Every-Day Traders Australia: Australians Who Successfully Trade for a Living by Nick Radge

Author:Nick Radge
Language: eng
Format: mobi
Tags: trading warrants, successful traders, stock market trading, everyday traders, successful futures trader, short term trading, trade for a living
Publisher: Radge Publishing
Published: 2015-08-19T14:00:00+00:00

Chapter 7: TODD MCKEON, Spread Trading

Spread trading involves the buying of one instrument and the simultaneous selling of another related instrument. A spread trader will not be concerned with the overall market, just the price relationships between individual pieces. An example would be the banking sector where a spread trader would buy the strongest banking stock and sell the weakest banking stock in the hope that one will outperform the other yet not be exposed to the overall direction of the sector.

The same can occur in almost any product: the Australian dollar versus the Canadian dollar, Australian bonds versus US bonds, gold versus silver, gold for delivery in three months versus gold for delivery in three years and short-term interest rates versus longer-term interest rates. The combinations are endless, as are the opportunities to profit.

Some of the most successful traders in Australia are spread traders yet it is almost unheard of outside of institutional trading. It’s certainly not glamorous but these people don’t trade for the action—they grind out very low risk profits and usually very consistently.

Todd McKeon is an ex-broker. He’s worked at various investment banks, trading predominantly European markets.

Todd is your ‘every-day’ guy that you’d brush shoulders with in suburbia. His disposition is laid-back and casual, taking everything in his stride and not allowing too much emotion to sway him up or down. Exactly how a great trader should be...

Can you tell us how you go about spread trading?

The way I trade differs greatly depending on timeframes. The majority of my trades, but probably half my profits, come from small timeframe trading, where I look to take advantage of price imbalances in the markets between contracts I have seen trading in patterns or with a strong correlation to one another, like a similar maturity. Larger timeframe trades are more of a structured look at major shifts in the yield curve on actual or perceived changes in the rate of economic growth.

What do you look for to indicate which part of the yield curve is going to be the mover?

I use a combination of fundamental and technical analysis. To get in sync with the bigger picture, I use a lot of fundamentals; for the trade initiation I will look at technicals to find zones of support and resistance.

FYI: The yield curve is the term used to describe the complete interest rate markets, from overnight cash through to ten- year bonds. If you were to plot the individual interest rates together on a chart you would create a curve that continually changes shape according to interest rate movements and expectations of the individual parts.

If you’re overall bearish the market and you see the prices move up to a resistance area or zone, do you start to sell it there and then spread it up immediately?

Unfortunately in spread trading there are no hard and fast golden rules that you can use. Each trade is an adaptation of some general ideas to a particular situation. In this situation if I could find

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