Dear Investors,
Hi. I would really appreciate it if those of you who are reading this message could spend just 10 minutes of
your time TICKING a few boxes to answer a few short questions posted in the Word document attached below.
More details:
The document is actually a short questionnaire that focuses on a largely neglected and under-researched investor
group, that of small retail shareholders/investors. It aims to enhance our understanding of what individual investors
actually do and also the thinking behind their actions over the investment cycle. So far, there has been much
speculation and assumptions made with regards to these issues but little concrete evidence. In order to get the complete
picture of the situation, it is important that we get your opinions on this topic. Your opinions would be extremely useful
as these could potentially lead to new ways of helping investors to make better investment decisions in the future; to
inform policy on how to better protect the interests of these investors and also to improve areas that the investors
themselves see to be important.
Please save all completed Word documents and send them to any one of the following email addresses: kyid@hotmail.com
or ken.yeoh@unn.ac.uk. Your answers/responses will be kept completely confidential.
Thank you very much for your time. Happy investing!
http://bl133w.blu133.mail.live.com/mail/ScanAttachment.aspx?messageid=0e4732f8-0be1-4486-8525-9f327e751de9&bissafe=True&attindex=0&cp=20127&attdepth=0
Showing posts with label Mentality. Show all posts
Showing posts with label Mentality. Show all posts
Friday, May 16, 2008
Wednesday, April 16, 2008
What is KLCI?
Hello,
When we talk about the market, generally, we refer to the KLCI... however, do we really know what is KLCI, how is it calculated, what determine its movements and how the movements affect other counters? well, this may be very basic to most people, but i do think it is important to know the basics first so that we can understand the complicated.... :)
1) KLCI is calculated with this formula:
Current aggregate Market Capitalisation x 100 base
_____________________________________
Aggregate Market Capitalisation
2) wat are the counters tat is used to calculate? the answer is in http://%20www.bursamalaysia.co%20m/website/bm/%20market_information/%20index_components.htm%20l
so, this also means tat, the KLCI does not represent the whole market, because not all counters are used to calculate it... some would prefer to use market breath... but then again, for TA readers, so far, i have not seen a chart tat uses market breadth.... wat to say use the beloved indicators on it? hehe.... tat is why, the closest you can get might still be the CI when you want to use TA... hehe... :P
and the CI is determined by the price and not the other way around... (questionable) that statement is theorically correct, but practical wise, it depends... i will explain more on this in the next article.... or else this one will be very long... hehe... :P
Regards
Monday, May 14, 2007
Most Traders Loose Money?
There is a believe that 80% of investors earn money but 80% of traders loose money… How true is this? Hmm… Logically, I think this is sad but may be quite true. Why do I say that? Well, I believe the answer lies in the time frame…
I think one of the major differences between investing and trading is the time frame. After all, sooner or later even investors need to sell their shares for the profit. The difference is the holding time. The shorter the time frame, the more accuracy is needed in the entry and exit. This is why, investors who are supposed to hold their stocks for a long time, can use time to dilute their accuracy of entry. This probably explains why the chances for investors to make money is so much higher.
As for traders, the time of holding is a lot more shorter. So, accuracy is far more important. However, lets not forget that trading also has different time frames, from intraday to trend following. So the accuracy needed will also differ. So, it is the accuracy of entry and exit that will determine the success rate of trading. Since we mentioned that the success rate of traders is so low, that means the accuracy of most traders are extremely low… Hmm… Why is it so?
For traders to time their entry and exit, a method called Technical Analysis (TA) is used. However, this method is not as easy as we would hope it to be. Not only that there is no single method that can be used to time the entry and exit perfectly for every counter, this is complicated more when the market changes. This makes it crucial for traders who use TA to keep on learning and adjust to the market. Which is why, I believe it is always important not only to know how to use the indicators, but it is even more important to understand how the indicators were made. Only by knowing how it is made, we are able to adjust them to fit the market. The market is a highly fluid condition, so if we are not able to adjust, our so called super accurately winning strategy of indicators may turn you into the biggest loser that walk the earth… Hehe… Just trying to make my point more dramatic… But seriously, never ever stop learning and adjusting. In market, the concept of “Survival Of The Fittest” is very real.
