Wednesday, July 14, 2010

What's Your Market Sentiment

some time ago. a friend and I had a conversation about market price movement... in his wisdom, i was reminded that fundamentally price movements are caused by none other than the first principal of economics, demand and supply... this is not an unfamiliar concept to many of us here...although we often forget ...

"market sentiments" as a concept is intimately tied to "demand and supply" principal.

often, we hear people asking : "how is it that just last week, when the world thought the european nations are collapsing under its debts, that this week, the euro currency is soaring? is the problem over? is it true that the issues are all resolved?"

i think, in this case above, euros soared, bcos the buying pressure exceeded the selling pressure; 1st principal of demand and supply, which my friend talked about...

that puzzles us as to why the demand is now stronger than a week ago, when obviously the financial crisis cannot have mutated for the better in over a few days....

imo, the problem by itself, is not the main reason for the price gyration... it is the collective reaction to the problem, the consolidated opinion of the market players, that sway the price one way or the other....

market players can and are often wrong about any given situation...Lehman, Bear Sterns, Dot gone, length of recession, etc... this could be due to the lack of info, misinformation or simply a wrong assessment.... and as information streams in, market opinion will eventually more accurately align itself with the reality of that problem... this is what "market sentiments" is all about...it is no more than an aggregated opinion on a situation.

market sentiments on a situation, create the demand or supply for that relevant traded instrument; such as eur/usd was actively traded when Greece threatened to go bankrupt ...
the financial crisis over at Greece probably hasn't changed much in the last 2 months; very likely, they are still in huge debt and have very little ability to pay for their loan obligations by themselves... yet, the Euros have stopped losing value since it hit a low of 1.18..today, it is about 1.27 against the greenback.
so, if Greece's problems are still around, then what has changed?

i say to you, it is the Market's opinion that have changed. it perceives that Greece is no longer an imminent threat to the global financial system, now that those rescue packages from IMF and ECB have flowed into Greece.

with this change in Market Sentiment, the demand and supply equation is now re-written....

in summary, problems do not get solved in a short timeframe and it almost always stays problematic over a short timeframe...what has changed is the market players' opinion, collectively known as Market Sentiments... and that causes the relevant instruments to change in value...

Sunday, May 23, 2010

Piercing Candle - A Reversal ?


Piercing Candle - kennynah May 2010

you will see such a piercing candle formed last Fri, 21May2010, on SPX daily chart...

it is important to understand that not all candles formations will pan out exactly the way textbooks state them... just like any other technical indicators, some formations will fail at times ... nothing is guaranteed... but they serve as a guide to be complimented along with other TA indicators for better decision making...

particularly, even if this piercing candle reverses prices, we must still consider the macro picture...we should not read candles in isolation without putting that in context to the overall daily/weekly and monthly price actions.. that said, it means, that price could reverse, but for how far up is not addressed by candle studies... so, it could go up and shortly afterwards, revert back down again...yet, that reversal did take place and will be applauded by candle technicians that it has done its job..

but for the candle rookie reader, he might not take profits as the candle hit higher and see it turn back down later.. and then say candles didn't work for him...

so, in other words, once the candle signal gets into play, keep that earlier signal in mind, dont get all too hung up on it because you want to start looking for the next candle signal/formation, that either augment or negate the earlier candle signal...

in this sense, candle reading is a post mortem technical study..

your thoughts? thanks.

Sunday, May 16, 2010

Trading/Investment Review

Trading/Investment Review - kennynah May2010

The way to improve, is to get better at what you do. Doesn't that sound just rhetorical?

Employees receive periodic job performance reviews by peers and/or their supervisors. Behavioural science professors from ivy league schools write thesis about this subject. MNC HR departments implement such reviews. Employers spend resources and must be getting some real benefits out of such performance reviews.

So many people can't be so wrong about the need to review work performance.

For those who trade, especially professionally, there's no such formal review system. We are on our own. We have no work peers nor supervisors. There isn't such quarterly or yearly performance reviews.

So, how do we know if we are trading optimally? How will we know if we could have traded better or avoided those mistakes? We won't, until we actually review our trades.

The only way to fully understand our trading performance is for us to review our past trades. But unlike corporate reviews, done quarterly or yearly, we must do this more frequently. It is individual preference as to how frequent this happens. The objective is to stamp out any bad trading habits, acquire good ones and improve as fast as I can. It's my money on the line, not some shareholders' money.

It is said that we make better traders, when we spend more time thinking than actually trading. I think, there's some truth to this. Afterall, repeating bad habits frequently, wont make trading badly more profitable.

How should we go about this reviewing process?


