Lessons learned over 4 years

Thursday, 13th October 2011 09:25 - by Robbie Burns

First, apologies for being so lazy and not updating this column enough. I could blame a dodgy knee, but that's probably not enough is it?! So, I am going to make an effort and update here more often with some thoughts. The new edition of my book 'Naked Trader' has just been published - Naked Trader 3. For a next day delivery copy, you can order it here…http://nakedtrader.co.uk/ In it are a plethora of new ways to make money from the markets; including 20 strategies I use most often. And probably most importantly, the biggest mistakes I see traders making. I also got to thinking about the differences to the market since I wrote Edition 2 in 2007 and this edition in 2011. The biggest difference has to be the volatility in the market. This is caused by a number of factors. One of them is high-frequency robot trading, in which robots push share prices up and down using algorithms. Another is automatic stop-losses which many people now set – which usually means a share price move is exaggerated by stops being hit. All this means having access to Level 2 (Ed: Watch this LSE-shaped space!). It is more and more important so you can see the real action. One new tool that has arrived since 2007 is Deutsche Bank's super-short (SUK2) which makes is possible to go short inside a tax-free ISA. I have used this tool endlessly to make money from big FTSE down-moves. It goes up nearly twice as much as the FTSE goes down, though there is also a time factor so it should be used as a shorter term tool. You will find a whole chapter on this in the new book. What else has happened in the intervening years? Spreadbetting continues to be good for me. And the main difference now is that competition has made spreads a whole lot tighter. For example, it's now possible to trade the FTSE nearly spread-free, or for just a point. Spreads on shares themselves are so tight it really is possible to trade tax-free using ISAs and spreadbets, using spreadbets more often because of the tighter spreads. Well, volatility makes it much harder to place stops. In my 2007 Edition, I suggested 10%. However, with the current volatility in top shares, it is not nearly enough and 15% could be nearer the mark. Or indeed, cutting losses really fast could be an even better move. The volatility makes it really hard for Buy-and-holder’s. But one thing is still for sure: value in a company will still come out over time. So, for example, my long-term buy of Telecom Plus has still made me a fortune despite the market gyrations. Another thing has changed in the four years. Small oil and mining shares were all the rage then. However, recently that has changed, and many have got burned. Traders took way too much risk and used too much leverage. Also, recently the attitude to debt has changed. In 2007 debt didn't matter, it was almost seen as a good thing. Things have changed big-time now. Debt is bad. Use my highlighter system to home in on debt. Avoid anything with a massive debt as the market simply does not like this now. In summary, what have I learned in the time between Editions? A number of things - as markets always change. All-in-all, the main changes I have made are:  Act more quickly to take small losses.  Keep punts in small oil stocks to low stakes.  Use SUK2 and FTSE shorts to make money from downside.  Stay away from companies with big debt.  Enjoy life…money isn't everything! I wish all of you the best in the current tricky conditions and, if you buy it, hope you enjoy the new book!