ALSI Trade today

Today the ALSI had an interesting move.

We had positive divergence on the Stochastic plus the stochastic was very low. The ALSI was also sitting on my fib line and support. Despite the fact the overall stock market was saying down, the ALSI managed a short but very quick rally to the next Fib level.

I was in the trade from 18067 going long with a price target of around 100 pts according to my assessment. I cut back 10 pts as I set a stop profit order on my trading system as I was going to be leaving soon and couldn't watch the screen. My trade closed out at 18157 automatically for me.

This is a 90 point trade on the ALSI in the morning session. Following that trade the market then swiftly did an about turn for a short which is playing out.

At 12 noon, the trigger came for the change again and we are in short from 18020 and are about to bank my short profits at 17785. This is a total of about 300 points for the day on the ALSI. Only 200 pts short of my weekly target in one day.

Using my combination of indicators and time zone map it is possible to trade for a nett of 100 points on the ALSI most days. How much does this work out to be in profit terms?

Profit depends on your instrument and your gearing. If you were using CFDs or Spreads you can trade with much smaller amounts of money in margin and therefore take a lower gearing. So on Spreads, your margin requirement for R1 spread trade is R1200. In essence, this means you could get R10 spread bet at R12000 which means every point the ALSI moves in your favour after costs you make R10.

If you are using ALSI via SAFEX as a future index then you need R21 000 margin for 1 future's contract which enables you to either make or lose R10 per point as well.

Say in my example above of my trade this morning I took a R1 Spread bet on the ALSI going up in price. I am required to provide R1200 in margin or refundable deposit in order to facilitate the transaction.

I enter the trade and close it with 90 points difference between the entry and exit in my favour (18157 - 18067 = 90). In the example on spreads above I make 90 x R1.00 which gives us R90 after costs.

What is my return? I had to allocate a refundable deposit of R1200 to take the trade. I made R90 on the trade after costs.

So we take R90 (R1 x 90) / R1200

= 0.75 x 100

= 7.5 % return

So you don't think R90 is worth it per day? Well, remember the beauty of the derivative market is that you can now trade R2 per point relative to your account and the margin required. For every additional R1 you want to bet per point going in your favour, you need R1200 in your account.

Lets look at another example now using R5 per point:

R5 per point x 90pts / 5 x R1200 (deposit required)
= 0.75 x 100
= 7.5 % return

It's the same?!! How does that happen. Because the required deposit is relative to the size of your trade in terms of R1 per point. However, you have now made R450 in the same trade but you needed R6000 margin to do it.

It is quite possible to trade 15 days a month on good, high probability trades. My kind of trade... and make 100 pts each time. But then what about when you get it wrong. Well, that happens too. It's part of the game. Don't fight it! It will be like trying to air... you can't possibly win.

Ok so let's look at it this way: You trade 20 times in a month. Out of those 25% are bad or go the wrong way. We end up with 5 bad trades and 15 good trades. If we make our stop loss 100 pts that equals:

5 bad trades @ 100 pts

= 500 pts lost

15 good trades @ 100 pts minimum

(win more pts than you lose)

= 1500 pts

Monthly total

=1500 less 500

= 1000 pts

1000 x R1 = R1000 p/m

1000 x R5 = R5000 p/m

and so it can go on.

How much can one start off with? Well the real question should be, "How does one ensure a great start - not a false one?" By ensuring that you have a good trading system or know how to build one for yourself and back test it!

Well, I must get ready for the next position trade in my time zone map. Catch you next time!

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