I’ve got several important points that I need to pass on to you this week:
– A technique that saved my skin on Wednesday.
– A quick update on how the Daily Index Trader strategy I recommended has been performing.
– Your last chance to get your name down for the Priority List.
– A subsidised scholarship opportunity from master trader Alan Rich.
– And finally, a few words on a very pleasant problem to have…
A couple of weeks ago, I wrote about pairs trading – in fact, Daily Index Trader is just one of the pairs trading strategies that I use – and on Wednesday morning, this simple trading trick really saved my skin.
But I did get a bit hot under the collar…
How pairs trading saved my skin on Wednesday
I had my usual pairs positions open – one long, one short. My stakes on this particular trade were quite high, and really pushing my comfort zone.
The European markets had been pretty listless all morning, and I’d been grumbling at my monitor about the lack of action, and beginning to feel twitchy about the length of time my money had been sitting “on the table”.
I was going through all the rollercoaster emotions of a trader …
My short position was in profit, and my long position was lingering around break-even.
– I hovered over closing out my trades early for a modest profit – the market was clearly going nowhere.
– I dithered, and a few minutes later that profit had turned into a loss, and I was back to breakeven.
Then, as midday approached, and my patience was wearing very thin, some news hit…
A successful Portuguese bond auction combined with BP’s fortunes turning around and optimism over Obama’s proposed economic boost, sent the markets skyward.
Bang! The price on my short position (which had been in profit just a few moments earlier) went through the roof and my stoploss was hit.
But (oh, the joys of pairs trading!) – just a few seconds later my profit target on the long trade hit.
Disaster avoided – and a profit to bank!
And, with the way pairs trading works, if the news had been negative and sent the markets downwards – the two trades would still have balanced each other.
Seems I was sweating unnecessarily.
If I hadn’t been pairs trading, however, a sudden move like this could have hit my stop loss without the insurance of my second trade – then I really would have been hot under the collar!
And now, I promised to give you an update on the trading strategy that I mentioned last week …
20 winners out of the last 22 trades
There was a big response from Maven readers last week to get onto the Priority List for Martin Carter’s Daily Index Trader – a sure sign that Maven readers know a good thing when they see it!
I’ve been following the progress of this system very closely, over the short and the longer term, and I continue to be impressed.
* In the last month it’s won 20 trades and lost 2.
* Since it went out to beta testers on 6 July, it’s brought in a profit of 187%.
* And the longer term results are even better, returning 927% since 29/9/09.
It’s not often that I come across a system performing this well over the short, medium and long term.
And traders using the system are having very few problems mirroring Martin’s results – in fact, a few of them seem to be doing even better than he is!
If you’re interested in trialling this strategy, and finding out just how they’re achieving this level of success, you really need to get your name down on the Priority List. Putting your name down doesn’t commit you in any way, but if you’re not on the list, you won’t be sent the special pre-publication offer next week.
Click here to register for the Daily Index Trader Priority List – http://www.canonburypublishing.com/dailyindextrader/
A pleasant problem to have
As it turns out, on Wednesday I was right not to have jumped ship early – I had my trading plan and I stuck to it.
However, there are instances when we’re better taking profits off the table before the trade has played out – or even closing just half of our open position. Especially if you’re not using the added security of pairs trading.
Of course, a hefty profit sitting on an open position is a nice problem to have … But it still presents a predicament – do you close out, or do you run it?
The three good reasons to close a profitable trade are as follows:
1. Your profit target has been reached.
2. The criteria that got you into the trade in the first place have changed and are no longer valid.
3. Your open profit is too large in relation to your trading fund.
Numbers 1 & 2 are pretty self-explanatory, but what does it mean for your profit to be “too large”?
Let’s say that I’ve a trading fund of £10,000. And in any one trade, I’m prepared to risk 2% of my fund. That means that I’m risking £200 per trade.
So, on the day in question, I take a long position, and the market suddenly shoots upwards – giving me an open profit of £600.
Great news. But now I’ve got £600 (that’s almost 6% of my trading fund) – sitting in the market at risk.
If I want to continue playing this move, I need to reduce my risk back down to within my comfort levels, either by taking some money off the table, or protecting some of those profits with a tighter stop loss.
In the next seven days…
Important numbers out of the US next week will be the industrial output figures on Wednesday. The numbers for August will be hard pushed to match the hefty boost in output seen in July, but will hopefully continue to show an acceleration in growth.
Retail figures in the US (on Tuesday) and UK (on Thursday) are expected to show a pull back, suggesting that consumer spending is holding back the upturn.
In the UK, we’ve CPI numbers on Tuesday, which are expect to show inflation remaining stubbornly at around 3%. And the unemployment rate on Wednesday could raise further concerns.
