Darryl Nagel

In my article in newsletter #132, I explored the opportunity provided by CFDs for traders to gain important trading experience. CFDs are very flexible in that you are able to trade with as little as 1 share CFD.

It is important when trading CFDs that you are disciplined in applying stops. This is because CFDs are highly leveraged, resulting in the management of risk being of paramount importance.

When starting out, look at risking a very small amount on each trade. This way you will be focusing on gaining skill without worrying about losing too much of your trading capital. In addition, by trading you will become aware of your emotions and your discipline (or lack of).

The chart below shows a recent example of trading CBA share CFDs on a daily chart. The ABC methodology as taught in the Trading Tactics seminars conducted by Safety in the Market is used.

Chart

click chart for more detail

The first step is to identify the maximum amount you wish to risk on a share CFD trade. In the above example the amount to risk on the trade is $50, excluding commission and financing costs.

The next step is to ascertain the risk per share. At the 25% milestone the chart shows a limit of $40.07 (by rounding up to the nearest whole cent). My stop loss will be placed 1 cent below the low of the C bar at $39.43. The risk per share of $0.64 is ascertained by deducting the stop loss of $39.43 from the limit of $40.07.

The number of CBA share CFDs to buy is derived by dividing the trade risk of $50 by the risk per share of $0.64, being 78 share CFDs.

The entry point for this trade is $39.81 being 1 cent above the high of the C bar. The entry limit is $40.07 being 25% of the range from the A bar to the B bar. The actual entry point for this trade is $39.95 being the price on the open of the next trading day after the C bar. The actual risk per share is $0.52, being $39.95 (entry price) less $39.43 (stop loss). Therefore the risk for this trade is $40.56 ($0.52 [actual risk per share] multiplied by 78 [number of CBA share CFDs]).

Profit is taken when the price reached $41.94, being 100% of the range from the A bar to the B bar.

The gross profit on this trade is $155.22 ($1.99 multiplied by 78).

The net profit of $131.99 is made up as follows:

Gross Profit		$155.22
Less:
Commission on entry (.3%)	$9.35
Commission on exit (.3%)	$9.82
Financing costs (7.75%)	$4.06
Total costs	$23.23	$23.23
Net Profit		$131.99

The margin for this trade is $155.80 (5% x $3,116.10). The % return on investment for this trade is 84.71%.

Share CFDs provide an excellent opportunity to gain leverage while risking a manageable amount of capital. It is most important to place a stop loss order with your broker when entering a share CFD trade.

Remember: Always trade with discipline.

Darryl Nagel

Mario La Marra

When Gold traded at a low of $255 per troy ounce in early 2001, who could have imagined that within 5 years it would almost double in value to trade at over $500 per troy ounce?

Looking at the Daily Chart of Gold (GC-SpotV) on Chart 1 below, we can see where the most recent Gold Rush commenced on 16 February 2001 and, with a few minor pullbacks, has kept on a steady march right through to its current price.

A 1 x 1 Gann Angle drawn from the 2001 low is used to measure the strength of the move by identifying a ratio of price to time. Amazingly enough, as this line extends forward in time it connects a few price points as the chart comes to rest on this line, thus finding support. For this reason one could almost mistake this for a trend line.

Chart 1

click chart for more detail

Chart 2 below takes a closer look at the most recent price action in Gold. We can identify a double bottom created by the two price dips in February and May 2005. Using the ABC Pressure Points tool from the Safety in the Market software we can project a price forecast equal to 200% of the previous A to B range. The strength of this market has seen price action surpass this milestone and carry on through to break the psychological $500 barrier.

Chart 2

click chart for more detail

Are we close to seeing a top or is there more steam left in this market?

Whatever direction the market decides to deliver, keeping an intuitive stop movement strategy and sticking to a plan should leave us feeling confident with our trades.

Trade Smart

Mario La Marra

Sinan Koray

We looked at the Focus in Issue #80 of Trading Tutors. Let’s look at it again from a slightly different perspective. I will be asking you to do some writing as we go along. To get the best benefits, I suggest that you stop reading, complete the writing part and then resume.

Pick a person in your mind: someone close, someone far away. Write down five things that are wrong with them. You can pick on their looks, their behaviour, their attitudes, or their way of thinking. Pick someone else. Write five things that are wrong or bad about them. Look around the room you are in and find five things wrong with the room you are in. Next, find five things wrong with your trading. Lastly find five things wrong with you.

Did you do this? Or are you simply reading through? You can’t learn how to ride a bicycle by just reading a book. Sooner or later, you have to jump on the bicycle. Similarly you will get the full benefit of these exercises by putting pen to paper.

How long did this exercise take you?

Go back to the first person you picked. Write down five things that are right and good about them. You can write about their looks, their behaviour, their attitudes, or their way of thinking. Go to the second person. Write down five things that are right and good about them. Look around the room you are in, and find five things good and right about the room you are in. Next find five things good with your trading. Lastly find five things good about you.

Did you do this? Or are you simply reading through? Remember, there are no shortcuts to mastering your mind.

How long did the second portion of this exercise take you? Which portion was easier? Which one was hard going? Jack Canfiled, an author and public speaker, has done a survey on the messages young kids receive on a regular basis. An average American primary school kid hears thirty-two positive messages and four hundred and thirty-two negative messages each day, a ratio of 1 to 14. No wonder it is so much easier for us to focus on the negatives. This applies to your trading, your system, your trade selection, your money management, your psychology, your orders and your decisions. Unless you put the effort in yourself, you are going to be swept away by the pessimism of negative focus and negative messages.

One easy way to focus on the positive is to ask appropriate questions. What can I learn from this? How can I improve this the next time? What will I do different? How would a successful trader handle this situation? What is great about what just happened? Below is a list of more power questions you may want to ask yourself each day to keep yourself focused on the positive:

1. What am I happy about in my trading now? What about that makes me happy? How does that make me feel?
2. What am I excited about in my trading now? What about that makes me excited? How does that make me feel?
3. What am I proud about in my trading now? What about that makes me proud? How does that make me feel?
4. What am I grateful about in my trading now? What about that makes me grateful? How does that make me feel?
5. What am I enjoying most in my trading right now? What about that do I enjoy? How does that make me feel?
6. What am I committed to in my trading right now? What about that makes me committed? How does that make me feel?
7. What have I given today? In what ways have I been a giver today?
8. What did I learn in my trading today?
9. What did I enjoy most in my trading today?
10. What added meaning to my trading today?
11. What am I thankful for today?
12. What did I do well today?

Believe, achieve.

Sinan Koray