tactical trader

It's been a while since my last post - i've been extremely busy with work (which is good, now it's my own business).

This does mean i've been pulled away slightly from short term trading, and have just been checking my longer term plays - which thankfully are all doing very well thank you very much.

However, every day i read the news - and there are a couple (well, many) topics that continue to wind me up.

House Price Inflation

On a daily basis there are articles about how House Price Inflation (HPI) will never end.

I am starting to get a bit cheesed off with it all. Why? Well it may be coincidence, but it all reminds me of the early 2000's before the dot com went pop.

The articles have now got to the stage of using phrases such as 'new paradigms' and new models to support why prices should be so high.

The thing is, it all echos with a presentation i went to when i was at COMDEX in Chicago, back in 2000. Everything was jazzy and musical, with thunder clouds rolling in on the screen and 'new world paradigm' being drummed into your head. What happened next? Well we all know.

However, according to the media, property is different. Why? They don't really know, it just is. This kind of perpetuated hysteria and herd mentality must, at some point come crashing down.

I suppose the only question in my mind is how and when - not 'if'.

Personal Debt

There was an article in the Independent today commenting on how the nasty banks make £4bn a year from overdrafts - Link.

I don't know about you - but my response to this is 'so what?'.

At the end of the day, if people are using money that isn't there's then they should pay hefty amounts for doing it.

Effectively in using an overdraft they are taking money off the bank without asking - and that is their own fault.

Now, i can understand why the fees for the odd transgression may be unfair - and i think that this area should be tackled. If someone goes into the red and it is the banks fault, no charge should be levied.

However, for persistent offenders i think it is their own fault, and the charges should mount up exponentially. IF they still can't be bothered to stop spending then the bank should seize theirassets. Granted, it probably mounts up to just a pile of trainers and latest phones, but hey, ebay is calling!

It may sound harsh, but at the end of the day how else are people going to get it into their skulls that taking on debt that they can't pay off is bad.

If people realised this, banks wouldn't make so much profit out of these charges. People wouldn't get into debt, and the world would be a better place.

However, being the UK, steps are being taken to help these poor unfortunates that are unable to balance their monthly budget.

The report comes days before regulators are due to announce a crackdown on excessive overdraft charges and other unfair penalties that hit borrowers. The Office of Fair Trading is expected to announce its final decision next week on whether to impose a cap on penalty charges levied by banks and credit card lenders. It is expected to set a limit on the charges that lenders can make when borrowers fail to make credit card payments on time or exceed their overdraft limits.

Will people learn a lesson from this - no. They will just continue to get into more debt and persist with the blase attitude that debt doesn't hurt - when it should.

The level of financial ignorance in this country is shocking. But as ever the government is keener to hand hold those that never bother to learn, rather than those who are sensible.

And what does this all spell for the economy - in my opinion, another recession is round the corner and is another when rather than 'if'.

I have just completed a very interesting book about the dire consequences of global instability that we will all face before too long. Whilst I would not agree entirely with the position of the authors (stocking up on torch batteries for example) the book did raise a number of very interesting points worthy of further exploration.

First and foremost is the US debt situation, if you are anything like me you are probably sick of hearing about this and may well even close your eyes to it. I am now more convinced than ever that this is a mistake, I cannot say when the bubble will burst but it surely must. The evidence is simply too compelling and when the move starts it will be a big one.

The second and equally informative base for discussion is the emergence of China as the next world superpower and the ultimate subservience of the US through the massive dollar collapse and misguided application of protectionist strategies.

Not China again I hear you say but on this occasion the writing is different, it is based on research and specific facts rather than the empty rhetoric of the market gurus and as a result makes for a very interesting tale. In the words of Napolean Bonaparte, ‘Let China sleep, for when she wakes, she will shake the world’. In the late 1600’s China was the worlds largest economy and it is going to happen again.

So what do we do as investors? As always the answer is never a simple one but two things are very clear. Number one, do not ignore China even despite any short term corrections, it is a force that will not be stopped. Number two, give the US a very wide berth, it is a force that is about to stop.

For the last couple of months I’ve been tracking several uranium related stocks. For an amazing 25 years uranium was stuck in a bear market caused by oversupply that lead to the destruction of the uranium mining industry (uranium, in various forms, is mined). In the past there has been a large dependency on supply from dismantled strategic warheads thanks to an agreement that will run out in 2012 and is thought to be unlikely to be renewed. With uranium inventories held by utility companies reaching record lows and a reduction in supply, the uranium market is livening up again!

During 2003 and 2004 uranium doubled in price, and continued to rise in 2005. The price has since declined, however the potential for increased demand for nuclear power, the growth of countries such as China and India, and the low inventories held by the utility companies, there is scope for a longer term uranium bull market.

