tactical trader

Catching up on my reading over the weekend I came across a fascinating piece from The New Scientist about our willingness to take risks. We read time and again about the effect of risk taking on our trading and investing but it is rare to come a cross a specific study of the problem.

Apparently, researchers from Queen's university in Belfast have conducted a detailed study of risk aversion by modelling the behaviour of 515 contestants in the first eleven series of the popular millionaire game show.

They have proven conclusively that roughly two thirds will have quit while they were ahead even though they would have won more (proven by a mathematical model). There was no logical reason for doing so, they were simply taking a risk averse stance.

So what does this prove to us? Not a lot I suppose as we all know the damage that can be caused by too little or too much risk taking but I wonder how many really analyse it for themselves.

Do you know your precise loss threshold for every trade you take? I doubt it. It is even more unlikely that you have specific profit targets to work toward that in turn relate to a clearly defined trading plan. If you do then well done, if not then you really do run the risk of doing exactly the same as the Millionaire contestants and quitting while you are ahead.

I was doing some CGT work yesterday and had to work through some old reports from the days when I was stupid enough to have discretionary fund management. Imagine my annoyance therefore to come across an article in a recent edition of Fidelity Funds Network news.

"Liontrust fund manager Jeremy Lang took home a bumper pay package last year despite the dire performance of his funds over the period"

Apparently Lang earned more than 2.5 million pounds yet his fund ranked 253rd out of 271 funds in the UK All Companies sector.

According to the article Chelsea Financial Services is the latest in a number of Financial Advisers to dump Lang from their approved list. I would urge you to do the same with any of your underperforming funds and stick to ETF's or Index Funds with minimal charges, you will certainly be no worse off and may even make a bit more.

This is supported by a recent article in Investors Chronicle by Chris Dillow, he claims that fund managers are institutionally stupid. In the three months leading up to the article publication date every single one of the 276 actively managed UK equity unit trusts surveyed by Trustnet had underperformed his own low risk portfolio. In the last year only five outperformed it and in the last five years only four have beaten it.

The point Dillow makes is that his selection was based on very basic criteria and that the supposed skill and knowledge claimed by fund managers when they want your money should mean that they beat his figures by a considerable margin.

Dillow closes by claiming that "the fund management industry is structurally incapable of doing a good job for investors"

So if you are still trusting the institutional managers the message is simple - don't.

Another busy week, but i've made some progress with my CFD account hunt (which has now turned into me writing a brief article comparing them..)

I've Googled and combined information gleened from the IX Expo to come up with my shortlist of companies for me to look at.

These are:

Direct Access

• IG Markets Pro

• GNI Touch

• e-Trade

Non Direct Access (Synthetic/Abstract)

• City Index

• Barclays (I believe these White Label City Index)

• III

• IFX Markets (A cousin of FinSpreads)

• CMC Markets

• IDealing

For the sake of comparison then i'm going to look at all of them - their fees, and the platforms - and try to determine the best option for me.

On my initial look then the benefit of the Direct Access accounts seem to be the ability to trade the actual market - this is offset against the higher account opening requirements.

I'm still tabulating and seeking data, but further updates will come..

Apologies to all those eagerly awaiting my blogs (the three of you must be very upset) I had intended to post more regularly but it has been a crazy couple of weeks, as you know some scumbag pinched my wallet which took a whole load of time and then we were straight into the IX Show.

Did any of you go to this? What did you think?

I have mixed feelings, I thoroughly enjoyed the event especially the two conferences I managed but I was left with concerns about just how dedicated the audience were.

I know this is a pet gripe of mine but I fail to see how people expect to learn the art and science of trading and not pay for their education. These are the same people who will pay for piano lessons, driving lessons, swimming lessons and so on, why not trading lessons?

Maybe it is fear of being ripped off but if this were true why is they will not spend a couple of hundred pounds with reputable providers (of which there are several) yet will happily hand over a few thousand to the con artists who sell the dream? Human nature I suppose.

Anyway, on a more useful note I will be taking a close look at the componenets of my portfolio later this week and will post my thoughts here for those who may be interested. I am particularly keen to look at Japan, Germany and Argentina and want to look in some depth at the overall asset allocation.

As ever your views would be welcome. More later in the week.

With the new Tactical Trader site ticking along nicely I can finally turn most of my attention back to trading. First on my list is an idea for an indicator that I want to try out.

I don’t know if it’s because I’ve watched too much science fiction but when I develop a new indicator or strategy I give them mysterious sounding code names! The latest one is CTI350 - the first iteration of a market direction indicator based on a few random musings of mine over the summer.

The aim of CTI350 is to try and indicate the likelihood of an up or down day (I’m avoiding the use of the word ‘predict’ as it sounds too grand). The basic idea is as follows:

• if today’s close is likely to be higher than yesterday’s the indicator will signal an up day

• if today’s close is likely to be lower than yesterday’s the indicator will signal a down day

In addition there are two levels of signal strength i.e. today may be a down day or a strong down day if it looks even more likely. Signals are given before the open and do not change intraday - so the signal will either be right or wrong at the end of the day.

While this isn’t enough to trade on its own (although I suppose you could use it with some daily binary bets) - if it works out then it might be handy as a filter for another indicator or strategy.

As this really is a test of a ‘what if’ idea, I’ve not backtested - I’d rather see if it crashes and burns over the next month or so. I’ll also be keeping a note of things like the overall trend and the sentiment of traders so that I can see how they compare.

You’ll notice I’m not revealing how CTI350 works (or doesn’t) - and I don’t plan to during this phase. I’ll post the performance in the comments for this post and I’ll just have some fun with it for now!

