daytraders after market lounge tuesday 29/11, page-34

I thought I would pick up on what Kevi posted last night about the current difficult trading environment which we all face. Since February this year the markets have been extremely challenging. In fact I believe that during the past two months we have entered into GFC2. Unfortunately, if I am correct, then we are in for a tough beginning to 2012.

If you look at my monthly investment performance since July, there have been some sharp moves in both directions. However, even after taking into account the decline in value of some of my strategic investments, the overall return is still 14% which is about 25% ahead of the XJO over the same period. The results would be surprising to conservative investors, especially given that I tend to invest in high risk speculative companies and emerging growth stories.

Anyway, I believe there are several key reasons for this performance, but one stands out in my mind and that is the need to adapt to the prevailing investment environment.

Here are few key strategies which I have employed in the turbulent markets which we currently trade:

1. If the lead is shocking from offshore markets then I don't necessarily expect to day trade much at all. This is particularly so if we are early in a down move. A classic example is the move down during the past two weeks; we got 8 days down out of 9 before we saw a decent rally. My trading volumes are currently running at less than half of normal levels [compared to good markets] but the key is that the overall margins are still running at close to my 10% target for each dollar of turnover. Absolute profits might be lower but they are still profits.

2. On the bad days I look for companies which have high quality assets and very good management but whose share prices are really oversold and I buy them.

3. I focus on the companies that I understand really well in the current environment and that means inside out. I continue to track them day in, day out. By doing this it means I can easily recognise the signs when a breakout might be about to occur.

4. For short term trades I look for companies with the potential for a good news flow and track them for signs of break outs, hence the announcement calendar. Remember there are still companies which are increasing in this environment. Take WMN, GCN, ANP, NEU for example. It's companies like these that are really helping me to weather the storm [so far].

My point is that I can live with lower profits in these extreme market conditions because I know that the sun will shine again one day and I want to make sure that I am there to take full advantage when the good times return.