Michael has developed a system based on chart patterns and news flow
Thursday 05 Mar 2020 Author: Daniel Coatsworth

The majority of individuals featured in Shares’ case study series to date have been long-term investors, happy to buy and hold stocks with the occasional bit of trading on the side. This time we tell the story of Michael, a 29-year-old from Newcastle whose interest in the markets is entirely focused on short-term trading.

Many years ago he developed a fascination with reading share price chart patterns and timing buys and sells in order to try and make money from market movements. He is now making a living from trading, backed up by some earnings from writing.

ATTRACTED BY LARGE SHARE PRICE SWINGS

Hailing from near Newcastle, Michael began his career working for a recruitment company. He managed to save £6,000 which he put into a tracker fund.

‘I became interested with how shares moved up and down. I saw Northern Rock jump up 20% in a one day and thought about how some people were making lots of money from it.’

Michael attended an investment seminar to sharpen his skills after a patchy experience buying individual stocks. ‘I was selling them too early, so I started to look at the lower end of the market, namely penny shares. I invested £100 and lost everything. I needed to learn more about how to do it properly.’

RUN OF LUCK

By 2016 he was having a run of luck with stocks, helped by a strong market rally following the initial Brexit vote shock. ‘I was drawn to “story” stocks, namely companies which were doing something that attracted a lot of attention from people. These stocks always overshoot; people think just because they are going up in price that they must be good, so they buy even more.

‘On one occasion I made a 200% gain in a single day and I ended up owning 1% of a company. For these types of stocks, market makers were bidding up the price as well so it was easy to sell out when I wanted.’

HITTING A BAD PATCH

The following year Michael says he lost money, describing it as a ‘big shock’ and a scary moment ‘probably for the good’. This watershed event prompted the individual to rethink his approach and instead follow a system.

‘I now use a lot of technical analysis like reading chart patterns, looking for stocks with high dealing volumes and/or ones hitting new highs, and less of my opinion of a company. I also look for liquidity.’

As an example, he might find a company issuing good news but will now not trade the stock if the spread between the bid and offer price is too wide.

RACKING UP DEALING COSTS

Nothing in his portfolio is considered a long-term trade. Michael admits that frequent buying and selling incurs considerable dealing costs but sees that as the price to pay for his way of trying to make money from the markets.

His plan is to move to London and rent a property. His current home is owned by his father and that will be rented out once Michael and his wife relocate.

‘I’m not living the flash life you might associate with trading the markets, and I would still be trading even if I had £10m in the bank,’ he says. ‘I don’t have a pension; instead, I see my ISAs as effectively being my retirement savings.’

Michael says he has benefited from interacting with like-minded individuals on social media and now feels part of a community. ‘There are a lot of people on Twitter pushing rubbish stocks. I block a lot of the garbage companies by putting a filter on their epic code so posts about the companies don’t appear on my timeline. Yet there are also a lot of clever people on Twitter. A couple of us now meet up in person and chat about stocks.’

TRADING ON NEWS

A popular strategy deployed by Michael is to work out when certain oil and gas companies are expected to report drill results and he buys them ahead of the event. ‘People tend to go mad for these stocks near to the drill date. While this sounds like a risky way of trading as no-one knows if the drill results will bring good or bad news, one trade will never break me.

‘The only thing that worries me is a couple of months without making money. That would also be hard from a psychological point of view. Despite the way I try to profit from the markets, I’m not sure I would call myself a risk taker.’


DISCLAIMER: Please note, we do not provide financial advice in case study articles and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser.

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