Personally, I like doing this every week, usually over the weekend. I go through my trading log, capturing entries and exits, profits and losses for each individual trade.

I reflect on each of them, recalling the reasons and the accompanying emotions that motivated me to open and close off those positions.

I not only focus on what went wrong but also what went superbly well.

Sometimes, when I screw up big time along the week, I stop trading momentarily. I find a quiet spot and immediately reflect the entire episode. After Action Review is best served when the memory and emotions are still lingering. I pen them down. It could be "lacked discipline" or "snatched price" or "impatience" or "there was no signal to initiate", etc... I remind myself not to repeat those mistakes.

When I pen these trades, I also relook at earlier weeks' entries. The purpose is to check if I have recommitted earlier spotted errors. I am aware of my personality to know that I repeat errors. So, I have to make every conscious effort to eradicate them.

By reviewing past records, I get to reinforce my correct trading habits too. I get more motivated to seize those successful trade setups.


Summing It All Up
In a gist, we must review our previous trades periodically, so that we can improve on what works, remove bad trading habits and hone our overall trading skills. No one will sit us down to check whether we achieved our KPIs. We are our boss..we check up on us, ourselves.

There's an adage "It takes 3 days to learn to be bad, it takes 3 years to acquire good traits". It has to be a continuous review effort, if we hope to benefit from this exercise.


Happy trading :!: 8-)

Saturday, May 15, 2010

14May2010 - PreWeek SPX Review

15 May 2010 - Weekend SPX Review

The anecdotes within the Charts explain my outlook...but in summary :

a) Daily bias : Bullish to Mildly Bullish - Trading Market; Scalp Sell on high print and buy on dip .. range bound between 1100 - 1185
b) Weekly bias : Mildly Bullish; Swing Long at 1100 region
c) Monthly bias : Neutral; no position for me yet; but a break below 1100 could signal Position Bear

Your thoughts, please... thanks.



Sunday, May 9, 2010

Stop Loss as a Invested Capital Management Tool

Stop Loss as a Invested Capital Management Tool - kennynah May2010

Often we treat stop loss as a form of limiting our losses before those adverse trades kill off the trading account. There can be no further truth to this concept.

Now, an extension of this concept can be applied to money management, to ensure that we keep those trading profits close to our chests.

Let's use numerics to expound this idea.

Starting capital : S$10K
End of week/month/quarter : S$15K
Profits : S$5K

It's now the start of the trading week and you are deciding what stop loss you are willing to accept for each position you initiate. This is definitely the right approach.

However, I suggest that you take into consideration, how much of the profits you are not willing to lose, as a factor as well. Instead of simply having an arbitrary % cut loss.

In this example, let's say, I am willing to lose no more than 20% of the profits accumulated thus far. This means I'm willing to risk 20% x $5K (or $1K) for my new position. I then correlate that $1K to the amount of price adverse movement accordingly and put in my stop loss exit order. In the worst situation, I'll lose $1K and no more.

I would still have $4K of profits remaining and have 4 more attempts in making money from my later trades. This means, I can withstand a total of 5 continuous draw downs of $1K each, without dipping into my original investment capital. In any case, if I had a string of 5 losses, I think it wise to stop trading momentarily and take stock of the negative events.

Now compare this to setting a 10% cut loss of total capital; ie 10% of S$15K (or $1.5K per trade of cut loss). 5 such drawn downs = $7.5K. I would have damaged my original investment capital.

Agree that allowing $1.5K of stop loss will allow for more room for the underlying asset price to gyrate. It is all about understanding your underlying price movement that is key to making the decision on which is a preferred cut loss amount.

Nevertheless, playing to win and preventing giving back profits in anyway possible, is the name of the game. Otherwise, in the long run, you wont be able to accumulate more profits, if you keep chancing your original investment capital amount at risk.

Your thoughts?

Saturday, May 1, 2010

Chart Your Success

looking at this daily chart (eur/usd), i can't help but get reminded of the similarities to Home Builders ETF (XHB) chart...

the similarities are so stark, it makes me sick to my stomach for not having realize them earlier.

you see, Charts do not ever lie.... in fact, they sometimes foretell a situation before the market or news agencies catch wind of it... as in this case with eur/usd and also XHB.

in the case of XHB, the chart exhibited very clear signs of a slumping housing market a good 6-9 months before before anyone heard of subprime mortgage issues...i'm not attaching this chart here bcos if you were serious enough, you need to do fish this out of the pond.

the same phenomenon is seen on this eur/usd chart....




so, if there's a secret to successful investing/trading, it can be found in charts..dont't leave home without them... 8-)

by the time the world is aware of this crisis, eur.usd has slid from 1.52 to 1.32....

even if eur/usd gets to 1.28, there's just bones left....bulk of the shio ba meat gone....aside from this, this trade now becomes a higher risk one...