Canada has some of the most valuable uranium deposits in the world and has a very well established mining industry, but Australia has more potential supply as it has one-third of the world’s uranium. However political problems in Australia have slowed the development of mining operations meaning much of this potential supply is left untapped. China has been courting Australia for some time to establish a supply route to fuel some of China’s growth. If this deal is struck then one Australian politician has said that the number of mines would need to double in order to meet demand. Other countries with uranium supplies include South Africa, Russia and Kazakhstan.

Uranium is unusual to other commodity markets I’ve looked at because it does not have a futures market. The problem is that very few traders want to take delivery of a commodity that has such complex storage requirements (lead lined warehouses anyone?). The only way to get access to the uranium market is to trade in mining stocks, most of which will be Canadian due to the size of the industry there. I’m currently tracking eight stocks including:

• Agricola Resources (a rare British entry!)

• Cameco Corporation

• Energy Resources of Australia

• UEX Corporation

At the moment many of the stocks on my list are either in sideways ranges or slight downtrends, which has likely been caused due to a bit of a cool-down after the madness of the past couple of years. I’ll be viewing all of these as longer term investments rather than short term trades, and will let you know how it goes.

Over the last few weeks I’ve come across an annoying and potentially nasty eSignal problem involving saving advanced chart (ach) files. After much head scratching I have been able to track down the problem to two scenarios: opening advanced charts via the quote window and applying a style template to an advanced chart. Here’s what happens in the first scenario:

1. Create a new quote window.

2. Add a symbol to the quote window (e.g. VOD-LON).

3. Right click on the symbol in the quote window and select Advanced Chart -> Default Chart.

4. Change the interval to 1 minute.

5. Save the chart.

6. Exit eSignal.

7. Reload eSignal.

8. Re-open the chart - it will have forgotten its symbol and interval.

In this example when saving the chart in step 5, eSignal will helpfully forget the symbol being used on the chart (e.g. VOD-LON) and the interval (e.g. 1 minute) and will use whatever symbol and interval exist in the default.ach file in the eSignal installation folder. Even better is that if the default.ach file doesn't exist, eSignal will save the chart with no symbol or interval as shown in this excerpt from an advanced chart file (notice the empty <Symbol> and <Interval> data):

...
<Symbol></Symbol>  
<Interval></Interval>  
<HasInterval>Yes</HasInterval>  
<HasSymbol>Yes</HasSymbol>  
...

The second scenario demonstrates the same problem when using the style templates feature of eSignal, here's an example:

1. Create an advanced chart for a stock (MKS-LON).

2. Add an indicator (MACD).

3. Save a style template (macd-template.ach).

4. Create an advanced chart for a different stock (FPL-LON).

5. Load the style template (macd-template.ach).

6. Save the advanced chart (fpl-lon.ach).

Now when re-opening the fpl-lon.ach chart created in step 6 I would expect it to be a chart of FPL-LON with the MACD indicator applied from the style template. eSignal in its wisdom will instead have saved the file with the symbol (and interval) from the style template, unhelpfully giving a chart of MKS-LON instead

Both of these problems also apply when the charts are saved as part of a page file (a page file basically wraps up quote windows, advanced charts, etc. into a single file).

Whether these problems will be acknowledged as bugs and fixed by eSignal I don't know, but in the meantime there is a workaround whereby manually entering the symbol before saving the chart will force the correct information to be saved to the file. If you have experienced these problems with eSignal I would urge you to let them know via technical support so that they can fix it asap.

It makes a refreshing change to be able to talk about some positive feedback that we’ve received over the last week in response to my introduction to betting exchanges article. Naturally this positivity didn’t come from the trading community (miserable bunch that they are), but from the betting community.

PaceAdvantage horse racing forum member Dick Schmidt posted a link to the article describing it as “an interesting and rigorous look at a new way to bet” (thanks Dick!) and also noted that the article was different in that it looked at betting exchanges from the perspective of investors rather than betters, something that might seem obvious but that I hadn’t really thought about when writing the article.

I also received an email from a manager at betting exchange TradeSports saying: “I read your article with great interest and pleasure. Very good, clear and illustrates in an easy way how a betting exchange works.” It’s great to know that my first article for the site has been so well received, not just by betters but also by somebody working in the betting industry.

I’m now planning my next article which is likely to be about one of my favourite trading subjects: covered warrants.

After one week of trading my virtual warrant portfolio now contains 15 warrants, six of which are showing profits. The biggest gain so far came today from my Marks and Spencer (SB71) call that I bought last Wednesday for 30.42p. By Friday’s close the warrant was up by just 1.48% but had reached 49.61% by this morning! As a result I’ve sold one third of my position to lock in this gain.

Other notable performers that I came close to taking profits today on were my Lloyds TSB (SC60) and Vodafone (SC29) that were up 24.84% and 18.99% respectively by the close. The Vodafone gain is particularly pleasing as it was down 7.59% on Friday!

The worst performer is currently a Barclays (SC44) put warrant that is down 17.01% thanks to a rally that started on Friday and took the share price above the 650p strike price of the warrant.

