My New Portfolio of Share Trades

Well, I’ve managed to cobble together the first set of trades this Monday for the new portfolio, exclusive to The Trading Simply Blog.

I’m surprised at the amount of small cap shares and the mixture of long and short trades – ‘small caps’ shares are companies whose valuations are at the lower end of the spectrum and are more risky to trade than ‘large caps’ such as those in the FTSE 100.

It is an interesting time to be trading since Washington have seemingly sorted out the ability to pay their debts for the foreseeable future but their credit rating hangs in the balance: the minutiae of these matters will be argued over but it looks as though debt will become more expensive for the US and public sector cuts will hurt the elderly.

What does this have to do with trading UK shares?

1. I pay attention to the US stock market for one simple reason: the US stock market is the biggest in stock market in the world which means that if the US markets start going down, so do the rest of the world and vice versa. This correlation is not absolute; it exists to a large enough extent to matter.
2. I rely on PRICE ACTION to enter and exit trades so I try to formulate how the fundamental picture will effect technical levels in the stock market. Put another way, the way I interpret support and resistance lines on a chart will judged by the fundamental picture as a backdrop, to get a sense of the long term trend direction.

The small caps and how they have effected my trading

Due to the risky nature of small caps, I reduced the risk on each trade, sometimes by half, sometimes by two thirds. I judged each small cap on its merits and where there was more risk as compared to other small caps, risk was reduced even further.

So how did I reduce risk?

I bought less.

For example, where I would normally buy £20 per point I only bought £10 per point. In the case of extremely risky shares, I also placed a guaranteed stop loss as an insurance policy to get me out of shares that are tanking fast.

Although every single one of my trades has a stop loss attached to it, small cap shares have a habit of tanking so fast in value that sometimes a stop loss will not trigger until some distance beyond the original order. A guaranteed stop loss gets around this because my spread betting provider guarantees to get me out of a trade in exchange for a small fee. I like to think of it as a type of insurance.

Stay tuned for further updates which will reveal my gains and losses as the portfolio develops.

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