June Exchange Edition (Sample)

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BETWEEN THE TRADING

FLOOR

FINAL

SCORE...

Discipline

Self-doubt

Risk

AND THE

Focus

CONFIDENCE

Nerves Perseverance

Fear Unlocking trading’s psychological secrets

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THE OPEN | WELCOME

EDITOR’S LETTER

ART DIRECTOR ALEJANDRO GUERRA-PALACIOS

School for Scandal It’s been an interesting period since our last issue in and away from the markets, and for a number of high profile public figures and companies in particular the end of May cannot have come quick enough.

Scandal has jumped from the lurid pages of the redtops to their more palatable neighbours left, right and centre, causing the Exchange office walls to reverberate with the deafening noise of raucous debate and the silent whisper of rumour and intrigue. It’s been far from pretty, I can tell you. Not that we’re gossips or anything.

Ok, maybe a little bit.

Top of the bill, of course, has been the catastrophic demise of DSK and the fractious state of the IMF. Just how the world’s premier banker has managed to arrive at the position he now finds himself in is almost impossible to fathom (no, we’re not falling for the Russian honeytrap conspiracy theories just yet), but what we do know is this; the fallout of DSK’s insalubrious actions is a mess that needs to be cleaned up quickly.

It appears though the role will remain occupied by a European, and Christine Lagarde is the clear cut first choice to step into Strauss-Khan’s shoes, if only for the fact that few national economies in Europe outside of Germany and France are able to salvage enough self-respect to even suggest a viable candidate.

There is one Brit blind enough to throw his name into the mix though, and it’s someone you might have heard of before. Good old Gordon Brown is lurking on the IMF horizon, and you’d be foolish to count him out of the running for president just yet. After all, it isn’t as though he’s not well practiced in side-dooring his way into positions he wasn’t voted into.

Only joking Gordon, we’re all behind you.

Although if the mighty Blue couldn’t crack Europe, I’m not sure how you’re going to manage any better. Sorry to be the bringer of bad news and all that.

And now, as we go to print, the world’s least well-kept secret is breaking. No, it doesn’t involve Ryan Giggs, Imogen Thomas and 75,000 Twitter users (and yes, I did just write that to be naughty), although it’s not exactly been a month to remember for the most decorated footballer in English football either.

It’s that FIFA, football’s governing body that permits just a handful of people to determine contracts worth billions and billions of pounds, is rife with corruption. It seems as though every country in the world knew this already, including our own 2018 World Cup bidding team, so it’s not as if we can pretend to be shocked about it now. Although David Cameron, Prince William and David Beckham probably do feel a little bit foolish about the whole process looking back, after all a couple of wedding invites and a signed Becks shirt were all that separated us from first and last in the eyes of the judging panel.

So Gordon, now you’ve seen how a vote is won properly, follow FIFA’s lead and I’m sure the world’s top banking job will be all yours.

One last piece of advice though: just make sure Nicole Scherzinger doesn’t suddenly want to be your best friend, because you might not keep your job for very long.

I hope you enjoy the issue.

ALEX HAMMOND EDITOR

4 | THE EXCHANGE | June 2011

EDITOR Alex Hammond

HEAD of DESIGN ISABEL FERRER Writers & CONTRIBUTORS SANDY JADEJA NICK BEECROFT DECLAN FALLON KEN FISHER ALASTAIR McCAIG MARK SOUTHERN Alessio Rastani Michael Hewson Peter Webb TOM ROTHERHAM CHRIS SMITH ZOE FIDDES SIMON SMITH GREG MICHALOWSKI ATIF LATIF SVETOSLAV GEORGIEV STEWART COLLINS EVE LAWRENCE SARAH MCARDLE DIGITAL CONTENT & MARKETING ANDREW CAPEL Public Relations Mark Southern Polygon PR SOCIAL MEDIA MANAGER Simon wiltshire Subscription@ Theexchangemagazine.com PUBLISHED BY The exchange ADMIN@THEEXCHANGEMAGAZINE.COM

© 2011. The Magazine is published by The Exchange.