Warrants that are currently potential candidates for addition to the portfolio are the Shell (SC69) and British Airways (SB75) calls. I’ll be closely watching the underlying share price for both of these companies over the next few days.

I am just back from a most enjoyable trip to the Italian Lakes, I try to get away each wedding anniversary so Mrs Anderton can remind me how lucky I am. Still, enough about pleasurable things, what has come up on the radar recently?

I have just completed a pretty extensive trial of a new tipping service called VIA trader, the results are not encouraging, we will get the full review posted soon.

I am also very concerned to be experiencing several problems with the IG L2 dealer platform that I reviewed recently. As you will see from the review I was pretty impressed but these breakdowns have really affected my confidence in the platform. Clearly something has gone badly wrong from an IT point of view as the actions IG have been taking would not be made lightly (cancelling orders, shutting down etc).

Let's hope normal service is resumed as soon as possible. I will soon be testing out the GNI CFD service so watch this space. My new book on Level 2 trading is coming on very nicely so make sure you all buy a copy, I can then afford to go away for my 30th anniversary!

Thanks to our friends at Trade2Win I’ve received an offer of a place at a free sales pitch seminar run by a “trader” who has risen to prominence over the last couple of years.

The seminar host is the latest in a long line of heavily and expertly marketed trading gurus who’ll show you the quick and easy way to riches. Think of Vince Stanzione or Darren Winters in the early days before people started to notice that the methods they teach don’t actually work.

Spend too long on his website and you might start to believe the hype, but before you part with serious money for his full programme (£2,995) or his new secret spread betting strategies (£650) you might want to delve a little deeper into his past.

It appears that his marketing machine has been bending the truth with the intention of making you believe that for over 10 years he has been a successful trader, has managed various dealing rooms and has been training and coaching private and professional traders. I simply cannot see how this can be true.

I can see two gaping holes in this story: as recently as 1999 he was still working in the IT department (this is only 7 years ago) at a well known travel firm; and in a 1999 interview he says that before joining the firm in 1997 he had been a vetinary scientist and moved into IT in 1994.

According to his website, by the age of 24 he was not only put in charge of online trading strategy at a respected financial firm, but he became their youngest ever Vice President. However there is no mention of working at this company in the 1999 interview so I can only assume he did this after he left his IT job. The problem here is that his vetinary science career must have taken place while he was still a teenager – impressive stuff!

The latest example of fiction being presented as fact, which prompted me to dig a little deeper and make this blog post, is the following statement in the free seminar advertisement:

…coach to the professional and private investment community and author of “High Profit Trading Strategies”.

Makes it sound like he’s written a book doesn’t it? Does this book exist on Global Investor? No. Amazon? No. His own website? Not a mention! To many people a published author automatically has more credibility but “High Profit Trading Strategies” certainly isn’t a best-selling, highly regarded trading book.

Recently I’ve noticed grumblings have started to become more frequent on discussion forums and he’s managed to earn himself the nickname “Sucker”.

Unfortunately the sad truth is that it’s the traders who fall for the get rich quick marketing who are the real suckers. While he’s probably driving around in a nice new sports car, they’re still playing around with spread bets trying to make his winning strategies work.

After all, who wants to hear that trading requires hard work, determination and patience? At Tactical Trader we’ve been trying to sell that message for four years and neither of us have a Ferrari sat on our driveway!

I’ve had a couple of reviews on my todo list for a little while now, unfortunately they keep getting pushed to the bottom of the list.

The first is a review of Jeremy du Plessis’ The Definitive Guide to Point and Figure, a very thorough guide to one of my personal favourite charting techniques. I finished reading it last November and although I have one or two complaints, which I’ll cover in my review, I think it is a very good book. My favourite book on the subject is still The Complete Guide to Point-and-Figure Charting by Kermit Zeig and Heinrich Weber though.

The second is, as far as I know, the first review of its kind. Last year I put Jake Bernstein’s High Odds Seasonal Trading strategy to the test on a range of commodities. At the start of this year I reviewed the performance and came up with some surprising results, the main one being it actually made a profit!

I’ve also just started reading A Mathematician Plays the Market by John Allen Paulos, which according to the cover blurb will show me “why no amount of clever maths can guarantee you a fast buck on the stock market - and why we seem so hardwired to believe, against all logic, that we can beat the odds.” It promises to be an interesting read, and thankfully I don’t have to write a review as Steve got the short straw and has do it

And finally, don’t forget that if you’ve used a product or service that we’ve reviewed you can add your own comments and rating too!

As the FTSE 100 continues higher, Société Générale has launched four new covered warrants offering strike prices up to 6,500. All four have September 2006 expiries and are listed below:

• SC86 call with a strike price of 6,200

• SC87 call with a strike price of 6,500

• SC88 put with a strike price of 5,800

• SC89 put with a strike price of 6,000