Internet Trolls

Thought it was time to write a new blog to highlight how a few internet trolls are systematically destroying any meaningful discussion on financial bulletin boards. Some of these trolls use many names but the agenda is always the same to disrupt and discredit genuine shareholders. I have even had one particularly unpleasant troll cross over onto social media, gather personal information to use against me on financial discussion boards.

This behaviour goes way beyond what is acceptable and is typical of the activities of internet trolls that seem to infest our society these days. I can't make my social media private as it is intrinsic to my business but I would advise you to restrict what information is in the public domain, there are some very unpleasant people out there. They have so far managed to have my account shut down on two financial bulletin boards but they won't silence me altogether.

Fortunately the majority of posters are genuine and decent people  but it only takes a few bad apples to spoil the barrel as they say.

Market sentiment

Celticheart Investor

A beginner's guide to trading and investing

Regardless of what happens to a company's fortunes the one overriding factor that can make the difference between success and failure appears to be market sentiment. Simply put whether or not the company is in favour or not, irrespective of anything else.

Sometimes it is staggering how illogical that sentiment can be and how dramatically it can affect the wellbeing of the company and its share price.

I have been invested in a number of companies over the years where the fundamentals have been sound but, for some reason or other, the company has just fallen out of favour with shareholders and the market in general.

Conversely, other companies have done remarkably well despite having little of value to offer in tangible terms but shareholders have been drawn in by "the story" and become somehow convince that this is "the next big thing" despite little to prove that that might actually be  the case in reality.

They say never get emotionally attached to a share but all but the most hardened traders do from time to time, I myself have been guilty of doing just that on occasion. Sometimes it can pay off to believe in a company, particularly when there are so many detractors trying to persuade you to sell.

Make no mistake though, do your research and only continue that belief if you feel that the underlying strength of the company is worth investing in. A case in point is Range Resources ltd (RRL), the dual listed (ASX/AIM) company.

We have seen this company drop from highs of the mid 20's to around 0.6p in a matter of a couple of years despite having good assets and massive potential.

Much has been written about why the fall, some of it factual but much of it based on wildly unsubstantiated conspiracy theories too. There were many complex issues, the history of which can be viewed on the company's website http://www.rangeresources.com.au and it is clear that there were some poor management decisions made but the overriding factor that allowed traders and shorters to bring this company to its knees was the loss of shareholder confidence and the lack of any positive market sentiment.

Shareholders and the market in general simply stopped believing in the story. As a long term investor I am delighted to say that with a new and focused management team and funding greatly improved sentiment is once again turning positive. That sentiment is now also being reflected by well respected bloggers like Malcolm Graham-Wood (Malcy) which will in turn further support that return to a positive view on the company's future.

I don't usually focus on specific companies as those that read my blogs regularly will attest to but in this case it illustrates perfectly the point of this topic, why market sentiment is so important to a company's prospects. 

There is a long way to go with Range Resources but hopefully now that a corner has been turned positive market sentiment will return, bringing with it that elusive shareholder value.

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

The campaign against short selling

Celticheart Investor

A beginner's guide to trading and investing

It has been a while since I wrote my last blog because, to be honest I have become quite disillusioned with the way in which the markets, particularly those affecting small cap investments, have been blatantly manipulated over recent months. Something that I have already covered in a previous blog "Market Manipulation".

The reason that I have returned to this topic is that it seems that investors, the FCA and even the government are finally waking up to just how damaging some of these practices are, to companies, private investors and ultimately to the markets themselves.

The area that I would like to draw particular attention to today is the growing campaign against the increasingly common practice of "shorting" or "short selling" a stock or equity. Although this practices is currently not illegal it is borderline immoral in my opinion and certainly a questionable practice.

To take shorting first, this is the practice of selling a stock or equity that you do not actually own at as high a price as you can and then systematically set about trying to get that price down so that you can buy sufficient stock to cover your position at a much lower price. In any other walk of life, selling something you do not own would be sen as fraud but somehow it is an acceptable practice in the shady world of trading.

This practice has become endemic in small cap markets such as AIM and it is estimated that up to 90% of small cap companies are affected this practice but what has made this far worse is that organised groups are now targeting vulnerable companies with co-ordinated "shorting" raids.

The prevalence of bulletin boards, social media and Tweeting to discuss the merits and performance of small cap shares has made it far easier for organised groups to influence and in some cases blatantly drive down the value of a share. Unfortunately many small investors pay far too much heed to these "de-rampers" and will often take what they are being told at face value and sell, often far too low.