All rights reserved. The publishers declare that any publication of any advertisement does not carry their endorsement or sponsorship of the advertiser or their products or services unless so indicated. Contributions are invited and, whether or not accepted, submissions will be returned only if accompanied by a stamped addressed envelope. No responsibility can be taken for drawings, photographs or literary contributions during transmission or while in the Managing Editor’s hands. Proof of receipt is no guarantee of appearance.

In the absence of an agreement, the copyright of all contributions, literary, photographic or artistic belongs to the The Exchange. This publication (or any part thereof) may not be reproduced, transmitted or stored in print or electronic format (including, but not limited to, any online service, database or part of the internet), or in any other format in any media whatsoever, without the prior written permission of The Exchange.

The Exchange accept no liability for the accuracy of the contents or any other opinions expressed herein.

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CONTENTS

contents 14

THE OPEN 12 14

UPS & DOWNS CELEBRITY TRADER: KATE GARROWAY & CLARE NASIR

FEATURE ARTICLE 16

IT’S ALL IN THE MIND

THE LONG 32 34 36

16

32

42 44 46 48 50 52 56 58

EUROZONE DEBT CRISIS THE EURO PARADOX ANALYSIS: ETF CONCERNS 40BUY LOW, SELL HIGH, BUY HIGHER AIM MARKETS & CFDS US DOLLAR TOP DOG? KEN FISHER CHART WONK THE SWING OF THINGS ANALYSIS: PRECIOUS METALS THE ART OF THE PURCHASE THE WINE MARKET UPDATE

THE SPREAD

56

68

62 SUMMER PARTIES 68 CIY GUIDE: MARRAKECH 72 WEEKENDS 74 TRAVEL DATING 78 RESTAURANTS

THE CLOSE 82 THE SPIRIT OF BURMUDA 84 WHO’S WHO 88 GLOSSARY

6 | THE EXCHANGE | June 2011

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THE OPEN | WHERE DO YOU TRADE?

OPEN THE

IN THE OPEN UPS AND DOWNS CELEBRITY TRADER

No merci for ex IMF chief It hasn’t been the best month to be the world’s premier banker.

For the last person who iissn’t aware of what occurred in a hotel bedroom in New York last month, Dominique Strauss-Khan, now ex-IMF chief, is currently under house-arrest awaiting trial on sexual assault charges brought by a female member of the hotel staff.

He had initially been denied bail after being tracked down by police trying to board a plane out of JFK airport but, after posting a cool $1m bail, is now being

10 | THE EXCHANGE | June 2011

kept under constant armed guard instead.

The story has reverberated around the financial world, with most unable to comprehend how DSK managed to find himself facing jail time, if indeed the allegations against him are proved to be accurate in the courts.

Christine Lagarde is the odds on favourite to take over the hot seat but don’t count out Gordon Brown, who has openly expressed an interest in the role. And with a CV like Flash Gordon’s…well we’ll let you finish that sentence yourself.

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THE OPEN | UPS AND DOWNS

UPS&DOWNS

From news stories to trading issues, a round-up of the things that have caught our eye this month

Send us your news, views, and unprintable gossip at: editor@theexchangemagazine.

Two-speed Eurozone confirmed by growth statistics

TMX takeover battle heats up The London Stock Exchange’s quest to takeover TMX, the operators of the Canadian Stock Exchange, took a new and unexpected twist last month.

The Maple Group, a collection of Canadian banks and pension funds who had a C$3.6bn counter offer for TMX turned down in favour of LSE’s bid, have turned their bid hostile in an attempt to block the accelerating deal between the stock exchanges.

TMX and LSE had already determined the date on which shareholders will vote on the proposed deal, which they are labelling as a

“merger of equals”, as opposed to a standard takeover.

“By accelerating the timing of their meeting to consider the LSE takeover, they have given us no choice but to make our offer available directly to TMX Group shareholders,” said Luc Bertrand, lead spokesman for the Maple Group and vice chairman of National Bank of Canada.

Shareholders are now faced with the decision of whether nationalistic opposition to the merger is the correct course of action, or whether the agreement between TMX and LSE is in Canadian national interests.

Galleon chief Rajaratnam found guilty of insider trading US hedge fund billionaire Raj Rajaratnam has been found guilty of making millions of dollars through insider dealing in the biggest legal case of its kind in history.

