You might have read over on The Motley Fool (and other places) about how the price of Severfield-Rowen shares crashed this morning, 23 Jan. It gives me an opportunity to demonstrate what I mean by a “whipsaw profit”, which is one of the concepts documented in my Position Trading and Better Spread Betting books.
When you use guaranteed stop orders, it is possible to benefit from adverse price action and to notch up what I describe as “whipsaw profits”. Here is my example, illustrated with an IG chart:
It went like this:
- I bought originally at 86.2p-per-share, and trailed my guaranteed stop order as far as 95p-per-share.
- The price crashed through my stop level, but because the stop order was guaranteed, I achieved a Banked Profit of 8.8 points (times however many £££-per-point staked).
- Because the price crashed down much further, I had an additional Saved Loss and was able to re-buy at a price of 76.97p-per-share, which was 9.23 points below my original purchase price (never mind being some 18 points below my stop-out price).
In a nutshell, the spread betting company’s loss — from honouring my guaranteed stop level — has been my gain; both actually (because of the banked profit) and notionally (because my re-entry position might make up the ground that I didn’t actually lose).
These trades actually spanned two accounts. Whereas InterTrader gave me the profit thanks to their excellent guaranteed stop order facilities, only IG allowed me to establish the new position in the equity that InterTrader no longer offers for trading. Which goes to show why it is a good idea to have more than one spread betting account.
Two Steps to Better Spread Betting:
Disclaimer: this posting is for general education only; it is not trading advice.