ALSI Update and Trade

Mixed morning ALSI Session

It took a while and much discipline to wait for this morning's ALSI trade.After waiting 2 hours for a set up that gave me a signal on my strategy, it finally presented itself.

We went long at 10h35 at 16518 level and closed for almost 100 points as the ALSI went to the top level of our morning range. The range was sitting between 16500 and 16600 for quite a while. It took the positive opening of the FTSE as well as support from strong trading on the SNP and DOW as well to push our stock market to the upside.

Overall market outlook for today is that we may see a pullback again in DRD GOLD which would be mainly fuelled by the gap it left at 887c. In addition to this possible downside also consider that there is a double-top setting up at 950c with a neckline at 767c which gives us a 180c (estimated) target to the downside if the neckline is broken.

Once again, my recommendation in this instance is to keep track of gold and silver. One can refer especially to the New Gold ETF in order to analyse the chart for a view on gold's position.

Grindrod has defied all the stock markets odds and went positive from our call at 1126c last week we have seen it go to 1220c which is not far from our 106c target. In essence, this amount does warrant closing if you are edgy about the market today. Considering the move by the FTSE after it's open one may speculate that JSE will look to the upside. One would do well to consider that a sell on Grindrod today could be a fairly good move considering the overall market sentiment is in negative territory.

To give you an idea of the short term trade on GND last week this is how it reads:

• We call a long end of last week to enter at 1126c in the morning wih a stop loss level set at 1100c straight but utmost stop loss of 1080c due to the overall negativity of the market on Friday morning's open.
• Based on the price of the share we would calculate that we would trade with 30 contracts which gives us an exposure to 3000 shares for only 15% of the capital required, if you decided to trade the shares instead of using single stock futures to trade.
• So, if a contract price is R120 per 100 shares (there are 100 shares in each contract) I would have used only R3 600 plus brokerage in order to purchase 3000 x R11.26 = R33 780 worth of shares.
• I sell my Grindrod shares at R12.20 which gives me a gross profit of 94c which is the same as if you had bought the shares.
• We take the 3000 shares x 94c = R2 820 gross profit less brokerage of about R600 in total (estimated at higher end).
• I make R2 820 using R3 600 which is 78% return.
• As a share trader or someone using shares to trade on the short term you would have used R33 780 to make R2820 nett.
• That is equivalent to just over 8% using the full capital instead of leveraging your capital.

Moral of the story? Learn how to trade with your capital and make it stretch using leverage!

BUT IT'S RISKY!! Ask the right questions! If Grindrod went to 1100c and we both had to close the trade due to the stop loss kicking in, what would we have both lost?

1. In your example, the share lost 26c from 1126c to 1100c. Right? Take your 3000 shares x -26c = -R780 (loss) plus your transaction costs ie brokerage.
2. In my example, the futures contract lost 26c as well. Take my 3000 shares or 30 contracts x -26c = -R780 (loss) plus my transaction costs.
3. What's the difference? Not much! Right? Yes, I am!
4. Is there more risk in trading futures?
5. NOPE!

The risk only comes in when you overexpose yourself. If you are not aware of how leverage and margin works then you could get yourself into trouble. One should never, in general terms, leverage more than three times your portfolio size.

If your portfolio size if R50 000 you shouldn't leverage your trades to a value of more than R150 000. Effectively, you are controlling your leverage by keeping the margin you put on the table low.

You see, you could get leverage of 10 times on your account. This means that with R50 000 in your portfolio you could trade up to R500 000 worth of shares using a single stock futures. Don't go there...

Instead, come learn how to trade ALSI, Futures, Forex with us.

Financial & Investment Workshops, ebooks & financial freedom @ www.alsiapprentice.co.za