After nearly two decades as Chairman of the US Federal Reserve, Alan Greenspan will retire in January 2006. Yesterday Dr Ben Bernanke was nominated as his successor by President Bush at the White House.

Alan Greenspan, referred to by many as a legend, has been in charge of the US economy through highs and lows, two recessions, a stock market crash and a multitude of corporate scandals. During this time the Fed’s determination to keep prices stable has become ingrained at the central bank, and earned praised from markets.

Greenspan’s successor, subject to Senate approval, Dr Ben Bernanke is a former Princeton University professor who served as a Fed governor and is currently economic adviser to President Bush.

Experts said that Bernanke’s nomination should be approved without trouble from the senate, and reaction from the financial markets was positive. While he is not very well known in the financial community due to his short time at the Fed, experts expect a seamless transition.

Alan Greenspan said of his successor “The President has made a distinguished appointment in Ben Bernanke. Ben comes with superb academic credentials and important insights into the ways our economy functions. I have no doubt that he will be a credit to the nation as Chairman of the Federal Reserve Board.”

Just a quick post to say that we're back from the IX and to say thanks to all of those who visited our stand and booked on the Trade for your Life seminars.

I'll be sorting out all of the data we collected and confirming the bookings over the week - there's quite a lot so it'll take a couple of days!

Also we'll be doing a quick review of the IX Investor show and posting some photos later this week.

And finally thanks for those who just stopped by to say how much they liked the new site. It would seem that having more than just a forum is paying off nicely, and the increase in traffic visiting the site confirms this - which is great news!

Tactical Trader were present at the IX Expo on Friday and Saturday. I got roped into helping on the Saturday - and to those of you I spoke to then it was a pleasure.

I also took the opportunity to walk around and take a look at the CFD providers.

I chatted with a few, and have picked up lots of information to wade through.

Time is something I seem to be lacking at the moment, but I am still working on my comparison and will publish it this week.

Hopefully when i've done it then it may be of some use to some of you in the position of wanting to trade CFDs.

Until very recently the word Pandemic sounded more like a packet of headache pills than a virus that is set to wipe out thousands of us.

According to my thesaurus, some alternative words for Pandemic are, extensive, prevalent and rampant. These are excellent words not only to describe the dreaded bird flu itself but also the idiots who try and scare the heck out of us with this nonsense.

Now correct me if I am wrong but sixty people died when this thing spread throughout Asia, this is pretty tough luck on the individuals who were affected but there are two things to keep in mind here, first of all it is a staggeringly small percentage of the population of that region and secondly I believe those killed were in some way related to the suspect chickens anyway.

So how can it be that here in the UK 50000 of us are going to suffer? Is there a flock of birds somewhere with a particular grudge against us? Is it to punish all those people who buy copious quantities of McDonalds Chicken Nuggets without thought for their health?

Of course not, it is scare mongering of the highest order and I can’t believe how many people are falling for it. I discovered the other day that many of our friends have already stopped buying chicken and are already planning alternatives to the traditional Christmas Turkey, it is pathetic. If you hold any turkey related shares now might be a good time to sell them.

It is just like we see every week in our trading and investing, a scare emerges, a few so called experts are wheeled out to give the otherwise ridiculous claims some legitimacy and before long investors are making stupid decisions as a result of a non story.

You can be sure that lots of people will be making money right now out off this bird flu business, experts, broadcasters, publishers probably a whole bandwagon of them just as they do when trying to shake us out of our trades so do not fall for it.

Stick to your guns and while you watch everyone else being gullible you can gorge yourself on a nice breast of chicken and a glass of wine, oh wait a minute, didn’t I see a report somewhere that wine was bad for us?

At the end of last month Tactical Trader was three years old. With the pressure to get ready for the World Money Show and the fun of re-launching the site this anniversary got missed.

I've been tidying up my emails today and came across a little piece of nostalgia from almost exactly 3 years ago. It's our first Tactical Trader update email:

From: contact@tacticaltrader.com
Sent: Thu 14/11/2002 11:45
Subject: Tactical Trader :: Update

Tactical Trader :: Update

www.tacticaltrader.com

A Successful First Month

It is just over a month since the Tactical Trader community was launched and we’ve already had over 30 people register. A big thank you to those who have joined and for the positive feedback we’ve received!

What’s New

If you’ve not visited the community for a while, you’ll have missed some of our new features:

• Daily US Analysis by well-known market expert Tom Hougaard of City Index

• Reorganised forums to make it easier for you to find your way around the site

• A ‘new posts’ link in the forums menu so that you can easily catch up with postings since your last visit

• New reviews and web links

The Future

We’ve many more features planned to make the community the best of its kind, we can only do this with your help.

You can do this by visiting the site regularly and posting to the forums whether you have a specific problem or just want to share your views on the markets.

You can also tell your friends, family and any one else who may be interested about the site! Simply login and then click on the ‘Tell A Friend’ link under ‘Personal Features’ in the forums menu.

Happy Trading!

The Tactical Trader Team
contact@tacticaltrader.com

Ah such optimism. I wish sorting through all of these emails had brought back happy memories, but there is sadly quite a few that should have been deleted long ago. But I won't dwell on the negatives - the whole point of the clear up was to get rid of them forever.

While sorting through the email it occurred to me that three years later we find ourselves in a similar position, with a brand new website and the challenge of appealing to a much wider audience than before. I'm pleased that we had more than 30 new or re-registrations on the first day of the new site going live and we've already had over 1,200 posts in the forum in the first month since the re-launch.

At the end of the week we'll be at the IX Investor show proudly exhibiting what we've built: an excellent educational resource.

We've come a long way in three years - here's to the next three!