A Perfect Position Trade
Mar 23, 2012 at 3:09 pm in Position Trading by
In this article I’d like to share with you what I consider to be a perfect (or “textbook”) position trade: a trade that ran to a good profit over the course of three months and which along the way took more in dividends than it cost in financing charges.
This was a position trade on Segro, which I executed in my Trading Trail account and in various other spread betting accounts including an IG Index account. I mention IG Index specifically because, as I alluded in my article Are You Making Money by Spread Betting?, that platform’s P&L Breakdown report allows me to see exactly how as trade has performed over the life of the trade. The final figures — adjusted to a nominal £1-per-point bet — are thus:
Opened on 6 January 2012 @ 198.996
Closed (by stopping out) on 23 March 212 @ 235.708
P&L: £36.70
Cost of funding: £0.55
Dividends received: £8.50
Net profit: £44.65
The final net profit figure is correct for the trade without the benefit of a guaranteed stop order, which on a £1-per-point basis would have cost (and did cost in another account) a few pounds extra. I can’t find the exact cost of the guaranteed stop easily in retrospect, but let’s say that I cleared at least £40 per £1-per-point that I bet.
In reality I bet more than £1-per-point in total across my various accounts, and I’m sure you can figure out that (for example) a £10 per-point bet would have cleared more than £400 profit. Betting £100-per-point would have generated a profit of more than £4000, but you really shouldn’t be betting that high without a guaranteed stop order unless your millionaire status means that you could afford the £20,000-or-so potential cost of a total wipeout on the 200p-per-share stock.
That’s enough numbers. They say that a picture paints a thousand words, so here is a Google chart of this “perfect position trade”. I have annotated the chart with my re-imagining of how I must have trailed the stop order in line with the rising price once the position had moved into profit:
To my mind, this really is an example of a perfect position trade because:
- It played out of a period of weeks or months, concluding with a capital profit.
- A dividend was collected along the way, which helped the trade pay for the accumulated financing charges.
- Once the price started rising, the trailing stop order assured that the trade would exit at a profit, but it was not so close as to cause me to stop-out on a price whim.
Not every position trade will play out like this, but if I ever get around to writing another textbook then this will surely be included as one of my “textbook” examples.
Tony loton is a private trader, and author of the book “Position Trading” (Second Edition) published by LOTONtech.