The tactic is to exaggerate any negatives and discredit any positives, attacking anyone that opposes their view in a manner that can only be described as "cyber bullying". Some have even taken to verbally attacking the CEO or members of the board of directors.

The problem has become so severe that there have been occasions where companies have actually taking legal action against individual posters and organised groups. Libel is of course a crime in itself but tracing individuals who hide behind the mask of an online persona takes time, by which time the damage has already been done. Often these organised groups are employing posters in what are called "boiler rooms" where they spend all day on social media and bulletin boards verbally attacking a targeted share.

So what can you do to fight this practice?

Well for a start you can add your name to a growing list of small investors who have become sick and tired of seeing the market and their shareholder value being eroded by signing a petition to get shorting made illegal, particularly on small cap markets such as AIM 

http://epetitions.direct.gov.uk/search?q=make+shorting+illegal

You can also add your weight to the argument by reporting any incident that you feel what you feel is unacceptable market manipulation to the FCA

http://www.fca.org.uk/firms/markets/market-abuse


Don't let these unscrupulous people destroy your investments for their personal gain, they do not care about you or your hard earned money. Sometimes these people can be very convincing but make no mistake they have an agenda and the last thing they care about is your shareholder value.




A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Markets and Indices

Celticheart Investor

A beginner's guide to trading and investing

When it comes to investing one of the most important considerations is which markets do you invest in. By that I mean do you invest in the main stock markets such as the Footsie which tend to be better regulated and more stable or do you invest in one of the smaller markets such as AIM http://www.londonstockexchange.com/companies-and-advisors/aim/aim/aim.htm which is made up of smaller cap companies and is without doubt a more volatile market? Ultimately it comes down to your approach to investment and risk.  

AIM is, at least according to their website, the most successful growth market 
in the world. Since its launch in 1995, over 3,000 companies from around the world have chosen to join AIM. 

There are of course many indices in the UK stock markets: 

• FTSE 100
• FTSE 250
• FTSE 350
• FTSE All-Share
• FTSE AIM All-Share
• FTSE techMARK All-Share
• FTSE SmallCap
• FTSE Eurotop 300
• Ethical Indices

The main markets are more stable with generally a far higher share price, particularly in the Footsie 100, the growth rate might not be spectacular but the risk is generally far less (although nothing is certain in today's market) and you are far more likely to get a dividend paid on your investment.

The added advantage of investing in the main markets is that they are ISA allowable, whereas previously AIM stocks have not been although looks like it is about to change as is explained below: 

During the recent budget announcement, George Osborne announced that from April 14th next year no stamp duty will be payable for shares that are listed on AIM and other so called "growth" markets (currently 0.5% duty on all markets). He also said that he was in consultation over the allowance of AIM shares into stocks and shares ISA, this has now been approved and will become allowable from 5th August this year.

Until now the only AIM stocks that were allowable were those that were dual listed e.g. listed on both AIM and ASX http://www.asx.com.au/ or AIM and ISE http://www.ise.ie/

It is also worth bearing in mind that these share are not subject to inheritance tax, provided they have been held for at least two years.

I am restricting my market listing to those in the UK as, for most small investors in this country that is where they choose to invest, even though the companies they invest in can also be listed on other global markets.

One thing I have noticed is that investors who frequently monitor their holdings rarely seem to look at the overall performance of their Indices. This year I think it is fair to say that the smaller markets have taken a real hammering and have been seen as very Bearish but recently all of the UK Indices Ichimoku Trader on http://www.ichimokutrader.com/ seem to be indicating a Bullish trend or Bull run is imminent. I sincerely hope that they are right.

Footsie 100 (Chart courtesy of amCharts.com)

AIM (Chart courtesy of amCharts.com) 

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Bulletin Boards

Celticheart Investor

A beginner's guide to trading and investing

Although I have mentioned Bulletin Boards (BB's), also known as Discussion Boards in the past, I feel it is worth looking at some of the positives and negatives of posting messages on these boards.

In theory they are meant to be an outlet for investors and traders alike to exchange information and discuss the various merits and pitfalls of companies that are either invested in or are considering investing in.

There are many excellent and well researched posters out there from whom you can learn a great deal, not just about investment but about the technicalities of the companies involved. I am interested in oil and gas production and have learned a lot about the specific terminology used in exploration and recovery of both. When investing in any company it helps to have a decent understanding of how they function.

