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things every retail investor/trader should know

Maybe Ipunter means no point making a point to win argument but better to increase one's profit.

At the end of the day whether value stocks, growth stocks or high yield dividend stocks, the objective is to maximise profit.

 

Very cheem. Your posts are normally very philosophical. I don't understand. Like to elaborate?

iPunter      ( Date: 15-Sep-2008 17:55) Posted: True satisfaction comes not by winning any cherished point, but by the incrementing level of one's trading account...

 

 

novena, the buy is given by candlesticks, not just by touching the line. also, can use shorter term charts to determine the entry (too much to put out in one post). keep in mind i gave the weekly charts, not daily. The upper channel was formed 99 to '00; the prediction of the lowest low (formation of the 2nd channel) can be calculated by FA and/or fibo. But basically, if you're DCA, and the channel broke, you choose then not to buy nor sell, but to wait for the low to form. And then, pattern resumes.

and talk about a crazy market. Newsflow now is that fed may cut tonight even. Oil is down to 97, the UJ is tanking to kingdom come, BUT the Euro/USD went down too. Ah, market shenanigans. Gotta love the market.

livermore, no prob! happy trading!  

 

"Eh. I meant chosen strat that works for you. for those who've been around, their strats are tried and proven already, and more often than not, losses result because one deviates from the strat."

Hey misunderstood you.... 

elfinchilde      ( Date: 15-Sep-2008 12:08) Posted:    If you try a strategy and it is a wrong one, one needs to analyse what went wrong and change accordingly. Consistent application of a wrong strategy will lead to consistent losses. Eh. I meant chosen strat that works for you. for those who've been around, their strats are tried and proven already, and more often than not, losses result because one deviates from the strat. There is also a need to keep longsighted. HLJ pointed out rightly: paper loss may not always be paper loss. it all depends on how well you've researched your FA counter*. The fact remains that 95% of all traders lose. For retailers without much technical skills and sources of news, frankly, i advocate going longterm (longterm trading, or FA holding).   Overtrading dilutes profit. *having said that: there's also a need to realise that very few counters here can be considered to be solid FA counters. Even with this fall, few of the blues are at or below their NAV. ie strictly speaking, by FA terms, they are still expensive. Oh, and china and CPO plays are NOT value counters. They are growth stocks.  cheers!

 

Hi Elf,

Ok, talk about something else. Keep cool ya:). In reality and in person I hardly raise my temper:). 

For the rest, have a look at DerrickTan's last sentence in red.

elfinchilde      ( Date: 15-Sep-2008 13:40) Posted: news update as per pasted below. always keep an eye on the news, because traders react to it. so foreknowledge is forearmed. and haha. livermore/stupidfool, i'd appreciate it if you both could just state your point and leave it as that. arguing til the cows come home on whether paper loss or riding it out is better, isn't going to change the facts of the game, ya know. Besides, you guys are talking on generalities. A key missing point in the equation is stock selection. There are some stocks you can do DCA on, there are some stocks you can have a paper loss in. BUT, there are also some stocks that are immediate trading cuts, and which longterm loss is not acceptable. (eg, it is why i put the stop on yl and had emphasised on it.) In this kind of market, really, you'd be hardpressed to find a trader or investor who's not sitting on loss. real or paper. So the question then for you two: arguing simply for sake of ego, or genuine learning? If it's the latter, good. If it's the former, cease and desist. For the record though, may i say this (strictly my own opinion): paper loss is real loss. It is only a question then: where can the stock go? Your timeframe comes into play. And between a DCA and an early stop loss, a stop loss is always better. Peace, peeps. Raised tempers and egos don't help trading or investing. Cheers! ----------- American International Group will announce an asset sale or capital injection as soon as tonight, or sometime tomorrow, CNBC has learned. The insurance giant, which declined comment, is pursuing a three-part plan to raise $50 billion in liquidity. It is trying to raise billions from private equity firms, and is also in talks with Warren Buffett, CNBC has learned. Sept. 14 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, is in merger talks with Bank of America Corp., people with knowledge of the negotiations said. Wall Street seemed to be preparing for a bankruptcy filing by Lehman Brothers Sunday as a special trading session for credit default swaps was called.