The eight week long trial ended with a unanimous guilty verdict, although Rajaratnam has already announced his intontion to appeal. He currently faces somewhere between fifteen and nineteen years jail time.

Rajaratnam has been released on a $100m bail, under the conditions that he wear an electronic tag at all times to prevent him from leaving the US to return to his native Sri Lanka, until 29th July when he will be sentenced.

12 | THE EXCHANGE | June 2011

He was found guilty on all fourteen charges brought against him including conspiracy and fraud, with recorded phone conversations between him and corporate insiders being the key evidence that secured the verdict.

Rajaratnam’s defence team are arguing that the fact that 23 of the original 37 charges brought against him have been dropped is evidence that the verdict is unsafe, and plan to appeal on those grounds.

In a clamp-down on illegal trading activity the attorney general has brought charges of insider dealing against 47 traders in the last 18 months. Rajaratnam is the 35th to be convicted.

The two-speed nature of the Eurozone economy was evident yet again on Friday as growth statistics of Eurozone countries for the first three months of 2011 were revealed.

Germany’s economy grew 1.5% in the first three months of 2011, and France and Austria both grew 1% over the same period. France’s growth rate was the highest over a three month period since the second quarter of 2006, and Germany’s economic situation is strong after posting the country’s highest export figures since records began being kept.

In contrast Italy and Spain’s growth was extremely disappointing, with published growth figures being 0.1% and 0.3% respectively.

Italy’s growth figures were the most substandard, with the 0.1% growth rate the same performance as the last three months of 2010. The Italian government recently cut its growth forecast for the whole of 2011 from 1.3% to 1.1%.

THE OPEN | UPS AND DOWNS

German exports reach all-time higH News Corp profits fall 21% after success of 2010

German exports rose drastically in March to their highest levels since 1950, when records of the statistics began.

Exports for the month totalled 98.3bn euros ($142bn; £87bn), 7.3% higher than the figures for February, on the back of increased demand in a glowing global economy. Imports also reached their highest since data began being collated, up 3.1% to 79.4bn euros.

Germany is the world’s second largest exporter, with only China exporting more products across the world.

Indications are that Germany could now be entering one of the strongest periods of growth in recent memory.

The figures, which are much higher than had been predicted, are further proof of a “two-speed” Eurozone. The German and French economies are continuing to prosper in a period of economic uncertainty whilst other countries, including Portugal and Greece, continue to struggle through a national debt crisis.

Toyota quarterly profits plummet, but recovery on the horizon Toyota Motor’s quarterly profits have fallen 77% in the first quarter of 2011 after the tsunami and earthquake that devastated Japan earlier in the year.

Net profits were 25.5bn yen (£192.7m, $315.5m) between January and March, Toyota executive’s revealed.

However, for the fiscal year from March 2010 to 2011 Toyota’s income doubled that of the year before, showing that the company was enjoying a period of strong profitability before the earthquake hit.

And the car manufacturer announced that production will accelerate from June, meaning that profits should return sooner than had initially been expected.

Previous estimations from Toyota had said production wouldn’t recommence until July.

President Akio Toyoda revealed on Wednesday that he expected Toyota’s manufacturing both in Japan and abroad to recover to 70% of its capacity before the earthquake by the end of June.

News Corporation has reported a 21% drop in profits for the first three months of the year, in the most part due to the success of the film Avatar in 2010.

News Corp’s net profit was $682m (£414m) for the January to March period of 2011.

Advertising revenues fell for the period at company’s newspapers in both the UK and Australia, but television advertising revenues improved.

Boss Rupert Murdoch explained that the company had not been able to match Avatar’s revenues from 2010, but expected profit rises to return in the remainder of the year.

“The great response to Rio (the movie) and our confidence in our upcoming releases indicate that the difficult comparisons in this segment over the past nine months are now behind us,” Murdoch said.

Income at its film division was halved to $248m, but the cable programming unit’s income grew 25% to $735m. Social media website MySpace’s revenue also fell with losses incurred as advertising and search again disappointed.

