Buying Aluminium....(again)...
What a week! Markets up and down like fiddlers elbows! If you want to see a video about my thoughts on the markets, click here. If you would like to see how my trades are currently looking, click here.
Aluminium has bounced back up through its 50MA, and whilst it closed my previous trade for a loss, that was largely my fault for having a stop-loss in no-mans land. I should have either moved my stop up the break-even whilst the trade was ahead, or kept it down below the February low. I am optimistic about that Aluminium will rise in price from here. It hit a low earlier this year, and whilst it has had a recent setback, my hope is that it is temporary. Now, I could buy Aluminium as an exchange-traded commodity (ALUM, graph here) in the UK market, as I did previously, but only 5,000 shares are traded daily, and the beta is 0.47. So instead, I am going to buy Alcoa, the US aluminium producer. It has 28million shares traded daily, meaning that its shares are very liquid, and therefore it will be easier for me to open and close a position at a price that I aim for. It has a beta of 1.19, so its shares are more volatile than the market (a share with a beta of 1 has the same volatility as the market). Volatility is a good thing (if the market is going in my favour). To see the effects of beta differences between the two, click here.
Some folk might argue that this is not a trend trade. I would say that it is: The 30 MA is still well away from the 50MA, the price has bounced back up through the 50MA. I regard this as a temporary setback and therefore a buying opportunity. I am trading in the same direction as the trend (buying a rising market as it comes back up from a setback. Go Alcoa! Go!
Aluminium has bounced back up through its 50MA, and whilst it closed my previous trade for a loss, that was largely my fault for having a stop-loss in no-mans land. I should have either moved my stop up the break-even whilst the trade was ahead, or kept it down below the February low. I am optimistic about that Aluminium will rise in price from here. It hit a low earlier this year, and whilst it has had a recent setback, my hope is that it is temporary. Now, I could buy Aluminium as an exchange-traded commodity (ALUM, graph here) in the UK market, as I did previously, but only 5,000 shares are traded daily, and the beta is 0.47. So instead, I am going to buy Alcoa, the US aluminium producer. It has 28million shares traded daily, meaning that its shares are very liquid, and therefore it will be easier for me to open and close a position at a price that I aim for. It has a beta of 1.19, so its shares are more volatile than the market (a share with a beta of 1 has the same volatility as the market). Volatility is a good thing (if the market is going in my favour). To see the effects of beta differences between the two, click here.
Some folk might argue that this is not a trend trade. I would say that it is: The 30 MA is still well away from the 50MA, the price has bounced back up through the 50MA. I regard this as a temporary setback and therefore a buying opportunity. I am trading in the same direction as the trend (buying a rising market as it comes back up from a setback. Go Alcoa! Go!
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