 

yag scary now, hence we adopt the scary method.

base on current sentiment at US end, it will not like to hit the first preceding low of 7.5 n U turn.

instead likely it will hit the second preceding low of 6.3. a wild guess, no panic, for those who still vested. Cheers.

 

"depends. the aim of the fed was originally to keep inflation in check. but the banks went into excess greed--all this trouble, really, had nothing to do with asia. it was the US which packaged their subprime mortages, it was the US which sold toxic bonds, it's the US which is failing. and hence dragging down everyone else with them. "

 

So we have a very different kind of 911 this year... American's terrorism on global financial world. Unfortunately, we didn't have a choice of "you are either with us or against us". Everyone is with the US.. (kena dragged down). Now who is  the axis of evil?

 

 

Hi Elfin,

With much respect ... base on this chart, to construct these 3 lines (upper lower & mid boundary), time is needed to develop the line (from 98 to 03). The rest of the line, let’s, assume is parallel to the lower boundary.

Therefore, we would have miss out the first 3 trades. And according to the game plan, we would have entered trading on 2003 buy call @$3.37. This will affect the returns as compare to the one calculated earlier.

As such we still need another few more years to complete the 5 trades.

I total agreed with what u mention consistent, long term strategy pays much better. I’m look at least 10 years to ride out any cycles.

 

watch at 745 line, if break, wait for the 5 or whenever it turns. If it turns up from here (keep in mind, these are WEEKLY charts, not daily), it's a buy.

Again: "support" lines are just lines. They are psychological barriers more than anything. The movement of a trader is on the confirmatory candle after the line. If it's under, it's a short, if it holds, it's a buy. Not so simple as every line = buy/sell.

pointer:

depends. the aim of the fed was originally to keep inflation in check. but the banks went into excess greed--all this trouble, really, had nothing to do with asia. it was the US which packaged their subprime mortages, it was the US which sold toxic bonds, it's the US which is failing. and hence dragging down everyone else with them.

So now it's decision for the Fed. Keep inflation down, or shore up the market? Time and again they've made their decision clear: shore up the market. Why else would they step into Freddie/Fannie/Bear Sterns, and now offer a life line to the banks? Did you guys know, there was a top secret meeting between the Fed, the heads of UBS, JPM and Citi on Sunday evening? http://www.forexfactory.com/news.php?do=news&id=106253

It is from these movers and shakers that markets will take their direction. and you can bet that when they're on loss, what's they'll do is to screw everything else to save themselves.

If they do cut, they're essentially driving their economy into the ground to bail out the excesses of wall street. Creating a divergence: USD down, stocks hold. Oil prices may not go higher: It is possible to have a deflation scenario.

What i like is how greenspan is out there talking crap now about "more than 50% chance of a recession", when in the first place, he was the one who created all this by giving cheap loans to people who can't afford it. Ah, the greed of the rich knows no bounds.

 

hmmm so based on your chart, is to buy at 7.45 or at 5.00 ?

elfinchilde      ( Date: 15-Sep-2008 14:36) Posted: ok, i'm very realistic. for me, the charts are everything. So here's a live eg of what i mean by DCA, and why, especially for retailers who dno't have time to watch the markets and who have no appetite to trade everyday, a consistent, longterm strategy pays much better. The following is the 10 year, weekly chart of OCBC. One of the best counters to do longterm DCA on. Notice how, in 10 years, you only enter five trades and exit once. If you buy accordingly, assuming same no: of lots, your ave buy px is 4.066. Your sell is 8.95. That's more than a 100% return in 7 years. Excluding dividend yield, which is on average about 5% p.a. It works out to a comfortable approx 20% return p.a. That's for just doing 6 trades in 7 years. Quite simply, buy at channel bottom when indicators show oversold. Sell only at channel top when indicators are overbought. Remember: the frame is LONGTERM: 5 years at least. All that is needed is nerves and consistency. Follow the charts. Do not get distracted by intraday noise.

 

But wouldn't cutting rates will devalue the USD & sending the oil price higher?