June 2011 | THE EXCHANGE | 13

the open | CELEBRITY TRADER

Day-breaking the markets The month’s celebrity traders are Kate GarrAway and Clare Nasir

14 | THE EXCHANGE | June 2011

THE OPEN| CELEBRITY TRADER

Simon Jessop

Kate Garraway and Clare Nasir have been staples of daytime television for years, wowing the nation at GMTV before Kate took up her current role at Daybreak and Clare continued her media career. They are two of the hardest working presenters on TV, so how did they find the time to be this month’s celebrity traders? Was it trading teamwork, or forex feuding?

We caught up with them to find out.

Clare arrives at our exclusive location in Poland Street before friend and colleague Kate. We are shooting at a private members club which Clare recalls drinking in regularly in years gone by, before hitting the headlines due to the triumph of a highly successful weight-loss regime. At a mere 5, 1” Clare dropped a dramatic 5 dress sizes, from a size 16 to a size 6, in as little as 4 months, enabling her to launch a second career in the health and fitness industry.

When it comes to talking about trading she’s enthusiastic, and even a little confident.

“Trading is something I have always been interested in” she admits enthusiastically, “it’s not rocket science for people like us”, she jokes.

As an Honours graduate in Mathematics who also holds a Masters in applied Marine Sciences, she might just be right. Throw in the fact that Clare’s an experienced weather forecaster who has dedicated her professional life to spotting patterns and trends analysis and we’re really starting to get excited. We might just have uncovered trading’s newest star.

Unfortunately when we mention this we’re sadly informed that plans to move to full time trading would have to be put on ice; Clare’s in high demand from twitter followers who are seeking her guidance as the latest Icelandic volcanic eruption threatens a second summer holiday season. The ash cloud claims another victim.

Soon Kate arrives all smiles and apologies as her prior meeting with David ‘The Hoff’ Hasselhoff over-ran. Looking radiant and “ready for business” in a striking blue trouser suit. Clare mulls over the wardrobe options she has brought, and the atmosphere of the shoot mellows to that of a breakfast catch-up rather than competitive trading.

“Clare has dedicated her professional life to spotting patterns and trend analysis...

We might just have uncovered trading’s newest star” They both appear comfortable and at ease, the manner in which we recognise them from television. We decide to stir it up a little bit and tease the fight out of them; it is all about the game after all, not the money.

Kate has been an enthusiastic trader, the start of the competition saw her dive straight off the deep end and short the FTSE after reading that the markets had begun the week with a bearish undertone that looked set to continue.

The Garraway Strategy – ‘selling in strength’.

Kate sold at £10 per point a rather brave and aggressive approach, resulting in her receiving a almost instantaneous margin call from our trusted City Index Trader Kishan Mandalia.

This didn’t shake her confidence however, and she did eventually enjoy something of a rally on this trade. Unfortunately, over optimism was her down-fall, as the UK 100 Index pushed up towards the 6000 mark, resulting in a disappointing loss as the trade crystallized £130 down.

On the other hand, this turn in fortune for the FTSE 100 was a welcome bonus for Clare, as she placed the opposite trade, taking a long position on the index and successfully crystallizing a £61 profit.

June 2011 | THE EXCHANGE | 15

the open | CELEBRITY TRADER

TRADER’S VIEW Kishan Mandalia,

Senior Sales Trader at City Index Kate Garraway: Kate decided to short the FTSE for her opening trade, as the market felt weak at the beginning of the week due to Greece’s debt concerns.

Despite this knowledge of the markets, the index fluctuated, which allowed Kate to enjoy a good rally on her trade. However, over optimism on taking a large profit stifled the real potential earner in this trade, and she crystallized a loss of £130.

Her next investment was Burberry, owning a Burberry bag herself and recalling how profitable the stock had been in recent months. She took a long position, however, with the company figures reporting lower results than expected, the stock fell by 4% and she took another unfortunate loss of £750.

Her last bid for success was with an old friend, ITV, which came through in her hour of need; on the day of trade ITV’s stock was up 2%, giving her some edge by claiming a small profit. Over all her net equity resulted in a loss of £849.04.

