Trading on the financial markets is another avenue that I use to
great effect and profit. In some ways the trading principles are
similar to my Sports Trading, it's just that the terminology is different.
Here are presented two systems which give great results based on the two
different approaches to picking financial trades.
Fundamental Analysis pays attention to assessment of
data relating to a company or commodity. It considers
price/earnings ration, balance sheets, growth rate, weather, government
policy etc etc. Don't panic, my FundamentalSystem uses commercial
software to pick the winners out.
Technical Analysis operates in the belief that, at any
given point in time, market prices reflect all known factors affecting
supply and demand for that particular market. Technical analysts
look only at the market price, and use statistical tools to evaluate
whether the price is going to go up or down in the future. Trend
Following is a form of technical analysis. I use the same software
to operate my Technical
Analysis system.
My fundamental system has been developed over the last 15 years or so.
It has been consistently profitable for me, averaging 11.66% annual
return over the period 1995-2007 as shown below:-
Year
Increase
1995/96
26.92
1996/97
9.65
1997/98
25.38
1998/99
2.62
1999/2000
30.41
2000/01
1.36
2001/02
-3.48
2002/03
-25.29
2003/04
31.30
2004/05
10.59
2005/06
18.41
2006/07
12.01
The system was developed using principles established in Jim Slater's
book The Zulu Principle, which is now out of print. The
follow-up Beyond the Zulu Principle is available from Amazon via the
links to the right. You don't need the book to operate my system,
but it does contain a lot of background information, and is an
interesting read
Jim Slater is one of the foremost stock market investment
experts of our time. His chief strengths are his uncanny ability
to identify undervalued companies and his farsighted reading of
the market trends.
In this bestselling book, Jim Slater makes available to the
investor - whether the owner of only a few shares or an
experienced investment manager with a large portfolio - the
secrets of his success. Central to his strategy is 'The Zulu
Principle', the benefits of homing in on a relatively narrow
area.
Deftly blending anecdote and analysis, Jim Slater gives
valuable selective criteria for buying dynamic growth shares,
turnarounds, cyclicals, shells and leading shares. He also
covers many other vitally relevant aspects of investment such as
creative accounting, portfolio management, overseas markets and
the investor's relationship with their broker.
From The Zulu Principle you will learn exactly when to buy
shares and, even more important, when to sell - in essence, how
to make 'extraordinary profits from ordinary shares'.
Anyway, enough about the book, my system uses the following
criteria to select a company to invest in.
1) The company traded on the London
Stock Exchange
2) PEG is between 0.3 and 1.0 (PEG is
Price/Earnings/Growth rate)
3) P/E is between 5 and 20 (P/E
is price/earnings ratio)
4) Cash flow/share is greater than
1.0 (this is intended to weed out creative accounting)
5) Net gearing is less than 50% (I
don't like companies with too much debt)
6) ROCE is greater than 10 (ROCE is
Return on Capital
Employed)
7) Operating Margin > 10%
8) Market capitalisation greater than
£20M
9) Yield > 1%
10) EPS > 0 for each of the last 5 years
11) Projected EPS for the next year > 0
12) Share price more now than one month ago, and
one year ago
When this system started the only real way for a private
investor to get all this information was to buy Company REFS
from Hemington Scott. This was quite expensive (approx
£300) for a quarterly CD with data for the whole London Stock
Exchange from which you could set-up the above constraints to
provide a shortlist of 4-5 shares. I did this very
successfully for 7-8 years, but then my eye turned to trend
following, and I realised I needed some decent charting software
to do this. I did some research and purchased
for its charting
capability, and only when I got it did I find out that it could
also carry out the analysis for my fundamental system every day
(instead of once every three months for the Hem-Scott CDs), and
at a fraction of the cost. So now I use Sharescope to pick
the winners every evening, using the Data Mining Feature which
is explained in the Sharescope
section below. There aren't many times that a share meets
all these criteria, probably about one a month, but they are
well worth waiting for. I use these picks as long term
investments within my ISA portfolio, but there is no reason why
you couldn't use them in a Spread bet if you wanted to.
