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A Scholar Writes

29 Jan 2013 9:26 AM

We are sometimes asked if Jim Berg’s Trading Plan, as taught in our mentoring style Investing and Online Trading stock market Newsletter, can be used for  trading leveraged instruments, such as options, warrants and CFDs.

Our usual response is that we believe these instruments are the domain of experienced traders only - as they demand extra knowledge and skills and because losses can be leveraged as well as profits. 

Our thanks today to one exception, a dedicated  Newsletter Scholar who did  take the time first to learn and practice the ‘basics’, before moving on to CFDs and who recently sent us her story: 

Hi team, 

I have been trading Jim's system in an adapted form using Australian CFDs since the September rising trend signal in the XJO.  

I spent a fair bit of time back testing the strategy on the range of equities that I can trade through my CFD provider with really pleasing results. 

As I didn't have a huge amount of capital to begin using CFD's I have been able to reap the benefit from larger position sizes than I would have trading equities.  

My back testing has shown the system is really profitable to trade long in rising markets where I limit my entries to stocks that are in rising industry groups that are outperforming the index and short if the XJO is falling, however in that case I limit my entries to stocks in falling industry groups that are underperforming the index. 

As I work full time I have also adapted the stop loss level to a wider stop that I key into the CFD platform nightly and that gets me out of a trade immediately if the stop is hit. 

I have set up an excel spread sheet to work out my position sizes based on risk and I've found this has given me confidence to manage my emotions as I can see at 1% risk how much I can potentially lose on a trade that goes against me. This information is currently limiting me from increasing my account size so much that I will freak out over the size of the losing trades. 

I was quite fearful about trading CFD's before I read all of your information on risk management as I have a friend who some years ago traded a small account (less 10K) and had a margin call leaving him 60K in the red. What I know now is how to prevent this by position sizing properly, managing the losing trades with stops and letting the profits run.  

Thank you sooo much for your education, in the past I have heaps on courses and investigated other strategies that I have been to fearful to trade because of the risks involved (eg, covered calls option trading where the risk reward was just not there) but I found your trading template and explanations of the risks involved perfect to get me started.  

I look forward to your Newsletters every week to see what the notional portfolio is doing and to keep up to date with your featured writers.  

Regards 

Catherine Roberts,
Victoria, January 2013 

Click on this link for more info on our mentoring style Investing and Online Trading stock market Newsletter.

 

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