Clare Nasir: Clare wasn’t so experimental with her trades and stuck to what she knew. She took a long position on the FTSE, opposing Kate’s short punt, which earned her a small but significant profit of £70. Being a weather girl, Clare felt strongly in investing in an airline after mid weeks views that the Ash Cloud was clearing up, and chose to again take a long position, this time on ICAG (International Consolidated Airlines Group – former BA). Her knowledge of the industry gave her a good edge on how to invest and she took a £30 profit on the trade, leaving her Net Equity at the grand total of £2,596.25 from her £2,500 starting account.

Although these were not the highest profits we’ve seen on Celebrity Trader to date Kate and Clare certainly tried just as hard to come through with the goods. Clare’s £96.25 profit clearly made her the winner of this duo challenge, but Kate’s bravery to dabble in stocks she wasn’t all too familiar with and hold out on certain positions to see if they would come back more than makes up for her loss in profit.

16 | THE EXCHANGE | June 2011

“This turn in fortune was a welcome bonus for Clare as she placed the opposing trade, taking a long position, and crystallizing a £61 profit” Clare Nasir 1 - Kate Garraway 0.

Between comparing trades and smiling for the camera Kate tells us about her latest venture, goodypass.com a fantastic website offering exclusive deals on lifestyle and entertainment activities, inspired by her fans and followers on twitter. Joined by several of her celebrity friends, the ladies select the deals they think their followers would appreciate and get the

most value out of, and promote them via Twitter, Facebook and email.

“You can receive massive discounts up to 70% off on luxury celebrity lifestyle ventures such as spa weekends, restaurants, shopping vouchers, you name it,” they explain, eager to impress their obvious entrepreneurial prowess.

But as we know “the proof of the pudding is in the eating” and the proof of you trading skill is in the balance sheet. Kate’s “boom or bust approach” was bold, but ultimately fell short of the mark, as she incurred losses on both her FTSE punt and a long position on Burberry to the tune of £850. Her undeniable enthusiasm certainly deserves praise, and on another week her trades could have vaulted her to the summit of our celebrity trader leaderboard, but it just wasn’t to be.

Clare’s much more cautious approach did pay dividends as she made small profits on every one of her trades, making her this month’s top of the trading class. Now if only those Icelanders could keep their ash to themselves…

Kate and Clare’s discount website goodypass.com offers 50-70% off local salons, restaurants, days out and amazing national deals. Check it out today.…

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PSYCHOLOGY

18 | THE EXCHANGE | June 2011

FEATURE

To be A success in every walk of life, be it professionally or otherwise, you have to have certain skills that make you more proficient than most at doing what you do.

But having these physical or mental skills alone will never make for peak performance. That’s because every situation you face in life creates an emotional reaction, and often one that isn’t expected, helpful and certainly not desirable.

These factors are no more apparent than in trading, especially because of the fact that large sums of money are often involved. The human frailties of greed, fear, self-doubt anger

flow through traders of all ages, experience and knowledge, intent on disrupting performance and turning profits into the losses.

These factors exist as a fact of life and won’t be going away any time soon, which is where trading psychology comes in.

Traders who can appreciate the psychological factors that will affect their performance and adjust accordingly will ultimately prove the most successful in the long term.

So it’s time to face your mental demons, and conquer them once and for all.

June 2011 | THE EXCHANGE | 19

20 | THE EXCHANGE | June 2011

FEATURE

How to ride the emotional trading roller coaster

By Zoe Fiddes, Easy Forex If you haven’t traded with your own funds before then you are unlikely to have experienced what it is like to have the market grip you, and then send you on an emotional roller coaster. In addition to technical and market analysis factors to profitable trading psychological influences have a huge impact on successful results for this very reason. Without a strong appreciation of what the market is likely to throw at your mental state becoming a profitable trader is very difficult.

To assist with this transition let me explain just some of the many scenarios you may find yourself in when trading.

The emotional roller coaster

Let me begin by describing the roller coaster.

