and the other impact comes from me failing to “Buy the Dips” when Markets were low (although at the Brexit Vote Lows back in June I did close half my Shorts which was in effect the same as Buying the Market in a big way).
This is a bit of a cathartic blog for me, cleansing the WheelieSoul (no, not the WheelieAr**hole, that’s a different part of the WheelieAnatomy and best avoided…..)
This was originally written on Saturday 25th June 2016 under ’Weekly Performance’ on the Homepage and I wanted to keep it for Posterity:
Last Week, ending 24th June 2016, Results were as follows:
Wow, what a Week !! Or, should I say, what an End to the Week !! Regular Readers (must be the All-Bran) will know I was not convinced by the pre-Vote Rally and I had serious doubts - as it turned out, I was right to be thinking like this and I am extremely pleased that my Cautious Stance all year so far and my Hedges look to be exactly the right approach. Obviously I am not happy to have lost money on the Week but when you look at how the FTSE250 etc. got whacked I really cannot moan too much. The FTSE100 had a strange rally late on Friday but I doubt that can be sustained (my hunch is that this was due to a 'Flight to safety' where big Defensives like GSK AZN IMP got bought and these are huge Weights in the Index) - the Close in the US looks ominous and I think we will see a lot more Falls. My Unit Trusts rising is a bit weird - I think this is because of the Quid falling against the Buck (my remaining UTs are mainly US based) and also because the Valuations on the Funds are a day behind - so Friday's falls are not in the numbers.
It is often the case with my blogs that they sit around in my head for perhaps several weeks before they actually make their way to even an early Draft form. This one is certainly of that ilk and I am quite pleased to be actually getting on with writing it and unloading my WheelieBrain from having to think about it anymore !!
Sadly parts or all of this blog might seem repetitive when considered next to other things I have written in blogs or on the Website over the many months that WheelieDealer has been going. However, my thinking is that this is such an important subject that it won’t hurt one bit to reiterate the themes and by giving the subject its own dedicated blog, perhaps it will really get the focus and attention that I would say is appropriate and justified.
Regular Readers / Tweet Followers, will probably know I have some Huge FTSE100 Short Positions running which I put on earlier in the Year when Markets went quite ugly and caught everyone by surprise. Sadly my timing here was atrocious and Sods Law meant that the Markets rallied strongly since that malaise and this has been a real pain for me - it really was the worst possible scenario that could have played out.
Normally when I bash out a Blog I have some sort of plan scribbled down on paper to help get my thoughts aligned and half sensible. However, tonight I was making a cup of Tea (one of about 300 I usually slosh back each day, not to mention the Coffees), and thinking about some discussions on Twitter and it struck me there was a Blog to be written about the pain I am suffering from my FTSE100 Short Hedges which are certainly testing my resolve !!
I am sure many Readers have seen my huge Blog about Hedging and have a reasonable understanding of what it is all about - if you haven’t had the misery of reading it, then click on the ‘Category’ ‘Hedging’ and you should find it. |
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