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

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!

Financial & Investment Workshops, ebooks & financial freedom @ www.newsweek.co.za Now featuring the ALSI Apprentice package!