Highlights in this issue:

*** Changes to The Investment Academy revealed...
*** How to hone in on profitable picks...
*** Why the professionals are so good at what they do... and more...

From the overworked laptop of Julie Brownlee...

Dear Investment Academy Reader,

Want to become a short-term trader, but don’t have a clue where to start? Then this issue is for you! Today, I’m going to share the top ten tips to short-term trading success with you. Stick to these “golden rules” and you’ll be well on your way to trading success.

But, before I give you the details, I must say I’m a little sad today. This is my last ever issue. It’s the last time I’m talking to you on behalf of The Investment Academy. But, before you get too upset – don’t worry! To give you what you want, we’re cutting The Investment Academy from three times a week to twice weekly. Karin will continue to give you excellent money saving personal finance tips. And Gary will still keep you in the loop about investment strategies and, from time to time, will touch on some trading tips. From next week, you’ll receive your Investment Academy each Monday and Friday. And don’t forget to let us know what you think of the changes by dropping us an email at iacomment@fsp.co.za.

So, with that out of the way (and my eyes dabbed dry), let’s get cracking with today’s issue. Here are your ten tips to trading success...

#1: The secret to share picking success

The secret to picking shares that can give you the quickest and highest profits is to find those with the widest typical daily price range. Also, make sure the share’s well traded – don’t bother with penny shares here (they’re great for investment, but not for short-term trading). Remember, you can have a cracking trading day and make 20% in an hour – but you won’t have made much money if the share was only 20 cents to start with. And, you can’t buy a large enough quantity of them for the gain to add up to a decent amount of money. Such high quantity is often not available. Similarly, if the price range is too narrow, it’s easy to be right and still make a loss!

#2: Hit the sack with no worries

One of the advantages day trading has over longer-term trading is the “clean slate” element. Because you close each trade before the end of the day, you’re more in charge of uncontrollable, or indeed unpredictable, events (such as a market crash when the market opens up the next morning).

#3: How to get in first

Most professional traders SELL a share when good news comes out about the company, or when they expect some good news, sending the price down dramatically on the day. If you can buy such a share while the price is rising, and remain aware of the date of a company’s expected good news, you can often make a short-term profit by selling immediately prior to that announcement. Inexperienced traders commonly make the mistake of buying the share on the good news. There you have it – the answer to the question posed by those who’re baffled by why share prices often fall on good news!

#4: Manage your risks and still come out on top

Professional traders commonly misjudge the direction of a share price as much as 60% of the time – yet still make money! The way they achieve this is by cutting a trade that goes against them dead, and holding on patiently to a trade that’s going their way. So, if you lose six small trades in a row, but make four big profit trades, you’ll make an overall profit.

#5: Keep going back for more!

Although there are about 400 shares listed on the JSE, it’s perfectly possible to generate good profits by trading just a handful of them over and over again. Look for shares that are volatile (i.e. tend to be traded the most, and move up and down significantly during each day). In many circumstances, just one good, sizeable trade per week can dwarf the amount of an entire year’s dividend income on an investment in the same share.

#6: Keep abreast of what’s going on

By the end of each working week, many of SA’s top analysts review and re-review the performance and prospects of each share of interest and issue a statement of upgrades and downgrades. This simply means they make recommendations to buy, sell or hold a particular share. If their recommendation changes from a previous period, this can have an immediate, dramatic effect on the share price as the new week begins. This can be a very useful source of information for a short-term trader to act on.

#7: You can exploit sectors...

Sectors are made up of similar shares grouped together, e.g. oil, transport, banks, etc. But, when day trading, you can use these groupings to multiply your profits. For instance, when things begin to look rosy for a particular share, you should also buy five other shares in the same sector. That way, you have six potential winners instead of one.

#8: The trader’s vital commandment

Learn whether the trend is up or down, or if there’s no trend at all… and only trade the same way as that trend. Buy when the price dips within an uptrend, place a stop loss level below the buy price in case the move falls instead of rises. Sell when the price rises within a downtrend, with a stop loss above the sell price in case the move rises instead of falls. Stay clear of the market when there is no trend. Repeat after me: “The trend is your friend!”

#9: Be careful when you jump in

Avoid trading during the first and last hours of the trading day. During those periods, prices can weave all over the place for no reason. The probabilities of a successful trade diminish in those timeframes, sometimes because of buying and selling by institutions that didn’t get their trading done earlier, or sometimes because of the way in which the exchange's systems work.

#10: Practice makes perfect

Remember: Don’t start trading with real money until you’ve achieved sufficient competence at paper trading.

There you have it. If you’re serious about trading, now you have the ground rules to get you started.

And that’s it from me. So, for the final time...

Happy trading!

Julie Brownlee
for The Investment Academy