 

ok, i'm very realistic. for me, the charts are everything. So here's a live eg of what i mean by DCA, and why, especially for retailers who dno't have time to watch the markets and who have no appetite to trade everyday, a consistent, longterm strategy pays much better.

The following is the 10 year, weekly chart of OCBC. One of the best counters to do longterm DCA on.

Notice how, in 10 years, you only enter five trades and exit once. If you buy accordingly, assuming same no: of lots, your ave buy px is 4.066. Your sell is 8.95. That's more than a 100% return in 7 years. Excluding dividend yield, which is on average about 5% p.a. It works out to a comfortable approx 20% return p.a. That's for just doing 6 trades in 7 years.

Quite simply, buy at channel bottom when indicators show oversold. Sell only at channel top when indicators are overbought. Remember: the frame is LONGTERM: 5 years at least. All that is needed is nerves and consistency. Follow the charts. Do not get distracted by intraday noise.

 

good post, derricktan. thanks! :)

juzztrade, DCA = dollar cost averaging. It's what a lot of financial advisors will tell you to do: set aside a monthly sum, and keep putting in whether market goes up or down. So that in the end, you have an average buy price, which is like what Goldilocks would say, "not too hot, not too cold". Not too high, not too low.

There are advantages and disadvantages to this method, which is why, when the topic of it crops up, inevitably you'll find a lot of passionate arguments about it. hehe.

Perhaps to give a more unbiased view, i'll just lay out its pros and cons, so other forumers can decide for themselves if it's a good strat for themselves or not.

Advantages:

-It allows you to have reserve capital, so that when a stock goes down, you still have reserves to buy in. Can be highly profitable. Eg, if you'd bought at Aug 17th last year, the day of the big crash, you'd have reaped rewards of 20% or more barely a month later on most of the blues.

-Best applied as a longterm strategy, really, rather than rapid trading. Applied rightly on good counters, bear years, your loss is limited by dividend gains. Bull years, you lock in capital gains + dividend gains. Most suited for those who can ride out intraday/month volatility, and who have a 3-5 year time frame.

Disadvantages:

-sometimes, esp in bear markets, you may be sitting on huge paper losses. Not everyone can take this. The difference is this: Because it is DCA, you'd always have reserve cash. So down markets are actually buy opportunities. (ie, those who DCA, but find themselves out of cash and the stock still going down: you may have applied the strat wrongly. Alt, was not thought out correctly)

-DCA does NOT work for all stocks. Which is why time and again, i've emphasised on right stock selection. FA principles need to be your guide, DCA only works on companies with a long track record and history of consistent recovery in bear markets. Eg, OCBC is a good DCA stock. ST engg can be DCAed. As can sembcorp. What should NOT be DCAed--Any of the rapid trading counters. Including china counters and CPO plays. If you mount a DCA operation on those, make sure you're prepared to take a steep loss as well, when in the end, a cut may be warranted.  

 

Money Management is the most important thing to be successful in the trading game besides a good system and rules that works for you and your emotion.

I do not hold more than 5 stocks at a time. The more you have, it is easier to dilute your profit and more difficult to manage your porfortio.

 As for paper loss or real loss..different people got different trading objectives - some prefer to wait 10-20 years to realize profit if any, some collect dividends, some go for trend or/and momentum trading which cut loss is a very important strategy - no right or wrong.

 attached is an extract fro sharing only.

Learn How to Trade Profitably

By John Pontikas and Brian Dibbins

                                                                                                Chapter Four

  Mindset and Trading Psychology

Our trading system gives us an edge.  It states that when ‘X’ happens, ‘Y’ usually follows.  At times it may not, but the majority of times it does.  Our trading system helps us to identify high probability trades, we enter those trades at the right point, we protect our capital by setting stop losses, and we let our profits run.

 We implement and use the system that is right for us, and we feel comfortable using it.  We are consistent and disciplined.  We do not break any of our rules.

 Trading is not a nine-to-five job.  We have good days and we have some bad days, but with our strict trading rules, money/risk management and discipline, we expect and achieve more good than bad days.

