October 3, 2008
October 3, 2008 by admin
We’ll be trading short term price patterns, both with and against the major trends. The current environment is not only extremely volatile but our ability to participate on the short side has been hindered by the shallow thinking regulators that have banned short selling. Many an issue irk me with this decision and I really don’t wish to get into a diatribe about it, but some considerations:
- History shows that such a decision was misguided. The following chart shows how in back in 1932 the US markets continued to precipitously decline after short selling was banned. (Thanks to Wayne over at http://sigmaoptions.blogspot.com/ for this one)
- Mum and Dad traders represent such a minuscule part of the market that their actions are almost incalculable with day to day volatility and price direction. The largest traders in the market place are normally the arbitrage traders whose net effect is also also not overly destabilizing as they spend their day trading the index basket verse the futures. Now what about those frisky hedge funds that the media like to beat up? Well that theory was good until we saw the ASX drop some 500-points, or 9.5%, in just the last a week without any so-called short sellers pushing their barrows.
- The selling is being generated by a loss of confidence in the economy because nobody wants to be left holding the next dog stock. The new SMSF tax incentives that induced so many investors into the market prior to June 2007 created an extension to the already extended speculative bubble and we’re now seeing all those investors run. Fund redemption’s across the planet are accelerating which in turn makes fund managers sell stocks to cash out their redemptions. This is what causing the downside pressure in the markets and its not going to stop until confidence has been restored.
Back to my introduction…so that’s why we’re now well hindered on the short side and why its going to be reasonably quiet until (a) the market turns, or (b) short selling is re-introduced to at least us small fry.
Our CFD account will start with a nominal $50,000 and take short term trades out to 2 or 3 weeks in length. We’ll be using specific low risk setups, which in this current volatility will tend to be trend reversal in nature, and adhere to specific target objectives.
We’ll update positions and P&L as time goes on.
Unfortunately the only trade that takes my fancy for today is a short in CGF, which obviously we can’t participate in. With the Dow down another 350-points we’ll be standing aside but we’ll watch the CGF trade over the coming days and post the price action anyway.
Safe trading.
Similar stock trading tips:
- November 9 2009 – Stimulus stays The G20 decision to keep up stimulus put a...
- 3 November 2009 – Warren takes the plunge The big news last night was Warren Buffett’s foray...
- 2 November 2009 – Weekly trend now down The markets were slapped down after the strong downdraft...
- October 7 2009 – Australia leads the world Global markets rallied hard on back of yesterdays Reserve...
- October 6 2009 – Rate Hikes The big news today was the hiking of interest...
Hello Nick, listening too your tone of voice regarding short trading through Marketmaker Brokers, you would appeare to be against this practice.
I’m very new to the Markets and have opened an Account with a MarketMaker Broker, could you expand on your view’s on why perhaps I may have made the wrong choice.
MM’s are open to amending price spreads to suit themselves. I have personally been involved with two separate providers and both experiences were a shocking example of price manipulation. Another was more of an eyeopener when each morning in the opening seconds there would be a wild price spike, sometimes > 10% of the underlying, in which all stops were washed out before prices settled back to normal. I have no doubt this was done with the sole goal of cleaning out traders.
I have no time for MM’s, will not use them, will not recommend them and do anything to suggest people use DMA providers. Why trade in a market that is not transparent and knowing that the P&L of the provider is directly related to your own position.?
Thank you for that Nick.
Yes I most certainly see what you mean.
I’m getting eduacated at every turn.
Are you aware off a user freindly DMA provider operating in NZ, that handles CFD trades ?.
Ross,
The model account we’re using for these performance pages is the MF Global platform. They are a DMA provider that also offers desk support and they do have N.Z. clients.
Thank you I’ll get in touch with them