You are in a buy trade and the market is going up. Naturally you will feel elevated that your position is bringing you profit, and its growing and growing. But if you have not set out a plan before trading you are likely to become nervous, not knowing when to get out. Should you close now and take the profit? Wait for it to increase more? What if it turns the other way? You have missed your chance and now the market is down and your profits have turned into a loss. Should you take the hit? Wait for it to come back your way? These are questions that will go through the mind of a trader who has no predefined method. Psychologically the effect of the roller coaster can break novice traders, the only way to counteract this mental attack is to be prepared with a comprehensive strategy so that you know the answers to these questions before the scenarios arise.

How can you lose if most of your trades are profitable?

Many traders do choose good entrance points and have a high percentage of profitable trades but too often it is their risk management that lets them down. If I told you that more than 50% of trades on an account are profitable you would guess that there would be a profit made overall. Your guess would be correct if the risk to reward ratio (RRR) is being properly managed, but unfortunately if the trader makes the common mistake of running losses and closing winning positions too early, the account will be down.

“Psychologically the effect of the roller coaster can break novice traders” Let me give you a simple example I use with my clients to get this message across. Assuming I am profitable 60% of the time and I execute 100 trades, for each of which I am willing to risk 50 pips and target 30 pips profit. After 100 trades I have 60 winning trades which bring me a total of 1800 pips profit (60 trades multiplied by 30 pips) and the 40 losing trades produce a 2000 pip loss (40 trades multiplied by 50 pips).

Hence, despite winning most of the time, I am still down 200 pips. However, if I had balanced my risk and reward target at 40 pips each way then overall I would be up by 800 pips (neglecting the small spread between the buy and sell price) which translates into a healthy profit even on a mini account.

Psychologically this can be a difficult concept to deal with, but again through correct planning and strategy implementation we can ensure that this doesn’t become a factor.

Greed does not bring fortune

Greed is a natural human instinct, but just like we aim to have a healthy balance in life we should do the same in our trading. I have seen traders make over 500% profits in the first days or weeks of trading. New traders, in this situation, tend to get over confident and develop a sense of invincibility. Their emotions tell them they are so good at trading it is reasonable to begin risking large amounts, sizes they would not have considered just a week before. In a greedy mind this makes sense because a larger risk brings larger profits.

However, most of the time this ends up in self-destruction since it only takes one of those high risk trades to go awry to wipe out an

entire account. Greed creates a mental state that makes it impossible to sustain sensible choices and therefore successful trading. To prevent this from happening to you when you make profits, keep your feet on the ground and stick with a risk management plan that is always relative to your account size.

Fighting the Market

This happens when a trader reacts to a losing trade by immediately entering another trade, desperate to win back what has just been lost.

At this point common sense is abandoned since a trade’s profit target cannot be determined by a previous trade’s loss, and the only reason to enter the trade should be on a market signal not an emotional signal. This erratic trading will only end up in a larger loss. If you are enraged by a loss, take a break until you feel calm again.

Remember the market is much bigger than you and any vengeance you attempt is likely to end in failure. The market tells you how to trade, not vice-versa.

My intention with the above is to not to scare you but to deliver the facts so you are prepared for when you trade and you do make common emotional errors. You must be strict on yourself to stay disciplined. It is unlikely that you will execute at the precise point such that your trade is immediately in profit. If you have made the right decision it may need time to move in that direction. Hence, it is not healthy to monitor your open trade every second. Watching your profit and loss situation constantly will put you on the roller coaster and is likely to cause you to go against your trading plan. You should calculate the RRR before every trade and set a stop-loss and take profit order accordingly. To be successful you have to stick to a set of rules and contain any feelings of delight or anger, at least until the end of the trading session!

Forex trading involves substantial risk of loss. Do not invest money you cannot afford to lose! The information provided in this article does not constitute a recommendation on the part of easy-forex® under any applicable legislation, nor an offer or solicitation on the part of easy-forex®, to enter into a business relationship with the reader of this article. Easy Forex Trading Ltd is licensed by CySEC – License Number 079/07.

June 2011 | THE EXCHANGE | 21

PSYCHOLOGY

The Confidence Conundrum As Sandy Jadeja, Chief Technical Analyst at City Index, explains, the key to confident trading is being well prepared for losing money

22 | THE EXCHANGE | June 2011

FEATURE

Many traders enter this business with the view that finding a winning strategy will be the key to long term success. But like many who enter the world of trading with the aim of making large sums of money instantaneously, the reality often leaves an everlasting imprint on their minds of how difficult trading can be.

