A friend of mine, and a client in the live trading room called me today and asked me “why do you take so few points from your spread trades?” I replied that it is all relative. I have no way of knowing what the market will give me.

He continued: “well, I follow your trades (educationally speaking), and today you made 11 points on the index trade. I traded them at £2 a point, so I made £22. I don’t mind. It covers the cost of the room, but I just don’t understand why you take so few points out of them.”

I agreed that £22 is not a great deal of money to make, in his case. In the portfolio we run, the Model Portfolio, I currently trade it in £10.20 a point.

However, that is not my own trading size. I have traded the spread trades for a while and I am very confident in their ability to make a good return over the course of a month. So depending on the scale of the divergence, I trade it in much bigger size.

In this case I traded it in £40 a point, and although no one is going to become rich from £440 on one trade, it is nevertheless a decent return seen over a 12 month period, if one is able to do it most days. In the month of November I have had my fair share of good and bad spread trades. I have f#cked up a couple of times, but net I am up on the month. I have learned a few tricks along the way to refine the method. So if there is money in the bank and I have learnt a few things, I can’t ask for anything else.

No clichés here. Just trading, for better or worse.

Tom

Good morning,

It will be a difficult morning for equity traders. Wall Street fell off a cliff Friday night. The Asian session predictably fell Sunday night, but not by as much as had been feared. In the meantime the Dow has put in a spectacular recovery rally, and is now being called up 75 points. The Euro and the Sterling rates against the Dollar are pointing to Dollar weakness, which correlation wise often means stock index strength, so at this juncture in the morning it is anyone’s guess how bad the open will be for stocks.

If we go by the falls in Asia, which have already fallen heavily over the last week, then the falls should be contained to within 1% or less. Right now the DAX is being called down almost 1.5% by us.

 So far my prediction for a 10% correction is well under way, and I am not surprised by the 5% fall last week. I still think we will see lower prices in the first quarter of 2010.