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     ingot54
Member
Username: ingot54
Post Number: 1114
Registered: 05-2004Rating: N/A
Votes: 0
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| | Friday, February 10, 2006 - 11:59 pm: |  
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Some Technical and Fundamental Analysts, Teachers and Authors maintain it is possible to be covered for a major market correction (Bear reversal, or simply a crash) in the midst of a strong Bull rally.
How?
By covering long positions with shorts at the same time. This would be classed as trading against the trend, but can be done very successfully.
We need to explore these methods, and have the strategy in place as a matter of urgency, as we begin to see more volatility creep in to the Australian market.
Lately, we do not know what to expect at the open - gap down, rally, further corrections etc. And all quite illogically.
We are told it is because oil has gone up, oil has gone down, gold similarly. The truth is - no one really knows. It is just big money moving around, and shaking out the weak hands, as they position themselves to pick up the panic sales. The materials sector and energy sector are both good examples of recent volatility, and by nature of the makeup of it, the SPI200 (XJO).
Who sells, who buys, and who holds as the market not only returns to the previous point, but powers upwards again?
The answer, again, is that we don't really know.
How do you prepare for it, and profit from it? Any clues?
Keep Smiling
Trading style :CFD's predominantly. Looking for ways to enter CFD trading over long term.
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ingot54
Member
Username: ingot54
Post Number: 1121
Registered: 05-2004Rating: N/A
Votes: 0
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| | Monday, February 13, 2006 - 03:30 pm: |
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Talking to myself a bit, but in the event of a serious "Bear Moment" this topic will be more interesting. I was hoping at least one of the 100,000 members of IC would have an idea of how to cover a portfolio in the event of a catastrophe.
Recent volatility in the S&P ASX 200, and across the board, should have serious investors and traders thinking: "One day this volatility will be more than a yo-yo." Currently, it is like the market is "crying wolf" with its corrections and rallies.
One method I think has great merit, is the Hull short portfolio method. Alan Hull, in his book "Active Investing - A Complete Answer" advocates investing 30% of your account in "short" positions, at 50% leverage.
But how do you find good shorting opportunities in the midst of a bull rally? By finding the worst performing sectors, and then finding the worst stocks within those sectors. They should already be in a confirmed downtrend.
Hull advises to examine the fundamentals of the candidates that get thrown up, and short-sell the ones with the most dismal prospects.
In the event of a serious correction, it is these companies which should bear the brunt of panic, as punters liquidate their positions. Bad companies, theoretically, should be the worst affected, and therefore, the most profitable for this type of covering.
Mathematically, it goes like this:
Imaginary portfolio: $100,000
70% in "LONG" positions = $70,000
30% in "SHORT" positions = $30,000 ($60,000 if margined @ 50%)
If there is a correction (crash) of 50% then $35,000 is wiped off our long positions.
But at 50% leverage, $30,000 is added to our short positions. This leaves us with a loss of only $5,000 compared to $35,000 if we had not covered the portfolio with this kind of insurance.
This is simple, and something anyone can do.
As each day dawns, we are getting closer to that inevitable moment, when the volatility we see, will not be just volatility, but the beginning of a true "Bear Moment" - a crash.
Will your portfolio be protected?
Keep Smiling
Trading style :CFD's predominantly. Looking for ways to enter CFD trading over long term.
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msparks
Member
Username: msparks
Post Number: 336
Registered: 10-2004Rating: N/A
Votes: 0
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| | Monday, February 13, 2006 - 05:43 pm: |
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Hi Ivan
Haven't read all your post yet but i tried to find out here,hoping Bundy would have came in with a few ideas.
http://forum.incrediblecharts.com/messages/48308/515058.html
Perhaps options are the cheapest way but i need more info on this strategy to protect a portfolio.
Will catch up later Ivan.
Some nasty little moves today for the long cfd traders 
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dug
Member
Username: dug
Post Number: 820
Registered: 07-2005Rating: N/A
Votes: 0
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| | Wednesday, February 15, 2006 - 08:30 am: |
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Hi Ivan,
I don't really think Mr Hull was ruminating about this Insurance System for 100grand hoi-polloi.That's small,very small bikkies in the world of advisors.
I haven't read up on Hull's theory,I have some strange aversion to his name for some reason,anyway you'd have to pick your covering shorts in the same sector,wouldn't you?
When the market falls,it doesn't fall a uniform percent across the Board.Some sectors get hit worse than others blahx3,so it would be impractical to cover your RIO long with a PBG[Pacific Brands]short.
Do you agree,Ingot?Does Hull have that in his book?Dull Down sectors like Consumer Discrete won't necessarily fall 30% if Materials does say?
It's ALL chaos,Ivan.Get into it or get out of it,just realise The Market don't CARE and an insurance policy payout relies on small print.
Happy Trading,
jr
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