Growing up, I was always told, “There is no such thing as a stupid question!”

I’ve taken that with me through life. If you have a question, or you don’t understand something, it’s an opportunity for you (and our community) to learn, grow and develop.

Today I have two questions from subscribers, let’s look at each of them in turn.

Question 1:

“I have subscribed to the Pickpocket trader for approximately 4 months with the intention to learn a bit more while making a few extra rands in the process.

However looking at my current “trades” I do not see the gains as suggested. I have attached a screenshot which shows the positions taken and the P/L amounts.

My questions are:

1) Should I be keeping these trades open?

2) Will the returns cover the costs once the P/L turns green?

3) By my calculation thus far I have lost/losing more than my subscription payments and fees combined which is not what I expected?

Thank you, it’s a great question, so let’s unpack what is going on in the account, and try to address the questions.

First let’s look at the individual trades:

Vodacom: I sent a Vodacom alert on 31 May 2023 and then closed the position on 15 June 2023. I sent two emails on 15 June raising the stop loss and I eventually banked an +87.30% gain on margin for the position in just 15 days.

If this is a legacy position, and for some reason you had missed the alert, it could be a reason for the loss. It’s VERY important to stay on top of the email communication I send out. The publishers do send both an SMS and an email every time action is required. You do need to keep a close eye out for these messages. I see your entry was R109.00, which isn’t too bad. I’ve just sent a new recommendation on MTN ( Entry R114.10, Stop loss 102.00, Take profit 140.00). I like the teleco sector for a recovery, so I’d sit tight on this position, and look for a profitable exit.

You might want to skip the MTN recommendation, as it might create additional concentration risk. MTN and

Vodacom can sometimes move in tandem, as they’re both influenced by the same industry factors.

Mr Price (MRP), British American Tobacco (BTI) and Prosus (PRX): All these trades are currently open and active and on my track record. To answer question 1) and 2) above, I am keeping these positions open for now.

Remember when you’re trading with leverage, the gains and losses can be very, VERY rapid. The gearing multiplies the emotions related to positions, just as the profit and losses are multiplied.

When positions are red, there is a feeling that they’ll never go green again. And when they’re green there is this feeling that you want to trade more and more!

Yet, as almost any professional trader will tell you, emotions are the enemy of profits. When you’re losing money, the right action is usually to buy. When you’re making money the action is usually to close the position and get away from the trade. It can be very counterintuitive. It’s exactly the opposite of what you naturally want to do. If these positions recover they should more than cover the costs associated with the position.

I do sometimes take timed stop losses, but often, if I believe in the position, I’ll continue to hold it.

A good example was Firstrand earlier this year. The trade was looking pretty horrible for a long time. It hadn’t fallen enough to get me out of the position by triggering the stop loss, but it was just sitting negative and the costs were mounting. I review these positions on a daily basis. If at any point I think it has become a hopeless case, I will exit.

In the case of Firstrand, I was convinced a recovery would happen. Just days before we closed out a profit, my publisher had put me under huge pressure to take a timed stoploss.

The publisher thought I’d grown too attached to the position. But remember, I’m here to give you my best estimate on trade setups, position management and entry and exit levels. I had to argue furiously that if people are paying to hear my honest opinions on these stocks, how can I tell them to sell Firstrand when I think a recovery is imminent? A few days later Firstrand rocketed higher, allowing me to get out with a green exit.

Just remember open trades often sit in the red while we wait for them to get to targets. Your open positions tab will more often than not have red positions on it. The winners we’ve banked will not show up on the list you’ve shared.

Sanlam (SLM) and Barloworld (BAW): I haven’t sent alerts on either of these two companies. These may be trades you’ve followed from other analysts or traders. I can’t really speak to whether or not they’ll become profitable as I don’t have a view on them. If you are mixing recommendations, and taking trades from other analysts or subscriptions, then this could work for you if they’re good, or against you if they’re bad.

Often it’s useful to create “sub-accounts” on your trading profile and then monitor individual analysts on their own merit. This keeps your track record clean and allows for accurate comparison. On the position sizing, it doesn’t look like you’re trading too small, which is a common mistake among new traders.

For example, you have 100 BAW CFDs, which cost you R100 to open and R173 in swaps. To make the trade profitable you only need a R2.73 move in BAWs share price and you’re basically there already. Then for every R1 BAW move you’ll be R100 in the money.

To answer your final question, on losing more than your subscription fee. It could be the additional positions, it could be missing take profits and stop losses, but it could also be the irregularity in your position sizing.

For example, I see you have 100 BAWs @ 82.94, 100 MRPs @148.80 and 500 VODs @ 109.00. That means you have exposures of R8,294, R14,880 and R54,500 respectively. Those are very different trade sizes.

I try to leave the position sizing up to the individual, as I don’t have any idea of your individual risk tolerance, but normally I would expect your absolute exposure on JSE CFDs to be roughly equivalent. It is possible that some of the losing positions also had a high exposure, while you’ve been unfortunate in underexposing yourself to winners.

We’d have to look at your full track record to assess this.

Once again, I must reiterate, I’m here to give my best ideas on market positioning, technical trade setups, and company fundamentals. Of course, we want to land winning trades, but that’s not always possible. I can only go so far and predicting the future is obviously impossible.

That said, my track record is accurate and audited carefully by Fleet Street Publications. Every entry and exit level has been published and there are strict rules around timing and what is allowed. For example, I can only claim an entry 30-minutes after the SMS has been published. If I don’t hit the entry level after this point, the trade is not valid.

There are obviously limitations to publishing ideas in this fashion compared to actively trading for yourself, but it is our goal to service our trading community as effectively as possible. We want to make money for sure, but a lot of the value in the service is also hopefully in the teaching moments, the ideas, and the ability for you oneday to shed these training wheels and trade for yourself!

I hope this gives you some ideas and some clarity on improving performance!

Question 2:
“Hi, I think I remember seeing in one of your notifications that if we have held a position for 35 days and it’s going nowhere we should close the position regardless of whether we are in the money or not. Given this, should we be closing Mr Price? (I have forgotten whether this was a Red HotTrader or PickPocket Trade) I would appreciate your advice. Thank you..”

The second question is much easier to answer. Yes, we’re still holding Mr Price.

Yes I still like the position. As discussed above, I do sometimes take timed stop losses, but this hasn’t fallen enough to cut it. And I still believe it is better to hold onto this position than to cut it. I’m publishing exactly what I’m doing on my trading account. I’m choosing to hold.

But remember, your money and your trading account is your own. If you believe that I’m wrong, by all means please cut the position! Nobody other than you will know, and there is nothing wrong with expressing your own view.

It is my dearest hope that this service will allow you to one day spread your wings and become a successful independant trader!

PS. If you’d like to experience the thrill of short term trading, then please join my Pickpocket Trader service. I’m happy for you to test run it for 90 days. If you find it’s not for you, I’ll refund your full 90 day subscription fee!

Not a subscriber to Money Morning?
You can get free daily recommendations like these with Money Morning eletter. Just sign up here.