Sunday, April 11, 2010

A Trading Plan....

my simple idea of a trading plan... - by kennynah

i'll put them down in point form...simple english... no unnecessary pulling of wool over eyes...

a) know what you are trading....know as much as you can lay your hands on....eg. you choose Citibank as a stock you wana buy or sell... know C's business, know how it's making money and how it lost billions recently...know that indian chief...know C's price from the day it started trading...know when C will be announcing dividends....know the historical dividend payouts...know the employee size worldwide...know what are the common products/services C is offering to consumer clientele....better still, know how they syndicate major loans to corporates...know C like you know your girlfriend...you are afterall spending money on this trade...know C as if you wana get into C's pants...
if you trade futures, know the rules of the game...start time, end time, what econ data move the futures, know the daily volumes, know the price volatility, know when it expires, know what happens if you left the position into expiration, etc...
if today, your friend propositions you to invest $10K in his business, i bet you will sit him down for days asking him all sorts of questions about this investment...right down to knowing if his mother is also invested in this venture.. so, why would you do any different when putting down $10K on a trade position?
you want to know everything you can know about your choice of trading vehicle...

b) have an entry and exit plan
....well before you commit a position, NOT after.... by doing so, you would not have to react to news/unexpected events that move prices...

c) know how much you are willing to lose... if you set a predetermined amount of losses you are willing to accept, you will be better prepared to handle such losses when they occur and they will.. this is as assured as death itself...no one ever not loses on some trades...

d) know how much profit you want out of the position.... very often, traders will stare a substantial paper profit deplete as price reverses...stoned cold...and finally cut off at breakeven or even at a loss.... why does this happen? 2 words...planning and greed.... rather, the lack of planning to exit when profit reaches a target....and greediness clouds the mind of the trader thinking that price will shoot for the moon in a day....
let's face it...no one will ever know where prices will go to... maximum profits will be known only in hindsight...
so, it's ok to exit a position when a target profit is reached...even if after that, price continues to choo choo on.... the job and objective is reached...be contented and move on to the next trade...

e) know your trade timeline.... scalp? swing? position? coffin trade? each different approach has its different tactical approaches and considerations...know them all very well....don't make the mistake of using a fork to drink a bowl of soup...

f) 3 strike rules
.... just as in baseball, a batter is allowed only 3 strikes before he gets thrown off the plate... similarly, if you find yourself stuck in a rut and losing streak...step away...dont force the issue... you are not at your best psychologically to make a good next trade....take a break...a day or a few days...go bowling...go watch a movie...take a short trip....read a book....do anything that is not remotely connected to trading...let your brain reboot and your emotions heal....
some people start the day with a preset loss amount...if that happens, all trading stops...some set weekly loss amounts...and if that is reached...next week is a self imposed holiday...
the markets is a almost a 24/7/250 affair....it'll wait for your return....as long as you still have the ballistics to throw at it...

g) keep the objective in mind
... different people trade for various reasons...for most people, the only objective is to make money...and if this is the reason, start the trading day reminding yourself of this ....before you finger trigger happily hit the "order' button... have good reasons to make that trade...use fundamental or technical reasons, it dont matter...but jolly well have good reasons for making that trade...
at the end of the day, be grateful and happy if you make some money.... you've attained your objective....but if you made a loss, was it within the parameters? if so, be grateful, you had been disciplined to fight another fight another day....

h) don't be obtuse..be flexible
... often, we take it personally when market proves our initial trade opinion wrong...we may even feel inadequate if we get a string of losses...we may begin questioning our abilities and skills...while it is good to be mindful we need to improve, it is not necessary to harbour any anguish within ourselves... it is debilitating and self destructive...adds no ounce of good to our endeavour to profit from the market.. we must be mindful of our ego and emotions when trading...leave them aside...we must try to be as emotionless as we possibly can...granted that it's a difficult task... we must train ourselves to see that at times, we are utterly wrong and accept the fact... you are your worst enemy...conquer this and you conquer your worst nemesis in this market...
there's no such thing as paiseh..no face...supposing i said the market will tank..but for the last 3 months, it went rocket up.... i want to face up to the mistaken opinion...and move on... so what if everyone else laughs at me? as long as i bring the bacon home...i've done my job as a trader...


finally, know that this is a business that requires a lot of effort and continuous learning....and to be successful at it eventually, you must have very good reasons to believe this is worth your time, money and perseverance....you must enjoy this process...


HUat HUat everyone :!:

your thoughts? additional comments? i want to learn from you....thanks in advance...