First a Position Trade, then a Day Trade on FirstGroup

The first thing I did this morning (apart from having a shave) was to take a punt on FirstGroup when it was announced that the company had been awarded the West Coast rail franchise ahead of the incumbent Virgin / Stagecoach combo.

Sir Richard Branson was single-mindedly in the opinion that the government had made a mistake in taking the contract away from him, and that FirstGroup had made a mistake in paying such a high price. Well, he would say that, wouldn’t he?

Investors seem to have been in two minds about what to make of it, with the price of FirstGroup shares gapping up by 7 points (about 2.7%) at the open and then promptly falling by up to 30 points before rebounding upwards again. The final candle of the daily Capital Spreads chart (below) shows what happened.

Trading First Group Shares

What is most interesting about this chart is how a previous resistance price from July at 233.7 became a support price today, as indicated by the horizontal line. I thought it might, which is why I opened a long position in an IG Index account when I could do so with a guaranteed stop order at 231.9, just below the old resistance / potential support price. It meant taking the long trade at a higher-than-ideal 245.34 (which means it’s still just about in loss) but this was a much better distance-to-guaranteed-stop than I could achieve in any other spread betting account. So in this case, IG Index was the best account for the trade, although it would have been perfectly possible to have taken the trade with a non-guaranteed stop order in a Capital Spreads or InterTrader account that would allow a guarantee to be applied retrospectively only when it was really needed to protect the position overnight. Maybe I did that, too.

This potentially longer-term position trade is only half the story. When my initial position went into loss, and I was still confident of the prior resistance acting as new support, I also executed a short-term “day trade” at 235.5 which closed for a profit of 4 points (or £4 on a £1-per-point spread bet). Not a big profit, but more than the very small risk I took with a very tight stop order, and this short-lived trade has at least notionally taken 4 points (or £4) worth of risk away from the position trade.

Whatever happens tomorrow morning, and even if the price gaps down massively (which is unlikely but not impossible), I know that the risk on my residual position trade is fixed absolutely. And that’s guaranteed!

Disclaimer: this posting is for general education only; it is not trading advice.