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.

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

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.

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?

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...

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...