Well what a start to 2009 and as promised it started with the same hi octane explosiveness as 2008. For my part I have been getting back into the daily routine after a pleasant Christmas break. My one Christmas trade (out of boredom) nearly ruined Christmas and had me swearing at Santa and his *u**ing rally. This was what I can only refer to as stupid trade of the year made by a similarly apt individual. The trade was 4 Euro sell at 4300 on June contracts. I know, what the hell! Anyway today I closed out for 100 loss which was a lucky lesson.

So back to more pressing matters and the rushed preparations for the Obama rally. I am at this stage 80% confident in a rally once the inauguration is complete. This is why at present I am trying to scale back some of my shorts in order to get a better price after the rally. My prediction is a return above 4500 on the FTSE 100 and 8800 on the Dow. I believe this will carry through till early March and assuming the dire news keeps flowing, job losses keep mounting and stimulus packages keep churning the downward trend will resume. At the moment we seem to be very range bound and until we break below 4000 with volume this will maintain the status quo. I do belive new lows will be made in the early part of the year around mid March.

Over the next week I will take whatever profits I can and await the ride higher on the Obama “Yes we can” plane. Then I will sell into anything above 4500 on the FTSE 100. Here is the trade plan.

Entry: 4500 + FTSE 100 June 2009
Exit: 4000 – 3800 (Ease out x 3)
Stop (Mental): 4800
Point Size: 12 Euro (4 x 3.00)
Estimated Value: 4000+

I think the year to come is going to offer up a whole load of surprises that will make 2008 look like a good year. These are only my speculative musings and are based on what appears to be coming in the year ahead from the dire economic news we are receiving. I’m only looking into the first few months because as we now know the rate of change and disclosure is unprecedented.

January 2009
The motor industry will continue its begging act and sales will dry up completely. This will lead to a return to Capital Hill and the possible failure, merger or Bernanke miracle plan to save the ailing industry.

The start of January will reveal more on the Madoff scandal and based on dismal Christmas sales forecasts will be reduced dramatically leading to the FTSE 100 hitting 4000. Oil will continue downwards trading in a range of 35 Dollars to 45 Dollars. I will hopefully close my positions on the FTSE 100 at the 4000 exit point.

The end of January will lead to the take over of the Obama administration and bold political moves combined with the greatest stimulus package ever heard of along with heart warming rhetoric will rally U.S sentiment on the hope of change. The fact that we may finally have a leader who can take control will rally the markets by 15-20%.

February 2009
The continuation of the rally in equities along with the full details of the Obama strategy will be revealed. More bad news may quell the market rally. Dismal employment numbers and GDP will continue to create disquiet in the market place. The FTSE may reach 4700+.

March 2009
This is the month that it all falls apart. The realisation that Obama is only one man and that this is a global affair will cause equities to reevaluate how effective this huge 1 Trillion spend has been and further write downs, profit warnings and job losses will lead to a new low for the FTSE 100 of 3400. The U.S motor industry will be back begging as will a few other industries. The outlook will be bleak.

April – August 2009
After March I’m not too sure but my speculation is that well off the lows a gradual stabilisation may begin to occur as global political efforts take effect. The FTSE 100 will climb back to 4200.

September – December 2009
After a roller coaster year where many industries fail mergers begin to occur and the gradual catharsis begins to take effect. A stabilisation in job numbers and a pick up in new home sales leads to a positive market outlook as the FTSE 100 heads for 4500+. Things are starting to look a little rosier.

Disclaimer: These are just my personal opinions and for all I know the FTSE could hit 6000 or 3000 but I think we can be assured one thing. The roller coaster ride is only half way around and the ride of a lifetime continues.

Merry Christmas to all and Happy trading in the New Year.

P.S. Here is what Doug Kass has to say on 2009.

I receive a lot of emails of encouragement, empathy, sympathy and some words of wisdom. Receiving these makes the whole process more interactive and less solitary and makes it all the more personal. The main question I get asked is about my trading and why I trade the way I do. So to expand on previous posts here is my current trading strategy which has been a year in the making.

Why do I mostly trade FTSE 100?
I have paper traded many shares and tried differing strategies with very varied results. Being Jack of all traits and master of none hasn’t faired well for me when trading. So I toned it all back and went back to what I know which was the FTSE 100.

Indices are interesting to me because you get more momentum and larger moves. The constant ebb and flow of equity markets is something that fascinates me. It’s constant change and the power of human error in the form of emotion is truly a dynamic force. The way you can never really know the outcome as some completely irrational move may sway the market in your favour or against you. This uncertainty makes it interesting and over time you develop a sense of the underlying market flow. You may not anticipate everything but because you have seen it before you know what’s coming. I think this has been the hardest lesson in learning patience. The reason experienced traders make money is very simply, they are experienced.

Over the past year my only goal was to stay solvent and this I have done. I think in all probability it takes about three years before you can start to take meaningful sums from the market without returning those equally as fast. In learning the ebb and flow of the FTSE 100 I have become quite accustomed to and relaxed about our relationship. I now understand when it’s not good to go near the markets and when I’m getting the clear wink come hither signals too. So the reason I trade FTSE 100 is that over time we have gotten to know each other and although we are still setting the ground rules it’s looking like a long term relationship in the making. I just don’t want to ruin it by playing the field. I also believe no mater what you trade if you trade well you will make money be it FTSE, Gold, Banks or Pork Bellies. So really it doesn’t matter what you trade but how you trade it.

