December 11 2015

The fact I’m writing this could be a sign that the declines are over, but I’d be doing clients a dis-service if I didn’t deliver my regular gentle reminder. When markets look toppy, stocks overbought or when things are falling as they are, one of the principal benefits of CFDs over shares is the ability to trade southerly moves as well as those north. With the UK Index struggling against a trend of falling highs since the beginning of the month, many have profited from the downtrend by trading short (view our ‘Shorting – Profiting from a fall’ video here if you are unfamiliar) after prices failed at highs or broke below support. Indeed our best trade idea of the December was a short (see above). Some stocks are trading near 20yr lows – in some cases all-time lows. The supermarkets are troubled by German discounters. Miners are struggling with falling commodity prices, worries about slowing Chinese growth, years of over expansion and too much debt. The world is getting ready for the US to raise interest rates for the first time in almost a decade. Markets are nervous.

But this doesn’t mean you have to sit back and watch or suffer the declines. Calling the bottom of the market as bullish retail investors prefer to do may feel great, but the only real reward available is profit IF the trade is called correctly. If you think a share/index/commodity price has further to fall perhaps it’s worth looking at potential short trades (again see here to find out more) to profit from the drop. Or as a hedge for existing long positions at least. It could well be that the UK Index rebounds; it could be that there is further to fall. But it’s worth remembering that nobody says you can only make money from correctly calling share price bounces/breakouts and subsequent rises. You are allowed to make money from falling prices too. If a price is falling why should you be excluded from profiting while others do? You know that markets both fall and rise. Don’t get stuck trading just one side of the action. There’s just as much money to be made trading short. If anything, prices tend to fall faster than they rise thanks to panic mentality, meaning it can be even more lucrative. Even if you don’t do anything this time, at least ‘bear’ it in mind for next time. And you know there will be a next time. There always is. That’s the beauty of the markets.

Mike van Dulken, Head of Research