The problem is that as well as genuine and knowledgable posters there are others that have other less savory motives for posting. These can range from cynical exploitation to the modern day phenomenon of Trolling.

So what exactly is a Troll, well to quote an extract from Wikipedia:

"In Internet slang, a troll is a person who sows discord on the Internet by starting arguments or upsetting people, by posting inflammatory, extraneous, or off-topic messages in an online community (such as a forum, chat room, or blog), either accidentally or with the deliberate intent of provoking readers into an emotional response or of otherwise disrupting normal on-topic discussion."

The problem is, those that facilitate the boards don't always read or moderate what is written but what they will do is respond to a direct complaint through their neighbourhood watch facility. Some boards are better than others and as a result are less prone to abuse. My advice is simple, don't get involved with these people, they want a reaction, that is their sole purpose for being there, to disrupt constructive discussion.

Sometimes it is hard to understand why people would spend so much of their time posting on boards where they have openly declared no financial interest simply to tear down the company's shareprice in any way they can.

I have heard it said that these boards do not influence the shareprice but I disagree, the sheer volume of posting some of these people indulge in pushes the discussion up the search engine rankings so new investors researching a company often come across negative and false information.

Beware also that responding to these trolls can draw the attention of the facilitator/moderator to your own posting, often resulting in suspension of your right to post. I sometimes feel that this is the true reason behind the trouble causing posters, the removal of any positive sentiment that might counter what they are trying to achieve.

If you feel that a fellow poster has been wrongly suspended for a period or even banned for responding to these people, let the moderator know either through neighbourhood watch or via e-mail. If enough supportive posters do that then those wrongly targeted will be re-instated.

Continue to post on these boards as sharing valuable research and information is helpful, particularly to those relatively new to the world of investing just be careful who you trust and take nothing at face value

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Market Manipulation

Celticheart Investor

A beginner's guide to trading and investing

Now this is one of those contentious areas that always polarises opinion, does market manipulation actually exist or is just another conspiracy theory? Well the truth is it does exist and has done for a long time in one form or other, the problem is that with today's computer based trading it has become a lot more sophisticated, much of it generated by algorithms that don't require a person to action the trades individually.

I for one believe that market manipulation has now becoming so widespread, particularly in small caps markets such as  the Alternate Investment Market or AIM, (Formerly the Alternate Investment market) that it is a major threat to the continuation of these markets. The very nature of this market is high risk / high reward which means that it attracts a lot of short term traders, the very people who have most to gain from manipulating the share price, both up and down.

"Investopedia" gives the definition of Market Manipulation as being: "The act of artificially inflating or deflating the price of a security". Market manipulation is in fact illegal but it is much easier to manipulate the share price of smaller companies (penny shares) because they are not as closely watched by analysts as their larger counterparts on the main markets.

There are several well known techniques used by traders that could be regarded as manipulation so let's look at some of these:

Churning: This is the term used when a trader places both buy and sell orders simultaneously or at roughly the same time. This creates the illusion of greater stock movement intended to attract new investors fueling demand for the stock resulting in an increase in price.

Wash Trade:  Similar to Churning but over an extended period of time, intended to make it appear that there is a greater volume of stock being traded with the intention of drawing investor interest to the share.

Pools: An arrangement between a group of traders to delegate authority to a single manager to trade in a specific stock for a specific period of time and then to share in the resulting profits or losses, should they occur

Bashing: An activity that many of us on the small caps markets have experienced first hand. This tactic is frequently implemented by online message board posters (Bashers) who post false or misleading information about a company in an attempt to get shares for a cheaper price. The posters sometimes work directly for unscrupulous companies who have convertible notes that convert for more shares the lower the bid or ask price is. If the Bashers can drive a stock price down by trying to convince shareholders they have bought a worthless security, the more shares the company receives. 
Once the stock conversion is completed those same posters, often with new identities become positive about the stock and talk the price back up. 

Pump and Dump: This scheme is so blatant at times it is astonishing that it works at all but such is the nature of smaller retail investors that the pursuit of what they see as potentially huge gains blocks out rational thinking. The way this generally works is through rumour, sometimes generated on public forums or bulletin boards but equally by unscrupulous tipsters in the media. False or misleading information is generated which creates a frenzy of buying (The pump) which artificially drives the price up, often way beyond the company's true worth. Once the target price is reached the perpetrators sell their shares (the "Dump") and the stock price falls like a stone, the unwary investors see the sudden drop and rush for the exit driving the share price into freefall.

