This is without doubt one of those Blogs that I really should have written ages ago, but I guess it has not even occurred to me before to do it because it is about something that is so mundane and everyday for me, that I didn’t even figure that actually it might be quite useful for Readers.
For many years now I have been utterly obsessed by Hedging my Portfolio of Stocks and Long Spreadbet Positions by using Short Spreadbets on Major Indexes such as the FTSE100 and the S&P500. I think the simple truth is that I have always had a fascination with Technical Analysis (the posh name for ‘Charting’) and part and parcel of that is Short-term Trading which is very much an approach which will not work without a good understanding of some basic Technical Signals/Principles. Thankfully this experience and practice with Shorting has really helped me a lot in the current Market difficulties.
Using Shorts to Hedge a Stock Portfolio for tough times very much plays into this Short-term Trading idea and allows me to satisfy urges I have that way. In fact, if you have been keeping up, you might have noticed me mentioning towards the end of last year and at the start of this year, that I wanted to do more Index Long Trades as an addition to my normal Share activities but of course the sudden turn of events with the Virus crisis has rather scuppered any ideas of going Long much. I have spent a lot of money and time in messing about with Shorting Indexes in recent years and refining what works best and after much pain and angst, I think I have got to an approach which can work most of the time and you can read about it here:
That is a Link to Part 4 but if you scroll to the bottom there are Links to the earlier chunks.
Now I want to emphasise that what this Blog is about is the few minutes before I place a Short or Long Trade in my Spreadbet Account. In this Blog I will not talk too much about the Signals I might have used to decide to place the Trade and I will not mention much about how and when I make the decision to Trade in a particular way, it is ideally not a snap decision and normally I have been building up to the Trade for a few days at least as I watch the Index Charts every night and see how things are developing. I very much take the view that if you are rushing a Trade, then you are probably just about to make an almighty balls-up.
So what I am saying is that all the Analysis and thinking has been done and I am about to place a Spreadbet Trade on an Index and usually just after I have grabbed my 10 inch Tablet on which I execute the Trade on the igIndex App; and I have grabbed an old envelope from my stack of discarded envelopes I save up just for this purpose of writing down the parameters of the Trade (i.e. the Trade Plan); these are the steps I think through and I write down on my old envelope:
After I have done the Trade, there are a few things I have to do. Firstly I send out a Tweet immediately after placing the Trade and this lets WD Readers know very quickly what I have been up to. Next I logon to the Weebly.com Editor thing and I enter on the ‘Changes List’ on the WD1 Homepage that I have done the Trade and I refer Readers to the ‘Trades’ page where I then fill in more details on what I have been up to. It is all there so nip over and have a look.
The next thing I do is to go to SharePad and on my ‘working’ Chart, I put a Horizontal Line on it in Blue at the Level at which I opened the Spreadbet and it starts on that day and then I put on another Horizontal Line in a sort of Pinky colour which marks where my Stoploss is. I always do Stoplosses as something I execute manually myself if the Stoploss gets hit on my Chart on an End of Day Close basis. In other words, if I am Short on a Trade and the Price Candles spike up through my Stoploss Line but then drop back and Close below (sharp Readers will recognise a Bearish Shooting Star Candlestick from this description), then I may keep the Trade running because it has not Closed above my Stoploss level. Doing things this way can mean ‘overshoot’ is a risk but the big advantage is that you do not get ‘Stopped out’ on a Spike that happens intraday which is a common occurrence if you use ‘hard coded’ Orders with your Broker. I take the view that it is better to be on the Train when it pulls out of the Station than to be left there open-mouthed and speechless looking at it go away from you !!
I usually then write a quick Text Box on SharePad which describes the Trade – something like ‘1st April 2020 FTSE100 Short at 5324 equivalent to 15% of Long Portfolio with Stoploss at 5600 on an EOD Close basis, Manual Trigger.’
I then open up Microsoft Excel and find my igIndex Spreadsheet and I make the required entry to record the Trade in detail. You can see an example of my Spreadsheet here and in theory you can download it:
OK, that’s it. Now this has been focused on Index Trades that I place quite often late at night, but in fact this kind of Trade Plan can be used for any Spreadbet Trade and if you are more of a Short-term Trader using normal Shares, then you could also adapt what I am doing here to your needs. Feel free, I ain’t precious.
What I will say though is that creating such a Trade Plan as this is essential in my view. If you do not do this, and you are slap-dash and doing things in your head, then you will likely screw up. The discipline of doing this Trade Plan exercise is much more likely to lead to you being successful with your Trades and at least when they go wrong, your Losses will be contained.
Good luck with it all anyway,
Here is the Series on Spreadbetting and I recommend you read this if you play with Spreadbets and are finding it tough (there are links to the earlier parts at the bottom of this one):
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