So, if you want to make it into the winning 20%, make sure your accuracy is high enough by remembering to learn and adjust… Happy learning…
I think one of the major differences between investing and trading is the time frame. After all, sooner or later even investors need to sell their shares for the profit. The difference is the holding time. The shorter the time frame, the more accuracy is needed in the entry and exit. This is why, investors who are supposed to hold their stocks for a long time, can use time to dilute their accuracy of entry. This probably explains why the chances for investors to make money is so much higher.As for traders, the time of holding is a lot more shorter. So, accuracy is far more important. However, lets not forget that trading also has different time frames, from intraday to trend following. So the accuracy needed will also differ. So, it is the accuracy of entry and exit that will determine the success rate of trading. Since we mentioned that the success rate of traders is so low, that means the accuracy of most traders are extremely low… Hmm… Why is it so?
For traders to time their entry and exit, a method called Technical Analysis (TA) is used. However, this method is not as easy as we would hope it to be. Not only that there is no single method that can be used to time the entry and exit perfectly for every counter, this is complicated more when the market changes. This makes it crucial for traders who use TA to keep on learning and adjust to the market. Which is why, I believe it is always important not only to know how to use the indicators, but it is even more important to understand how the indicators were made. Only by knowing how it is made, we are able to adjust them to fit the market. The market is a highly fluid condition, so if we are not able to adjust, our so called super accurately winning strategy of indicators may turn you into the biggest loser that walk the earth… Hehe… Just trying to make my point more dramatic… But seriously, never ever stop learning and adjusting. In market, the concept of “Survival Of The Fittest” is very real.
So, if you want to make it into the winning 20%, make sure your accuracy is high enough by remembering to learn and adjust… Happy learning…
Sunday, April 22, 2007
Investor & Trader Similarity (Stock picking)
Ever since these two terms come into existence, there are arguments of which is the better among the two. Not only that, the list of differences among the two goes on and on. From time frame to stock picks to method of play, differences after differences were listed out. Pros and cons of the two schools of thought were being raised. But for now, let us put all the differences aside and let us look into the basis and find the similarities, shall we?
I’m sure some of you will be thinking,” Wow…. Wait a minute…. Investors and traders… Similarities?” Actually there are a few, not to mention that both are to make money through stocks… Agreed? Haha… This is one similarity already… How about that for a good start?
Ok… Now we move on to some more serious ones…. Let us look at stock pick.Basically we say that investors and traders choose their stocks using different methods right? We say investors use Fundamental Analysis (FA) but traders uses Technical Analysis (TA), right? I’m sure you will agree if I say TA is made up of methods and tools to assess the interest or demand of the crowd towards a particular stock, by using MACD, EMA, RSI, etc. There is no doubt about that. This is what people call as the “Trader’s Style”, to buy a stock that is in demand. Now, investors actually also do the same thing, only the method they use is different. They use FA instead of TA. Why do I say that? Let us look into the basis of FA. FA is composed of areas like earnings, P/E ratio, ROE, NTA, etc. Actually, what are these methods measuring? It is to assess if the company is fundamentally strong. Correct? Now, why do investors choose fundamentally strong company? Have you ever wondered what are the real reasons behind that? Well, some say that they want to make sure the company is strong and is earning money. Well, that may be the reason, but actually investors uses FA to value a company’s performance in order that they will be able to select a company which will have price appreciation in the future because the demand for their stocks will increase. They believe that a fundamentally strong company will continue to become stronger and as time goes, the demand will always be on the hike. So, the price will go up together with the demand in the long run. Which means FA is the same as TA, they are used to decide if the stock will be in demand. And both investors and traders choose stocks that will be in demand... The only difference is the time frame… FA looks a lot further into the future.