Why do I trade three month contracts?
Originally I started trading the FTSE 100 daily. This was great but I was giving back everything I got and after months of doing this and being stressed because of daily rollover charges and wishing and praying for results I had had enough. Some people are very suited to short term trading and it took me a while and a few books later to discover that I wasn’t one of these people. After a few sleepless nights and a few very close calls I stopped trading shares and daily indices. Day trading and scalping were off the agenda so I needed another way of making money and around that time I was also looking at buying shares. The psychology of buying shares with the longer term objective was very different from the trading I had done. It wasn’t stressful because I had a longer term objective. I brought this back into my spread betting and now trade future contracts that don’t expire for at least three months. This means my entry and exit points are very large with 400 -500 points being the expected return. I do this because my bet is that over the period of the contract my position will reach the exit point. This may occur in a few weeks but I am willing to leave it till expiry. This basic change means I don’t have to excessively worry about the daily movements because I have a longer term objective.

Whilst the spread is greater and the contracts are forward looking the peace of mind means I use less emotion which means I should hopefully trade better. As you may have seen I now have a trade diary where I post my expected entry and exit points to be. This has also greatly helped as I force myself to stick to the plan. I am at the moment looking at June 2009 contracts but will explain a bit more on that in a later post.

Total Profit Week: 0.00
Account Total : 6,929.05

Total Profit Week: 3.00
Account Total : 6,929.05

This is great the Santa rally I was starting to doubt would come. A while ago I predicted a rally back to 4500 and looks like we are on course. The two positions I had open were stopped out and I opened new ones at 4300 and 4400 and will open two more shorts above 4400. I’m waiting to see what happens with the euphoria of the big three bailout and to see does Obama try and rally the markets any further.

Traditionally the rally continues to the 24th so I think we may reach the 4500 mark with a bit of a push (resistance at 50 day moving averages). Traditionally there is also a sell off in January which is why I’m loading up on March 09 contracts. With all the bad news that’s flooding in the depression word is starting to gain prominence in the media which will eventually lead to acceptance and huge drops in equities (that’s my prediction of new lows next year). German wholesale prices, Japan, AIG, Big Three Bailout, Rio Tinto etc, etc. It’s not looking like a good start to next year.

Entry: 4400 – 4500 FTSE 100 March 2009
Exit: 4000
Stop (Mental): 4600
Point Size: 12 Euro (4 x 3.00)
Estimated Value: 3000+

Economy rescue: Adding up the dollars

At the moment I’m worried about two things. The first being that each rally is light on volume and that these rallies are falling short of the previous rally. The second is that the new Obama office will throw everything at the financial problems we have to restore confidence and this will create a rally in equities. So in essence I’m worried about the upside and downside risk and being caught on the wrong side of both.

My previous conviction of entering above 4300 on the FTSE 100 has changed and I have moved my entry point to 4200+. This is due to each rally failing and 4300 being possibly out of reach at present. I have also changed my opinion on the exit point as after Christmas a new wave of optimism may ensue as Obama takes office. This will be in spite of dire economic news but on renewed optimism in a solution. My new exit is around 4000 but I will trail a stop loss with 20 points.

Here is a quick summary but I won’t be taking action until the rate cuts are out of the way today.

Entry: 4200 – 4500 FTSE 100 March 2009
Exit: 4000
Stop (Mental): 4600
Point Size: 5 Euro ( 2 x 2.5)
Return Value: 1500

Of late I have become increasingly interested in the psychological side of trading. My fundamental belief is that I am not a good trader because I experience too many conflicting emotional overrides when assessing a trade. These generally are just before I open or close a trade. If I plan ahead I can avoid this but then the execution moment arrives. I’m currently reading Curtis M Faiths “The Way Of The Turtle” which I highly recommend. It analysis some of these issues in a cold calculated way which is essential to the art of a good trader.

Last Friday I was watching the US close, options expiry and FTSE peaked above 4315. Now my entry was to be above 4300 as logged by my trade diary. Instead of systematically and coldly realising my entry and executing a strange thing happened. I was about to watch a film and said out loud “I won’t bother it will go higher” and proceeded on with my evening. What bemuses me in hindsight is the flippant way in which I disregarded two weeks of planning. This was raw greed and nothing else. For a few extra points I was willing to sabotage my trading plan. And sabotage I did as FTSE 100 opened Monday lower and plunged 6% and is still on it’s merry way lower. I missed the mother trade over stupidity and greed.

So the question is will I learn from this? Should I have placed a buy order to avoid this character flaw? These are the things that interest me because it’s easy to say yes I will learn but will I? This has cost me around 600 Euro but that isn’t the annoying part the annoying part is that I had a plan and the plan would have worked. Plan your trade and trade your plan.

Hopefully going forward I can exercise some basic rules and methodically and mechanically trade my plan. It is a very basic premise but one that is so easily affected by emotion.

Total Profit Week: 0.00
Account Total : 6,920.05

With thanksgiving over and a lazy month end markets look slightly higher but not enough for me to enter. I’m still sticking to my original strategy and when the Santa rally comes I will hopefully be ready. At the moment I’m getting itchy trigger finger but resisting the temptation to trade just for the sake of trading. It’s often better to sit tight and wait it out till the opportunity presents itself. I hope you are all having better luck out there.

Entry: 4300 – 4500 FTSE 100 March 2009
Exit: 3600
Stop (Mental): 4700
Point Size: 5 Euro ( 2 x 2.5)
Return Value: 3500