Slow Trader

Tag: Short-term trading

  • Slow Trader Fund, We’re Ready for Action

    Thank you for your patience while I’ve performed a complete overhaul of my short-term trading strategy. Readers will notice the amount of work involved in the ‘how I trade’ page. This has been a great exercise, and one of which I’m confident will be well worth the wait.

    A reason for taking so long is that our strategy, I believe, can only truly be devised under live trading conditions. The way we react to probability trades under live conditions is significantly different to what would otherwise be developed under benign back-testing conditions.

    To that end, I’ve traded and worked on the strategy these last few months with my own account and traded small. The fund has remained in waiting.

    Now I’m at the other end of the strategy development, we will see a gradual build-up to normal fund trade amounts.

    My thoughts on how I see the fund going forward from today:

    Slow Trader allows investors the opportunity to access a short-term trading fund.

    Why an opportunity, and why short-term trading is not possible for most people:

    • Firstly, short-term traded funds are not readily available. Moreover, expert (and hopefully successful) short-term traders charge a lot – up to 50% of profits and large participation fees.
    • Secondly,  short-term trading is a difficult skill to master. It takes several years for a trader to graduate from the ‘beginner’ level, through ‘intermediate’, to ‘expert’. And, expert is where all the capitalised reward is found. In other words, short-term trading, in contradiction to its name, takes a long time to learn.
    • Finally, learning the short-term trading skill is often, through the beginner and intermediate stages, financially penalizing.

    From the 4-hour chart the fund trades:

    1. Nick’s qualifying UK shares – long only.
    2. Currency pairings GBP/USD, EUR/USD, AUD/USD, USD/JPY – long and short.
    3. Commodities Gold and Oil – long and short.

    For each of these I’m looking for an edge:

    1. Nick’s qualifying UK shares already have the fundamentals. And, although fundamentals are normally not a factor for a trade of less than 9-months duration, we nevertheless have them on our side. The principal trading advantages that I use, however, are probability, context and price action.
    2. In our currency pairings we again bring probability, context and price action to the fore.
    3. Commodities also use probability, context and price action but are also traded inline with the COT report.

    The 4-hour chart is used in preference as this provides at least two trading opportunities per day. This means that trades can be open from several hours to several days.

    The page ‘how I trade’ is written with the 5-minute chart in mind but applies equally to the 4-hour chart and is the essence of how I approach probability, context and price action. Nick’s qualifying UK shares are published quarterly through this blog and guidance on the COT will also be given as the COT occasion provides – the COT cycle for each commodity coming round independently a few times a year.

    I provide an annual detailed report on the fund and a semi-annual ‘how goes it’ review.

    The goals of the fund are:

    1. Not to lose money (and this defines our risk level)
    2. Increase the fund by 30% (as a minimum year on year)
    3. Compound the fund year on year

  • This is boring but its important

    There are so many ways to trade it can take you years to figure out what is right for you. However, we can put all of them into three simple categories.

    Firstly, there is day-trading. Self explanatory. You are in a trade sometime during the day and you are out of the trade before the day ends. Great fun. But few make a profit doing this.

    Secondly, there is short term trading (often referred to as swing trading). My preferred trading style. You follow the rhythm of the share price and try to catch the most lucrative part. You’re in for a few days to a few weeks. Using this style you may miss the big up, but you have a fair chance of missing the big down too!

    Thirdly, longer term trading. This is what most of you have through your mutual fund investments and pension funds. Recall that over the longer period, every 1 percent in charges results in you giving back to the fund some 20 percent of your final amount. So if your fund was worth £100,000 after 40 years of investing the average mutual fund would have cost you between £40,000 to £60,000. Thats a large chunk. Few people realise this and this is why mutual fund managers remain in the top echelons of earners.

    The younger investor would be better placed choosing a low cost index tracker fund. It will win hands down over most mutual or managed funds.

    The mature investor should always consider fixed index annuities – Read Tony Robbins, money master the game. Its only 616 pages! or take my word for it.

    We should consider another problem with the mutual fund (and there are several more) is the equity crash that seems to come around now and again. If you were financially retiring in 2008, your long term investment would be half of what you expected. If you had more than 15 years to retirement your fund could recover if it were in US stocks. Most UK shares have not even yet recovered to the high of 2008.

    Discuss with your independent financial advisor fixed index annuities such as (from Tony Robbins): Barclays Dynamic Balance Index (a mix of stocks and bonds) and Morgan Stanley Dynamic Allocation Index (a mix of 12 different sectors). Your IFA should find you UK index equivalents if you prefer.

    B