 We realise that every trade is one of many, and we do not let a losing trade get us down.  We watch our language when we trade.  We do not have losing trades, we have “non-progressive” trades.  We realise that every business has expenses.  Our non progressive trades are just part of our business expenses.  Trading is a business.  It can be an extremely lucrative business because the overheads are so low.

 Part of our job commitment as a trader is to follow our trading plan.  Our trading plan is written down and is situated next to us whilst we are trading.  Our trading system consists of entries, exits, risk/money management, and trading psychology.

 Our objectives as a trader are to; follow our trading plan, to preserve our capital and to make that capital grow.  We never risk more on any particular trade than our money management strategy allows.  If we have five consecutive losses in a row, we stop trading for a week and we re-evaluate what (if anything) we are doing wrong.

 We do not become emotional with our trading.  If we are experiencing an emotional day, we do not place any trades.  If we have experienced a non progressive trade and another opportunity comes up to enter the market on the same day, we enter the market again.  If our second trade has not progressed and the third fails to progress also, we stop trading for that particular day, and we come back the following day.  This is a great method of preserving our capital.  We realise that the market is always right, and some days are just not supposed to be trading days.

 Every trader, beginner or advanced makes mistakes.  We learn from our mistakes and do not repeat them.  We keep a trading diary of all our trades.  We are particularly interested in our non progressive trades.  Why did they not progress?  Is there is a common factor involved?

 We always backtest and paper trade every stock/market that interests us.  Our backtesting and paper trading allows us to verify that our trading system would work successfully on that stock/market and would be profitable.  It also assists our subconscious and gives us faith and confidence in our system.

 We have a realistic figure in our head as to how much money we want to earn per week.  Once that figure is achieved we stop trading.  This way we can ‘buy’ ourselves time to do the things that we enjoy.  Time is the most precious commodity one has.

       Mindset and Trading Psychology

Most traders neglect the most important aspect of trading; the psychological aspect of trading.  The successful traders recognise that their mental approach to the market is the determining factor in their success or failure.  It is often not the trading system that fails traders but their lack of discipline in applying it.

 A trader may have a great trading system but still manage to lose money.  They may backtest and paper trade; spending countless hours behind a computer screen in preparation, until eventually they feel ready to trade.  Perhaps their first trade is a loss, but confidence is still high.  Their second trade may also be a loss (remember not every trade is a win).  At this point emotions are running high, and doubt and confusion have set in, and they ask themselves “does this system really work?”  Another entry signal appears but this time the trader decides not to take it.  However perhaps this third trade was the one that would have made back the losses from the first two trades and given a nice profit.

 The trader may then start doubting themselves and wonder “is the market against me personally?”

 The answer of course is “no”.  Every trader will experience a draw down, and every trader will experience a sequence of consecutive losses.  Successful traders realise that not every trade will be a winner, and that in order to take profits from the winning trades they will also have to take draw downs from ‘non progressive’ trades.

 Successful traders understand that they need to; stick to proven, backtested and paper traded systems, to be disciplined, and to follow their rules.

 There are hundreds of successful trading systems, but a trader needs to ensure they only trade those systems that suit their personality and risk profile, as well as allow them to sleep comfortably at night.  They need to be able to implement and follow their system’s signals without doubt or hesitation.

 Once traders become emotionally out of control, they let their losses run and they limit their gains.  They become emotional about a losing trade and stop following their rules.  They let what should have been a small loss turn into a massive loss.  When they are in a winning trade, they once again become emotional and cut the trade short, along with their profits.  The reverse needs to take place.

 The purpose of backtesting (with dead data) and paper trading (with live data) is to test one’s trading system.  With backtesting and paper trading one can experience the big gains, the hopefully small losses, the possible consecutive draw downs and the different emotions that traders experience.  The trader becomes aware of all the possible scenarios, so that when its time for the real thing, they have hopefully adopted a positive mind view to cope with these situations.

 Traders should not take each individual trade personally.  They must learn to respond appropriately and not simply react emotionally to what the market presents to them.  They must take the approach of 'winning the war, not every single battle’.

