This article was published in the ASX newsletter this month and proved to be very popular, so again I thought I would share the link with everyone.  Just follow the link below to the ASX website.http://www.asx.com.au/resources/newsletters/investor_update/20090811_so_you_want_to_be_a_full_time_trader.htmGood luck and good trading.Dale

I was looking around and remembered I wrote this article for the ASX newsletter, and thought it worthwhile putting it into this blog.Just follow the link to the ASX website.http://www.asx.com.au/resources/newsletters/investor_update/20090512_10_tips_to_make_more_money.htmGood luck and good trading.

ASIC, in its submission to a parliamentary enquiry into financial products and services, has been critical of the trail fees or commissions paid to financial advisors, and rightly so. Many investors have indicated that they do not use a financial planner because they feel a lack of independence in the advice they receive, and that planners do not necessarily add value to what they could, otherwise, do themselves. It’s no wonder people think this way when many planners rely on the product provider to supply both their remuneration and their education, which can lead to the planner being biased towards certain product.

Allowing fees to be rebated back to the client ensures that advisors will concentrate on what is in the best interest of the client rather than which product provides the best trail. While removing commissions or trials from advisors remuneration is a good start, more needs to be done, particularly given that most advisors are involved with dealer groups owned or controlled by product providers. Until advisors are totally independent of product providers, Australian’s are unlikely to receive truly independent advice.  

So what can we expect in the market? 

This week the market has unfolded in stark contrast to last week, given that it has traded down in price and over the past three days has shown strong signs of indecision. This is particularly evident over the past two days as the range between the low and high for each day was in excess of 50 points yet both opened and closed near the bottom of the day’s range. Generally, when markets are indecisive it signals a reversal of the prevailing trend, although we need to see the market fall further before we can confirm it is starting its move down into the low in September that I have been expecting.

If the market is moving down into its low, then price will fall below 4000 points and most likely trade to around 3800 points, with a possibility that it could fall as far as 3600 points. Given this, I recommend investors set a stop loss on the stocks they currently hold; firstly to protect any profits made over the past few months, and secondly to protect capital. Right now it is wise to be conservative and to sit back and watch until we can confirm which direction the market will travel in the short term.

Dale Gillham 

CFDs or Contracts For Difference have been a ‘hot’ topic for a long while with articles and ads in newspapers and magazines promoting how easy it is to make money from this instrument. This promotion has certainly been successful over the years in attracting thousands of new customers seeking instant riches. However, in my experience many of the people electing to trade CFDs simply do have the knowledge or the skill to trade them. In fact I believe that around 80% of the clients opening accounts do not really have the knowledge to fill out the forms let alone trade the instrument, which is frightening in anyone’s book and it’s no wonder many loose.  

There is the view of let the buyer beware, but in my view CFD providers do not adequately disclose the risks associated with trading this highly leveraged instrument, or if they do it is in the fine print and written in jargon that most would not understand. Fancy marketing aside the questions is should they really be held accountable for individuals that simply want to gamble with their money in a market where only the educated survive?

So what can we expect in the market?

After more than a week moving sideways and looking like it was finding resistance, yesterday the All Ordinaries rose strongly to continue its strong run up since March. It is now well and truly into my price target area of between 4200 and 4600 points, however time is stretching past the point at where I believed the market would turn. The market cannot continue to rise without some sort of pull back in price, and the longer in time that it rises the higher the probability that the fall will occur. Given this we still need to expect the market will fall away very soon, and investors need to be patient rather than jump in now thinking they are missing out on making profits. As a trader and market commentator I have always found that it far better to be overly conservative than overly aggressive, as it is not how much you make on any one investment that counts but rather how much you do not loose.   

As I mentioned last week how far the market moves down when the fall starts will indicate whether we can expect further falls or whether the next bull-run will commence. For now make sure you set stop losses so as to protect capital.

Over the years I have had numerous discussions about whether or not Telstra is really a good investment. Many investors have continued to hold this stock over the past 11 years, despite its poor performance, mainly because they continue to receive a dividend. However, I believe this is simply justification to make them feel better about holding a share that has averaged an annual loss of 1.51 per cent per annum from 1 January 1998 to 31 December 2008. In fact Telstra has suffered a 67.17 per cent fall from its all-time high of $9.20 in February 1999 to its recent low of $3.02 in April 2009. 

In the past 11 years, Telstra has only risen during 6 of those years, while suffering negative returns during the other years. If we include this year, it is currently down 7.83 per cent to 31 July, which means Telstra is a really 50/50 bet. Interestingly, Telstra is not the only stock that has performed poorly over this period. Investors only need to look at the likes of NAB or AMP to see that these solid companies have roughly achieved a 50/50 gain/loss record.

Holding on to a stock simply to receive a dividend can be detrimental to an investor?s portfolio especially when there are many other good stocks that have performed far better and also pay a dividend .The example of Telstra also highlights why buy and hold is not necessarily a good strategy and why using a simple stop loss can effectively minimize any downside risk to a portfolio.

So what can we expect in the market? 

Last week the All Ordinaries has risen to its highest level since October 2008, although the market is now displaying signs that the current bull-run is slowing. There is an old saying that what goes up fast usually comes down fast, and the All Ordinaries Index has moved up at a faster rate over the last 5 months, since the low in March 09, than what occurred following the long term low in March 2003. Given this we need to expect the market will fall away very soon, as it cannot keep rising at this pace.

As I mentioned last week, while I don╒t believe the bullish run will last for too much longer, I need to accept that it may move up further into August than anticipated. If the market continues to rise, probability suggests that it will fail to push through my upper target level of 4600 points. When it does fall, it could move down to between 3500 and 3700 points by mid September - how far the market moves down will indicate whether we can expect further falls or whether the next bull-run will commence. As usual only time will tell, but for now make sure you set stop losses so as to protect your capital.