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Thanks Tropo
And here are the important parts:
So what can we do to stops us from sinking further?
Having identified that the environment you are operating in is changing, it is then necessary to have an appropriate response. The following are a few suggestions as to how to deal with such a change.
1. Use money management
If you trade without a stop, then quite frankly, you deserve to be pole-axed by the market. Only fools and amateurs trade without some form of mechanism that protects them from the complete erosion of their capital.
2. Don't be afraid of paying tax
One of the poorest excuses I hear for not taking any action at all is: "But if I make a big profit, I will have to pay tax". This is often followed by the height of brain-damaged logic - when people let positions erode to virtually nothing and then declare that they will benefit from the tax deduction.
3. Investigate alternatives to get around issues such as vested shares
Many people have portfolios that are linked into complex trust or corporate arrangements that they do not have the power to unwind. With the advent of CFDs the solution to this is quite simple. Assume I have 5,000 ANZ that are held in escrow and I am concerned about the fall. Because these shares are escrowed it is impossible to sell them. An alternative can be to sell 5,000 ANZ CFDs this will effectively lock in the current price and acts as a surrogate stop. What is lost in the escrowed portfolio is made up for courtesy of the CFD short sale.
4. Investigate the use of an index trading system
Index trading systems can respond quickly to changes in market tone. These types of systems can be made up of either CFDs, futures or options.
There is no logical reason as to why you cannot be prepared fro the next sudden movement in the market. All it takes is some additions to your trading plan (assuming you have a trading plan) and a willingness to accept that markets are constantly changing their tone and direction.
-By Chris Tate
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Bill
Information posted here is given in good faith. If in doubt do your own research and get professional advice.
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