That age old saying "must speculate to accumulate" is a particularly appropriate maxim to recall when examining the expense of acquiring a proper quality Datafeed and Charting System, essential tools for anybody who is serious about finding Shares for short term Trades, and executing those trades to best advantage. Whilst a good Mechanic could manage many jobs with a cheap monkey wrench, he could surely undertake more jobs for more income with a full snap on tool kit.

The "Analyst" charting program, which comes with the Datafeed System I use, mechanises the task of constructing, maintaining and updating a chart for each or any share on the London Stock Exchange which one decides to include in a portfolio of potential candidates for trading. Imperative to this function is the need for price and volume data to be as accurate as possible, and to be visually presented in a well scaled and easily readable chart, something which many cheaper alternatives dismally fall short of. Additionally, the datafeed gives real time prices to assist the selection of the best time and price during a day to open or close the trade.

HOMEWORK

However, even with all the bells and whistles of any system, there remains no escape from the manual homework involved in ploughing through all the charts collected to find the ones which scream out "trade me now!". This involves using one's own method of analysis to find which shares seem likely to move significantly and quickly, then establishing the best price to buy, the likely price to sell, and finally the price at which to make the fastest escape if the trade should go wrong.

Sunday, 18th Nov 2001, was such a night of homework. Although I had planned to reach some stage of the evening where I could settle down with a rather delicious looking bottle of red so kindly given to me for my birthday to come on the 23rd, the reality was far different. Altogether I ploughed through 547 individual share charts, which took me well into the early hours and left me too tired to even search for the corkscrew. At the end of that, I had found just two shares worthy of next day trades. If I had found these within say the first 100 searched, then of course less time would have been expended. As the daytime is taken up by trading and writing, the sacrifice of evening leisure time is often a "part of the job". I remain hopeful though that the future will bring me someone who can master my method of analysis so well that he or she can take this task away from me, and I too can watch TV and scrape the rust off my golf clubs.

THE MORNING AFTER

The morning after, I bought both of them at a size small enough to limit the quantity of total risk, as well as measuring its proportion of total trading capital available, but large enough to provide a worthwhile total profit if all went as expected. By picking the most opportune moment (timing) in any particular share, I allow a period of time between 1 and 15 trading days for the fullest profit gain, as I have found this typically captures the most momentum of such a move, if it is off a price turning point. Another use of the datafeed is the provision of real time bid and ask prices, for the mid prices quoted on TV and newspapers are no good, as we can only ever buy at the ask and sell at the bid.

THE NUTS AND BOLTS

I could not have written here about the two trades at the time, for that would have been providing investment advice direct to the public, which I do not do. But now that the process of buying and selling both of them is done and dusted, we can examine the trades in an historical manner, as an example for the purposes of study.

USING STRATEGY

There's not much worth saying about the first share, the trade turned out to be nothing worth writing home about. I bought MEGGITT, for 174p, because the chart suggested a good up move was likely in the offing. Although it made progress in the right direction to begin with, during the next few days, the parent Index (Ftse100) was coughing and spluttering, and so was the share price. In such a situation I follow a rule of "dump it and forget it", regardless of whether a loss or a profit ensues. Losses are an absolutely normal part of running a trading business, the name of the game is to keep such losses within a predetermined pain threshold, and concentrate on maximising the profitable trades. Being only human, I don't always succeed at this, but do for the most part. Anyhow, a small profit was still made when I sold it at 182p. I never revisit, in the short term, a share which has already been traded, it's one of my rules, to ensure that I never become emotionally attached to any one share, which is something which few novice traders learn until they are on fire.

THE MIRACLE OF SHARE TRADING

The other share though was a different story. Henlys was bought for 92.5p, and sold for 118p, a super gain of 25.5p or expressed another way, a 27.6% gain, and it had only taken a week for the share to move that much. Remember, the mid-price, as shown for example on TV or the newspaper, is no good, as we have to know what the bid price and the ask price is, for we can only buy at the price which is asked, and can only sell at the price which is bid, so real time prices are important.

AND IN THE END.....

After such a good return in such a short time, I had only two thoughts. The first was that I must plough through another 547 share charts to do it again, and again and again. But my second thought was how cheap the cost of the datafeed and charting system now seemed.

In the volume chart area marked A, the volume and overhead price action revealed that after a long period of price falls, professional volume had stepped in to stop the price falling further. However, just because that has occurred, it does not necessarily indicate that the price is yet ready to begin a new rise. Further evidence of "accumulation" must take place before that occurs, indicating that supply of the share has become controlled by professional operators. Remember that the number of shares in circulation is not infinite. Hence, sometimes shares have to actually be "borrowed" off large long term holders for the purposes of short sellers. Here is where good timing occurs because of this knowledge.

At point B, over the 2 days of the 15th and 16th November (the last two days of that week), the evidence of professional accumulation appears, like a beacon. We can see the narrowed price range, there was no significant price rise occurring to alert the public who will usually "chase a moving price". The pro operators could also take full advantage of their timing, for being the end of the week, Joe Bloggs had switched off for the weekend, unwilling to do homework and discover the opportunity.

On Monday, Nov 19th 2001, although the price had closed at 90p on the previous Friday, the best price available to buy was 92.5p. On that same day, the price rose to close at 102p. On that basis alone, a true "daytrade" could have been made. However, daytrading shares rarely makes sense in this situation, as I know that a larger rise is in the offing. The law of action and reaction is written in stone is such patterns. Observe the widened price range of the day, closing on its highs. Each of these elements are vital to reading the music of the bars.

The narrowness of the range in the price falls of the next two days of Tues and Wed are in fact signs of strength to support the upmove in place. Most would not be able to see this, and using a hopeless arithmetically based stop loss method would have taken them out of their position, even if they had managed to open one. Remember, there was nothing special going on in the way of news, it wasn't listed as a newspaper tip, and was not the subject of any gossip. Each of those sources contribute to the permanent losing streak of many unskilled traders.

On Thursday, 22nd Nov, the day begins with a further price dip, but an extremely thinned price range on average volume, and closing on the high. This was the Market Makers testing for supply, so that their plan to raise the price further would not be squashed by sellers. The day closed at 93.5p.

On Friday the 23rd Nov, you can see the next large jump in price, with the day closing at 113.5p. That was the main thrust of that rise which had to occur following the successful test. We know the test was successful, because no significant new supply appeared to dampen the price. However, this is rarely the time to close a trade, as prices usually drift upwards a little further before the next phase of behaviour begins.

On Monday, Nov 26th, the price rises again to 119p, but price range starts to shrink, a sign of weakening in the strength of the move. The main thrust of the price turning point had occurred, until the next one, and this was a good time to close the trade, bag the profit, and move on in search of other share trading opportunities. Remember, this was not investing, it was short term trading, for there is no interest whatever after that in where the share is going.