Good morning,
My friend is happily making money trading the stock markets with CFD and I am really happy for him. He was retrenched from his job this year and since he couldn’t find another new job, he decided to turn his part-time night trading into a full time job. His target is to make at least $300 a day so that he can meet all his personal and household expenses of about $5000 a month. He was so excited of his new found career that he decided not to look for another job. My only concern is his trading capital is about 80% of his entire savings of $30,000 and he is always fully leveraged if he trades.
In my capacity as an investment adviser director, I have the opportunity to advise many clients in the region and regardless of who or how rich they are, one of the criteria I must know from them is their risk profile. It is very important to understand an investor’s risk profile before I can recommend the right asset classes and investment allocation plan. In finance, risk drives returns. To understand an investor’s risk profile, I need to understand both his ability to take risk and his risk tolerance.
During my time as a derivative broker, I came across many traders that lost all their savings and were sued for their losses for the counters they punted, hoping to make a quick buck from the volatility. These are the punters who have high risk tolerance but without the ability to take risk. Yet there are others who can lose their investment capital without losing their sleep, but chose to keep their money in money market or fixed deposits. These investors have very low risk tolerance but high risk ability. As for my friend, he probably has a very high risk tolerance but his ability to take risk is questionable. There are many financial behavior theories to explain risk tolerance and I think the reasons why he is taking risks in his CFD trading is because he has heard from many of his friends the success CFD trading stories in the current market and his desire to double his savings to support his lifestyle. Without a continuous income and using 80% of his entire savings to fully leverage on his trade, I can only hope that he will be lucky all the time.
I am glad that I do not depend on luck to make money in stock trading. I can sleep well even if the market decline since I am always applying my 30-20-50 rules for my CFD trading and my leverage principle is downward leveraged and not upward leveraged like my friend. I have explained this in my previous blog so I will not repeat again. The stocks are screened, filtered and current market and companies conditions are considered before selected to trade. So how did the selected stocks performed last night?
DJIA surged 203 points to close at 10005.96, 2.1% higher than previous session, S&P 500 rose 20.13, or 1.9 percent, to 1,066.63, its fourth straight gain and Nasdaq rose 49.80, or 2.4 percent, to 2,105.32, its biggest gain since a 2.5 percent spike on July 23. So the markets did move in broad range for the last 4 trading night as forecasted by KUTE. However, the prediction that there is a possibility of decline at the end of week and the participants were looking for direction was only half correct so far. Participants did look for direction and when the directions were clear that US economy is improving with the better than expected data, markets advanced. The decision was to buy at low and sell at target for the stocks selected and indeed these stocks did move in broader range than the markets.
CAH was up 1.72% to close at $29.63. The stock was $28.32 at the beginning of the week when KUTE made a buy signal and I suggested that CAH could be held for longer term and form part of the 30% portfolio. A 10,000 shares valued at $28,000.32 invested at 10 times leveraged of $2,800 would made $10,000.32 before commission for this stock. NBL was up 1.12% to close at $66.88.
As for the other stocks, SKX closed at $22.75 at 2.16% higher, OSG up 1.01% to close at $37.18, DRIV up 0.57% to close at $24.89 and BHI up 3.01% at $42.12. The stock I am still holding, PTEN, closed 2.1% higher at $16.07.
Have a great day!
Francies Cheng
BBus MAppliedFinance
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