Think back a couple of weeks to that drunken New Year’s party, waking up with a banging headache and your auntie’s knickers on your head, wondering what resolutions will come back to haunt you…

One of mine was to reach outside the comfort zone of currencies and indices and find a couple of shares to trade from time to time.

Well some of the other lads at paddypowertrader have decided to call my bluff and want to see how I tackle the peculiarities of the equity market-now!

“Why not?” I thought, “There’s hundreds of shares out there so I must be able to find one or two that will make me money.” So join me on this two-part journey into the world of shares. Firstly I’ll look at what I need to know to trade equities and then, in the next article, I’ll look at choosing a couple of shares and how I’m going to trade them. Oh, and feel free to help me out here if I’ve missed something.

But first off I’m going to get a cuppa and have another read through Z’s
Total Newbie Question 1: What Is A Share
Total Newbie Question 2: What Is A Dividend

OK, so I’m all genned up on P/Es, Earnings Per Share and pizza. But I’m a simple fella who tries to avoid all these equity acronyms (I’d rather fight Britney for her kids than discuss a company’s EBITDA with an analyst). So I use the cunning ‘Efficient Market excuse’ that says all known news is reflected in the share price. That way I can concentrate on future announcements and find out what the market has allowed for in the price. We’ve seen a few cases recently, Marks & Sparks springs to mind, where the money was made (and lost) because the trading update was hugely different to market expectations.

I Want It Large
I’ll go into what type of share I’m looking for next week, but part of it is relevant now. I’m not looking to find the next Google (of course I’d love to, but it ain’t gonna happen) I’d rather deal in the present one. I’ll definitely be looking for a large, probably global, company rather than an exciting garage start-up. As a private trader I’m bottom of the news food chain and I don’t want to be caught with my trousers down when a profit warning leaks out after the chairman’s golf day with top investors. The bigger the company, the more likely that news releases will be handled fairly.

So Where’s My HollyOaks Diary?
I also want shares with a good web site. Yeah, I know that sounds a bit nerdy, but I want a good Investor Relations page that lists all dates for final and interim results, trading updates, agms and dividend announcements and ‘XD’ dates. So move over Hollywood Babes, I need a diary to fill with lots of strange dates.

And that’s only the start of it. Having stuck in all the important dates for my ‘chosen one’ I now need to repeat the exercise for all its main competitors; there’s little Schadenfreude amongst investors and the misery of one company quickly transfers to others in the same sector.

An Eye On The Bigger Picture
In the remaining diary space, I’ll stick in dates for all the relevant economic data. This will always include the big market movers like US payroll numbers and all the major inflation numbers, but also the specifics like the IEA oil supply figures for oil companies (funnily enough), retail sales figures and consumer confidence surveys for retailers and demographic surveys on the number of 17-year old chav mums if I trade Burberry.

Do The Guys In Charge Believe?
I’m not likely to build a strategy around what the company chiefs are up to, but I’ll probably cast half a bloodshot eye over the Directors’ Dealings segment in the Financial Times or Moneyweek . I don’t tend to waste too much of my cynicism on Directors buying or selling their own shares; the sales seem more often to do with divorce settlements than the company going tits up. However I did notice Stuart Rose step in to buy a cool £1 million worth when Marks & Spencer fell 20% last week. Sometimes a canny director can use the fact that he’s dealing to quash a rumour of some material change in the company (takeover approach or breaching bank covenants) - if it were true he wouldn’t be allowed to deal.

Sticking To The Trend
Hey! One thing’s for sure, I’m not going to be an investor. One of the massive, and I mean MASSIVE, benefits of spread betting is the ability to sell as well as buy. I don’t need to own the shares; if I don’t like them I can just go short (open up a ‘sell’ spread bet). Which means that I can stick to the bigger trend in either direction. Now I’ve got a bit of learning to do here, but I’m reckoning on paying more attention to the trend of the industry sector than the wider market index; not all sectors trade in the direction of the overall index. Digital Look provides more than enough charts and analysis on industry sectors, so I’ll be adding that page to my ‘favourites’ menu. Unless there’s something very specific I’ll be looking to trade my share in the direction of the sector’s trend.

Let’s Pretend For A While
Paddypowertraders are kind enough to provide a demo platform so I’m going to damn well use it. I’d be mad to expect to just start whacking a new instrument around the market and expect to make money. The cunning plan is to demo-trade a shortlist of 2-3 shares and see which ones respond to my style of trading. Then once I feel comfortable I’ll put my money on the table.

The other consideration is the type of bet, Rolling Daily or Quarterly. As explained in Tutorial 2 there’s a small financing cost for rolling the daily spread bet overnight, but the quarterly bet has a slightly wider dealing spread. I tend to sleep better with my money safely tucked up beside me so will probably concentrate on short-term trades using the rolling daily spread bet.

Right, that’s the cunning plan, now I’ve got to pop down to my local stock market and pick up a few free samples. I’ll be back shortly with my screening process, a few shares, and hopefully a plan on how to trade them.

Happy Trading.