Bear raid: Pushing the price of a stock down by heavy selling of equities, when this is done by someone that does not currently hold any shares it is called Short selling as they are in fact "borrowing" stock with the intention of buying back later at a lower price to fulfill the original "Sell" trade.

It is not only traders that can manipulate the markets, Market makers (or MMs) are also known to occasionally move the price down to trigger stop losses or increase the spread between Bid and Ask prices to influence directional movement of the share price. Whether this is within their remit as a Market Maker or something more devious is questionable in my opinion.

The implementation of the Market Abuse Directive (MAD) in 2005 resulted in an EU-wide market abuse regime and a framework for establishing a proper flow of information to the market, see link below for the full article.

http://unavista.londonstockexchangegroup.com/articles/market-abuse-directive-mad-ii-overview/

Recently, there have been a number of instances where the companies themselves have taken legal action against individuals and groups who are believed to have participated in libelous or manipulative practices. 

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.

Ichimoku Cloud (Kumo) charting

Celticheart Investor

A beginner's guide to trading and investing

The Ichimoku Cloud (Kumo) chart, also known as the Ichimoku Kinko Hyo; Ichimoku meaning “One Look” is a modern Japanese charting system that (as it says on the tin) shows a lot of information at a glance, without the need for any other technical indicator, something that candlestick charts cannot do alone, relying on multiple supporting tools as we have seen in previous chapters. 

As with other Technical Analysis indicators the purpose of this system is to help us determine changes in market direction and trading signals. This system was developed by Goichi Hosoda, a Japanese journalist, and was published in 1969.

At first glance the Ichimoku Cloud looks complicated but if you take a little time to study it the simplicity of the system soon becomes clear, as you would expect from an indicator that was created by a journalist not an analyst.

Ichimoku Cloud shows us, in one easily accessible chart, probable future support and resistance levels as well as momentum and trend directions. Some of the elements we are already familiar with such as the moving averages, Tenkan-sen (Conversion line) and Kijun-sen (Base line) to show bullish and bearish crossover points, similar to that of the EMA 20 and EMA 50 (See chapter Eleven, Moving Averages).

The "clouds" (kumo, in Japanese) are the areas formed between spans of the moving average of the Tenkan-sen (Conversion line) and Kijun-sen (Base line), which are plotted six months ahead Senkou (Leading) span B and of the midpoint of the 52-week high and low (Senkou span B) also plotted six months ahead.

        

Analysis tells us that we are in an uptrend when the prices are above the cloud, and in a downtrend down when prices are below the cloud. When prices are within the cloud itself the market is seen as flat or indecisive.

Senkou span A crossing above Senkou span B indicates a strong uptrend, and just like candlesticks, is shown as a green coloured cloud (Kumo). Conversely when Senkou span B crosses above Senkou span A the trend is downwards and is shown as a red coloured cloud (Kumo).

Because the Cloud is projected 26 days in advance it can, unusually, provide us with a glimpse of future support or resistance.

The Ichimoku Cloud consists of five basic plots as explained below:

Tenkan-sen (Conversion Line): This is the 9 day high + the 9 day low divided by 2. The default span for this is 9 trading periods but can of course be adjusted

Kijun-sen (Base Line): This is the 26 day high + the 26 day low divided by 2. The default span for this is 26 trading periods but can also be adjusted to suit your trading strategy.

Senkou Span A (Leading Span A) is the average of the conversion and base lines, calculated with 9 and 26 trading periods, Senkou Span A (green) moves faster than Senkou B (red) much as EMA20 moves faster than EMA50.

Senkou Span B (Leading Span B): is the 52 day high + the 52 day low divided by 2. This is the mid point of the 52 day high and low trading range. Although the default setting for this is 52 periods it can also be adjusted. This value is also plotted 26 periods ahead, which is why it is referred to as a leading span.

Chikou Span (Lagging Span): This is plotted 26 days behind the current trading. The default setting is 26 periods, but as with the Senkou Span (Leading span) this can be adjusted to suit. Because this value is plotted 26 periods behind it is referred to as a lagging or trailing span.

For a more in-depth look at the Ichimoku Cloud system go to:

http://www.ichimokutrader.com/

http://www.investopedia.com/terms/i/ichimokuchart.asp

http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:ichimoku_cloud

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.