Once a share has been bought using this system, I then use a 15%
stop loss to initiate a sell, obviously using Sharescope to
indicate the stop loss status.
Actually, you don't need to buy Jim Slater's book, or
Sharescope software to use this system, because all the
selections will appear on my
page, as will the corresponding sales
triggered by the 15% stop-loss.
The Zulu Principle by Jim Slater ISBN 1587990954. My copy is from
1992, the latest issue is 2000, ,and is out of print.
You can pick a copy up on E-bayfor
about £10. The
follow-up is Beyond the Zulu Principle.
Trend following is a specific branch of
technical analysis. It uses information about a commodities price
to predict if the price of the commodity is going to rise or fall.
In this context, a commodity could be any of the following:-
Currencies - Pound, Yen, Euro, Dollar (these are in any combination
against each other)
Metals - Gold, Silver
Financials - S & P 500, FTSE 100, Nikkei, Hang-Seng
The system could hardly be simpler. A selection is made using
the following rules:-
Go long (buy), the next day as soon as the 50-day simple moving
average moves above the 100-day simple moving average.
Close long, and go short (sell), the next day as soon as the
50-day moving average moves below the 100-day moving average.
Set a stop-loss of 7% for indexes, 0.005 for currencies
For all the above
commodities set up a data-mining search within Sharescope. Then
check if there are any selection each night. If so, then use your
spread-betting account to either buy (long), or sell (short), the
commodity. Once you've made a selection, place the stop-loss as
soon as the order is placed. Selections will also appear in the
page of this
web-site. This technique is sometimes called turtletrading and is
done by people who turtletrade.
The classic text in this field, which is essential
reading if you want loads of background information on Trend Following,
is 'Trend Following' by Michael Covel,
A good web-site on this subject at
Another essential text on technical analysis, which is well worth a read
is Technical Analysis of the Financial Markets by John
Murphy.
Sharescope is the software I have been using since 2004 to evaluate my
financial trading.
It is available in three versions, and I am still using the cheapest,
which enables you to download prices each day about an hour after the
market closes. This is soon enough for my systems. Once
you've installed the programme (via download or CD), it is very
intuitive to operate. You can quickly create portfolios showing
stocks you own, and test systems using dummy portfolios. The
market coverage is fine for me, all the stocks on the London Stock
exchange, all the main stock indices, currencies and some commodities.
You can set up filters using the data mining feature to find shares
which meet a number of screening criteria. For instance, the long
list of conditions for my fundamental system can easily be set-up as a
search. Once you've set it up, you can then run it every night in
about 5 seconds to see if there are any qualifiers. This
data-mining is a fantastic facility, which takes all the pain out
There are ample charting facilities, from simple line charts and
OHLCV (open, high, low, close, volume) bars to more sophisticated tools
and options such as point and figure and candlesticks. You can also add
over 60 customisable indicators (including MACD and RSI) to your chart
windows, displaying up to four indicator charts at a time. It's
true to say that you can find similar charting for free on the internet
(for example at
or ,
but for me Sharescope is worth the money for the charting facilities
alone, and then the data-mining facility takes it into a different
league, making it fantastic value for money.
Go to the Sharescope site for full details, a free trial download is
available.
You need an account with a financial
spread betting firm to place trades on my Trend Following system.
There are a few of these around, Finspreads, City Index, Cantor Index, IG Index,
and Ladbrokes to name but
five. The only ones I have used is City Index,
Ladbrokes (see banners below),
and , I can recommend
these,
for the facilities available on the web-sites, and the range of markets.
Financial spread betting is straightforward. You are presented
with a buy and sell price for each commodity. The difference
between the two is the spread, which is the profit margin for the
bookmaker.
Once you've opened an account you must learn the mechanics of placing
a trade. On Finspreads you are presented with the markets, and the
indicative price for each commodity, you enter your stake per unit,
click on the 'trade' button for the market you wish to enter, and are
then given the actual current price for buying and selling. Now
click on the buy or sell button to initiate the trade.
Once you've placed your trade, I recommend that you immediately place
your stop-loss order at a level of 7% stop-loss (If you're using my
trend following system : stop loss = 0.005 for currency markets)
