Special Feature - LS Trader
The above points show that a trader should trade a diversified portfolio of markets, with a small bet size to keep overall risk under control and trade from the long and the short side. So, what markets should be included in a diversified portfolio? At LS Trader we have researched this subject heavily and we trade 40 markets, both from the long and the short side, including stock indexes, currencies, bonds, interest rate futures, grains, soft commodities, metals, agricultural commodities and metals. Traders can also add individual equities. It’s not just us that have come up with the above answers based on years of research. Consider David Harding of Winton Capital, an ultra successful hedge fund manager who also employs a trend following strategy to trading the markets. He’s been so successful that he now has some $29 billion under management at Winton Capital. Diversification? You bet. Winton Capital trades markets from all of the above asset classes as well as some 2000 individual equities, and yes that is not a misprint! Now, clearly the retail trader cannot possibly trade 2000 equities for obvious reasons, but it does show the importance of diversification. We’re now in the month of May, which often brings up the Wall Street adage of “Sell in May and go away”. That may be fine from a stock-trading viewpoint but does that mean you need to stop trading altogether? No, not if you are happy trading stocks from the short side when the right opportunities arise, but even better, why not look at some other markets such as commodities? There are very often some excellent opportunities in the commodity markets both long and short.
14 | www.financial-spread-betting.com | June 2012
The past few weeks have seen stocks correct and have seen many people take a hit from holding long stock index positions. This is not so much an issue for those that trade a diversified portfolio, especially across different asset classes. At LS Trader we have been picking up nice profits by trading other markets, such as being long bonds and grains (especially Soybeans and Soybean Meal) and short soft commodities, metals and energies. We were also long stock indexes until a few weeks ago when our system flagged that the uptrend was over, getting us out fairly near the top of the move. There have also been some big opportunities over the past few weeks from the short side. Many commodity markets are moving lower, including gold and oil, as well as some of the less popular markets such as orange juice, cotton and coffee. At the time of writing our system is up almost 30% YTD against a largely flat FTSE. Next time you have a few spare minutes, pull up some commodity charts. Have a look at the moves in orange juice, coffee, cotton, natural gas and soybean meal to name a few. Then ask yourself, would I be better off adding some diversification and some short trades? I think by now you know the answer. Hopefully this will give you some food for thought over the coming month and assist you with your trading. If you’re interested in seeing exactly how we apply the strategies outlined above, we are currently offering a 30 day free trial to our proprietary spread betting system purely for Spreadbet Magazine readers at the following link: www.LSTrader.co.uk/spreadbetmag Until next month, good trading. Phil Seaton