Oil

In case you had not figured it out the world's fourth wealthiest man spelled it out clearly this week. 'Arabs are keeping more of their oil revenue at home because Middle Eastern markets are booming and the US has increased scrutiny of foreign investors since Sept. 11, 2001 terrorist attacks'.

Add to that oil rising again reaching $46 a barrel as I write with hedge fund managers increasing their net-long position in New York crude oil futures for the first time in five weeks.

Looking at the FTSE 100 it has real difficulty breaking 4600. Now with the negative oil news, you have to wonder if it will do the obvious and decline to 4500, then 4400 and finally by end October settle at 4300.

I am turning increasingly bearish in the short-term and prefer to close some long positions and bias towards more short positions. Some showing weakness, needing price confirming falls of course first, include: United Utilities, LloydsTSB, Bradford and Bingley, Scottish and Newcastle. These are all short-term views for a couple of weeks to a month.

On the FTSE 250 front French Connection and EasyJet are worth examining for further falls.

You can meet me at IX Expo next month. Drop me an email with your address to alpesh@tradermind.com if you would like a free multi-media CDROM on 'Investing Better' posted to you.

I want to recount something I came across as I was doing a cleanout this week: Great traders tend to be risk-averse.

The public perception of traders, propagated by trading scandals, is that they are attracted to wild risks and take massive gambles. Of all the traders I interviewed for this book, not one claimed to be risk loving.

One that I met, Bernard Oppetit details the contrary view:

I am very risk-averse. I would definitely take the certainty of making $10 000 dollars than the 10 percent chance of making $100 000. In terms of economics, my personal utility function is very much concave.

When we speak of risk in trading we are, of course, discussing price volatility. Price volatility cannot be discussed without an idea of probability. The probability of a stock's price reaching your target can be derived from the historic price volatility of the particular stock. Consequently, risk, price volatility, and probability go hand in hand. Good traders wait until the probability of a favorable move is the greatest and the risk of an unfavorable move the lowest. Moreover, unlike non-professional traders, the great trader knows that risk and reward are not always directly proportional. There are very low risk and yet high reward trades.

Oppetit continues:

The important thing is to look at risk in a rational way, and an imaginative way. A good trader knows how and when to take risk and how and when to avoid risk. There are risks which should be taken and risks which should not be taken. The game is to distinguish between the two.You do not need to risk a lot to profit a lot. There are a lot of trades where you can make a lot of money which are not particularly risky.You may have to invest a lot of your time to do research and discover what is going on, but the actual money you invest may not be at much risk.

There is a joke about an economics professor who is walking in New York with a friend. His friend notices a $100 bill on the sidewalk and points to the bill and says, "Look professor, a $100 bill."The economics professor replies, "No that can not be so, if that was a $100 bill somebody would have picked it up already." Still I believe there are opportunities to make money with very little risk.

Value-Growth

The stocks on my radar which meet my proprietary criteria on value and growth measuring price to earnings growth, sales, profits, and numerous other factors includes not much change from last week. If you followed Hilton, you are already up.

Crazy Small Stock

These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include Music Choice Europe, Character Group, Emerald Energy, Marchpole Holdings.