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This first paragraph is being written after all the rest in this Part of the Blog Series. Having now completed a very good Draft of it, I have decided that it is extremely involved and lengthy and for this reason I will separate the Examples out into its own Part - Part 3 - and now the Blog Series will run to 4 Parts with the final one being a Conclusion that brings everything together.
Finally I have got around to starting on these Examples - I have been struggling with precisely how to do it as I had a few ideas in my head but often that is not actually helpful and it merely meant that this state of indecision was simply stopping me getting on and writing the darned thing !! Anyway, I have sort of settled on the basic way of doing it and I am starting typing and shoving in pictures in the possibly forlorn hope that it will sort of coalesce into something that makes sense.
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This is the Final Part of a Series of Blogs - if this is the first time you have been unlucky enough to find this Series then Links to the earlier Parts are at the bottom of this one if you scroll down.
Conclusion I am hoping that I have done these Blogs in a way which Readers can makes sense of and will enable them to think about how to go about such Index Trading themselves if the urge takes hold. You can use ETFs like XUKS (a way of Shorting the FTSE100 that you buy and sell like a Share. To go Long on the FTSE100 you could use something like ISF I think - you will need to check this) instead of Spreadbets and of course things like CFDs will give a similar result (but these come with Tax disadvantages when compared to Spreadbets). But it goes without saying (but I will say it anyway !!) if you do fancy having a go you must be extremely careful and start with a Practice Account perhaps or at least start with very low Position Sizes - don’t go betting £1000 a Point on the FTSE100 on your first Trade !! (that would be equivalent to about £7.2m of Exposure by the way !!!). Before I finish the Blog Series off, I just want to stress the following Key Points:
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.
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.
This is yet another of those Blogs I have had sat on the Slate of Ideas for me to write but it has taken up until now to finally float to the top and therefore earn my priority and focus (turds float and all that……). That’s quite a misrepresentation really - rather than an organised and sequential list of Blog Ideas for me to work on, it is a very higgledy piggledy collection of possible Blog Titles with a few having some words underneath to help me understand what I was thinking at the time of coming up with the idea and typing it into my working Blog Word Document. So the true way that a Blog gets to this stage is that it quite simply becomes the thing I fancy doing today and I just get on with it. At least in this way it is more pleasant for me to work on as I do what I want to do, rather than a Blog that I must do because it happens to be at the top of an arbitrary List.
You might have figured out from the Title that this Blog is about how I record my Individual Share Trades and Spreadbet Trades onto dedicated Spreadsheets so I have a record of what Trades I have opened and once they are closed off it enables me to calculate my Profit or Loss in £ Note terms and in Percentage terms expressed against my Capital that was used for the Trade (read that as ‘Investment’ mostly).
To set the scene I just need to do a quick refresher on the way I use Spreadbets in order to gain Leverage and boost my Returns. In essence, the Theory is that I ‘mirror’ my Normal Trading ISA Portfolio in the form of Spreadbets and this should give more “Bang for my Buck“.
Probably the easiest way to illustrate it is by using a simple example. Let’s say I have £100k in my ISA which is composed of various Share Positions. I then ‘mirror’ this ISA using Spreadbets to get pretty much the same Exposure to each of the Shares so that the total Spreadbet Exposure is also £100k. Now let’s say the Normal Shares Portfolio in my ISA goes up 10% in a year - so there is a £10k gain. Everything being equal, the Spreadbet Portfolio should also rise by 10% and £10k but we need to appreciate that there is an Interest Charge on the Money used so we can for theoretical needs in our example say that the Return on the Spreadbet Portfolio EXPOSURE would be probably 7% rather than 10% (the Finance Charge is something like LIBOR plus 2% or so), so the monetary Return is £7k.
This shouldn’t be too lengthy. Back on Tuesday 20th December 2016 I bought more NG. via a Spreadbet at 937p. This Blog should just outline why I moved when I did and point out the superb Divvy situation going on here. I won’t spend time explaining what NG. is - I am sure most Readers will be pretty clued up on them anyway - it is not really a complex business to understand. Anyway, I wrote a Blog on them a while back which you can find here which might give some background (there is a great link to a piece by Jamie at Compound Income as well - he‘s always worth reading):
http://wheeliedealer.weebly.com/blog/ng-buy-rationale
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.
One of my mates from Twitter, James @traderdiarycouk, has written the following piece to introduce himself back to the world and give a simple explanation of how he does his Short Term Trading stuff - he is very good at it and even Long Term Investors can learn a lot from the kind of methods successful Traders use.
James used to run his own website as you can see from the text, but time constraints forced him to stop doing it on a regular basis but he still likes putting Fingers to Keyboard and bashing out some thoughts - I hope we will get more stuff from him for the WD Website in coming months. If you follow him on Twitter then you can see the Trades he does and get a better feel for his approach. Many thanks to James for providing this input and I hope Readers find it useful and interesting. Cheers, WD.
THIS IS NOT A TIP OR RECOMMENDATION. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITE. IF YOU COPY MY TRADES, YOU WILL PROBABLY LOSE MONEY. SHORTING INDIVIDUAL STOCKS IS VERY HIGH RISK.
You may have spotted that I Shorted Tesla TSLA via a Spreadbet yesterday at 22537 ($225.37) - please see my ‘Trades’ page for specific Trade details. This won’t be a long blog, I just wanted to outline the main reasons for my Short and a few other points worth noting. |
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