 All negative thoughts must be out of a traders mind whilst trading.

 As mentioned before, trading must be seen as a business, a potentially very lucrative business with very low overheads.  Losses should be seen as an expense and every business has expenses.

 Traders should visualise themselves as a successful trader.  One who; follows their system, plans their trades and trades their plan.  One who; executes their trades at the appropriate place, trades with their stop loss/exit strategy in place, and always trades in the direction of the trend.  Visualise these elements.

 Successful traders don’t let fear and greed override their emotions.  They will cut their losses (non progressive trades) once their stop loss has been hit, and they take their profits when their system tells them to.

 The worst thing a new trader can do is to chop and change their system after 3 or 4 losses.  This clearly isn’t long enough to determine the long term success of any system – this is what backtesting and paper trading is for.  It is important to allocate a period of time and stick to that system, take every entry and exit, as the system states, and not change it on the basis of an unfortunate short series of non progressive trades.  This is easier said than done because we are humans and not machines.  Successful traders have to train their minds to become disciplined (if they are not already).

 Actions become habits, so the more often a trader follows their plan’s entry and exit rules (whether it results in a winning or non progressive outcome), the less emotional they will become when the next signal appears to enter or exit a trade, and the easier they will find it to implement their system.

 One must try and become emotionally detached to money.  The best way to do that is to only trade money that one can afford to lose.  This is stated as a risk warning in all trading courses, books and financial institutions.  Do not trade with ‘scared money’ because one’s decision making could be clouded.  If one starts trading with limited funds, fear will creep in and bad decision making will follow.  Remember all traders will experience a string of non progressive trades.  One must have sufficient funds to allow for that, otherwise profits will inevitably be cut short.

 Keep a trading journal of all trades.  Over time this may show a reoccurring pattern regarding both the winning and non progressive trades taken.  A journal can be a very useful method of ironing out possible mistakes and/or faults with one’s trading system, belief system and discipline.

 Traders should be true and honest to themselves when it comes to trading.  When they enter their office (workspace) to trade, they should treat it as though they are entering a boxing ring.  They are there to “kick butt”, because if they don’t, theirs will be kicked instead.

 They should ensure they work in an environment where they will not be interrupted.  Their trading deserves their full attention – remember, this is a business.

 Learn from other traders mistakes, because mistakes in the trading world can be very costly.  This document will help you to benefit from our mistakes and experiences.

 There is no holy grail to trading so stop looking for it.  Even a system that is only successful 50% of the time can make a trader a lot of money providing they remain disciplined.

 Traders must fully understand the system they intend to trade.  If there are any questions regarding implementing any aspect of it, they must be asked, researched and in some way answered before placing any live trade.  All situations that may be encountered should be factored into the trader’s trading plan; it should therefore contain the answers to any questions that may arise.  With a well written trading plan, a trader should rarely need to ask themselves “now what should I do here?”  New traders in particular should find this greatly increases their confidence, while also removing a great deal of stress caused by indecision.

 To summarise: Successful traders must implement strict management rules and follow their system mechanically.  They must get in the habit of trading what they see and not what they think; eg, don’t think, just respond.  Traders must be disciplined, stay in control and not let either fear or greed rule them.  They must cut losses short, maximise gains and most importantly of all; protect their capital.

 

 


 

 

to tie together everything (macros): newsflow today has been fast and furious, which is why markets and forex has been chaotic: guys in forex will know what i mean. the pairs have been hilariously confused, since EVERYTHING is weak, and it's a guess of what is weaker.  

Lehman has filed for Chapter 11 (bankruptcy protection). ML--intelligent move--is selling itself to BoA for 29 per share. AIG is going to raise 50bil. Oil meanwhile, has quietly snuck below 100 per barrel.

Remember what i had said earlier: Fed intervention, they need to drop oil below 95 per barrel to flush out the longs the hedge funds had on commods.

Expect europe to open with bloodshed, thereby dragging STI down further.

May be endgame soon.  

Oh and one more thing being whispered about in the inner trading circles: Sept 16 Fed meeting. Rate cut.

cheers!