Quite often a trader will leave the trading arena with disappointing results.

Of course there is the other side of the coin, where you’ll find traders who have a winning streak that just never seems to end. They make trading appear so easy that one can be forgiven for thinking that the illusion of riches is well within anybody’s reach.

When you sit down and think about it, the function of how to trade markets is actually quite simple. It really comes down to making a choice. The market will only ever go Up, Down or Sideways. If a trader thinks the market is bullish and likely to go higher then this opinion will work in his favour in two of these three scenarios. So why is it then that the casualties in the spread betting markets are so high?

Having spoken to traders who have experienced losing trades, the interesting factor that comes out is that the fear of losing is also associated with the anxiety of winning. Nobody in their right mind wants to lose money. But at the same time when you have a winning trade that creates the fear of giving back profits. This is especially apparent when a trader has had a series of losses and then suddenly a winning trade, with the sense that markets are running against you it is quite easy to feel as though the market is going to “take back” what it has just given you. This anxiety can and does get in the way of rational thinking.

To overcome this problem a profitable trader will create a system or method designed to eliminate or reduce the decision making process during a live trade. This is because it’s clearly better to make these decisions outside of market hours and focus on trade adjustment and execution only at the time of the actual trade.

Professional traders realise and embrace the fact that losing is part of the spread betting

“it is quite easy to feel as though the market is going to “take back” what it has just given you. This anxiety can and does get in the way of rational thinking” industry, and that not every trade will be a winner. Too often traders will aim for more winning traders than is realistic, or even a perfect system, not realising that the actual key is in controlling risk to ensure that losses are minimal. This is why it is essential to incorporate Money Management and Risk Management as part of the strategy. You can have a series of small loses and just one or two large winners and still yield a net profitable outcome.

Some traders believe that by eliminating emotions they can become a better trader. But this is not necessarily true. In the sports arena icons such as Lance Armstrong, Muhammad Ali and other professionals often displayed intense emotion. The key for them would be to allow their emotions to come to the fore, but become conscious of their emotional state and then deal with each individual factor e.g. fear, greed and uncertainty.

It is imperative to understand that in the financial markets uncertainty is a factor that needs to be dealt with. As humans we generally do not like uncertainty, and have a tendency to revert to a herd mentality and therefore avoid uncertainty. We naturally gravitate towards situation where we believe we can know the outcome before the event. This is why many

traders will try to predict the markets, because it feels more comfortable to think you recognise what is going to happen rather than not knowing the outcome.

Instead of seeing uncertainty as a threat it would be better to view it as a state or a condition. And then by detaching yourself from the state of uncertainty you can then embrace the outcome as natural rather than forcing your opinion on the event. By forcing an opinion we prevent ourselves from being flexible. Because markets can and do change direction, a key skill to have is the ability to move with the market rather than become stuck with one strategy because of a conviction in a market prediction.

Once flexibility has been developed into your skill set, confidence can be nurtured to a degree where the market just becomes a playing field rather than an emotional rollercoaster.

Becoming more focused on developing each individual skill then becomes vital to long-term success. A tennis player can spend months practicing a forehand swing or perfecting their backhand. Similarly traders need to develop skills in executing trades and managing the trade as well as their mental state.

Trading psychology is a huge subject which is now becoming recognised as a key component of winning formulas. It’s been realised that it’s not just strategy that needs to be applied well to be successful, but also a balanced mental state that needs to be achieved in line with that strategy. Zen trading is not something of the past, but rather a complimentary skill for the future.

Sandy Jadeja, Chief Technical Analyst, hosts weekly and weekend classroom-based seminars at City Index’s state of the art training facility in Moorgate. This allows anyone who wants to learn about the markets to experience first-hand, from an experienced trader, how to deal with all aspects of trading, ranging from trading strategies to trading psychology.

City Index utilises both class room training seminars and online webinars, meaning anyone with internet access can get involved. More information can be found at www.cityindex.co.uk

June 2011 | THE EXCHANGE | 23

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