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.