 

 

Hi elfinchilde,

I am a new comer to stock market and may I know what is DCA?

Thanks.

 

news update as per pasted below. always keep an eye on the news, because traders react to it. so foreknowledge is forearmed.

and haha. livermore/stupidfool, i'd appreciate it if you both could just state your point and leave it as that. arguing til the cows come home on whether paper loss or riding it out is better, isn't going to change the facts of the game, ya know. Besides, you guys are talking on generalities. A key missing point in the equation is stock selection.

There are some stocks you can do DCA on, there are some stocks you can have a paper loss in. BUT, there are also some stocks that are immediate trading cuts, and which longterm loss is not acceptable. (eg, it is why i put the stop on yl and had emphasised on it.)

In this kind of market, really, you'd be hardpressed to find a trader or investor who's not sitting on loss. real or paper.

So the question then for you two: arguing simply for sake of ego, or genuine learning? If it's the latter, good. If it's the former, cease and desist.

For the record though, may i say this (strictly my own opinion): paper loss is real loss. It is only a question then: where can the stock go? Your timeframe comes into play. And between a DCA and an early stop loss, a stop loss is always better.

Peace, peeps. Raised tempers and egos don't help trading or investing.

Cheers!

-----------

American International Group will announce an asset sale or capital injection as soon as tonight, or sometime tomorrow, CNBC has learned.
The insurance giant, which declined comment, is pursuing a three-part plan to raise $50 billion in liquidity. It is trying to raise billions from private equity firms, and is also in talks with Warren Buffett, CNBC has learned.

Sept. 14 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, is in merger talks with Bank of America Corp., people with knowledge of the negotiations said.

Wall Street seemed to be preparing for a bankruptcy filing by Lehman Brothers Sunday as a special trading session for credit default swaps was called.

 

Many traders are unhappy ppl too.

Many traders have been cutting loses and some traders have been holding on to their losses too.

 

danielb      ( Date: 14-Sep-2008 22:16) Posted: Livermore - I fully agree with you about the delusional concept of paper loss. Paper loss is real loss since you would not have incured that loss if you did not buy that piece of paper in the first place. If you have bought Creative at $45 or Chartered Semicon at $15++ can you realistically call your $40 and $15 respective losses as paper losses only. As though if you hold it long enough - the paper losses will disappear and you will get back your your full $45 and $15. Well whatever that makes one happy .... to each his own. If clinging on to the concept of paper loss makes them happy. Livermore      ( Date: 14-Sep-2008 21:30) Posted: Hi SF,     Yes, it is good to discuss though it may seem like we are arguingJ. I wrote a reply earlier and all lost. *Sigh*. Let me try to remember what I wrote. As Elf mentioned some are good traders and some are not. Ultimately it still goes back to money management.     One year ago, I knew one of my colleague was trading heavily. He was into penny counters like Baker Tech (forgot the spelling). I told him to be careful. From my experience, sometimes when you trade too much  without proper money management or risk profile, your losses increase very fast. My colleague was trading like 100 lots of these penny counters. In the end, he lost about $50k after so much trading. Thus to a certain extent, you are right about too much trading of too many stocks without proper money management can lead to quick losses. But some other people can trade a few counters and still do very well.     SF, some of the high beta stocks have reported good results last year and this year, and better than your traditional blue chips like SIA. But what has happened? They still got “whacked down”.   What is the point of getting dividend if you have a huge paper loss? Do you want to get a $500 dividend and incur a $5k paper loss?     Elf, your point about “consistent application of the chosen strategy”   . If you try a strategy and it is a wrong one, one needs to analyse what went wrong and change accordingly. Consistent application of a wrong strategy will lead to consistent losses.     If you watch Money Mind, you would remember that a few months back, fund managers were giving advise to pick up counters for long term. Sometimes you pick up but if it is a wrong decision, it might be a better option to cut loss and protect your capital. This point can be highly debatable among many. But a few months ago until now, some stocks have fallen a lot.     Paper loss is a loss. It is as black and white. But some may not see it that way. It is a dangerous mindset. Things get ugly when the paper losses grow bigger and bigger.         All the best!