So actually, there is a similarity when it comes to stock picking among investors and traders, both pick a company with the believe that the price of the counter will go up after their entry due to the increase in demand. There are a few other similarities that will be posted in the future… In the mean time, let us embrace both our investing and trading brothers and sisters in understanding and peace... hehe...
Tuesday, April 17, 2007
Testing… Testing..
I picked this interesting test done by Dr. Shapiro in the book “Trading For A Living”written by Dr. Alexander Elder. Do try this out for it is very important concept to grasp in stocks, so please be honest. First, try not to think too much and use your instinct or feeling to answer, then try again after thinking properly and carefully… See if your answers are the same before proceeding to the explanations, hehe… this can be quite fun:
Part 1:
If I give you two choices: 1) A 75% chance to win RM1000 with a 25% chance of getting nothing. Or 2) A 100% chance to get RM700. Which would you go for?
Part 2:
If you are given two choices: 1) A sure 100% loss of RM700 Or 2) 75% chance of losing RM1000 but a 25% chance of loosing nothing and keep all your RM1000?
Explanations:
For part 1, four out of five subjects will take the second choice. The majority makes the emotional decision and settles for a smaller gain.
For part 2, three out of four will take the second choice, condemning themselves to lose more in their effort to avoid risk, they actually maximize their losses…
Emotional traders want certain gains and turn down profitable risks that involve uncertainty. However, they will go into risky gambles to avoid taking certain losses. It is our human nature to take profits quickly and postpone taking losses. Irrational behavior increases when people feel under pressure.
If you were to look into your account, you will realize that the major burns that you have is a few large losses that was there because of your inability to cut loss. Or it might be the continuous small loss made because you were under pressure to cover back the loss you made. All these only proves once again how important money management and cutting loss is in trading…
Part 1:
If I give you two choices: 1) A 75% chance to win RM1000 with a 25% chance of getting nothing. Or 2) A 100% chance to get RM700. Which would you go for?
Part 2:
If you are given two choices: 1) A sure 100% loss of RM700 Or 2) 75% chance of losing RM1000 but a 25% chance of loosing nothing and keep all your RM1000?
Explanations:
For part 1, four out of five subjects will take the second choice. The majority makes the emotional decision and settles for a smaller gain.
For part 2, three out of four will take the second choice, condemning themselves to lose more in their effort to avoid risk, they actually maximize their losses…
Emotional traders want certain gains and turn down profitable risks that involve uncertainty. However, they will go into risky gambles to avoid taking certain losses. It is our human nature to take profits quickly and postpone taking losses. Irrational behavior increases when people feel under pressure.
If you were to look into your account, you will realize that the major burns that you have is a few large losses that was there because of your inability to cut loss. Or it might be the continuous small loss made because you were under pressure to cover back the loss you made. All these only proves once again how important money management and cutting loss is in trading…
Sunday, April 15, 2007
Cut Loss & Affordability (Mentality)
Before you proceed to study Technical Analysis and become a trader, please be reminded to get your mentalities right. To me, the first thing that you need do before you even think of becoming a trader is to calculate how much money you can afford to loose. Pathetic don’t you think? People go into stocks to earn money, but this stupid guy tells me to think about how much I can loose first?
Wait… Let me explain…. First of all, technical analysis (TA) is not a miracle method that can give you 100% accuracy. No matter how much you have read, how many charts you have studied, how great indicators are, technical analysis is just not correct all the time…. Especially when you are just starting to try this technique. You may hear your friends or some super guru on TA tell you about this miracle setting or indicator that will help you pick out winners… But once you try things out… You may find that it is just not that simple… So many things can go wrong… Misinterpretations, misleading and contradicting indicators, unexpected change in crowd behaviour… etc… So, how can you make sure that you are correct 100%? Whether you like it or not, TA is actually using the chart to predict the behavior of the crowd based on history… But whipsaws do happen… a simple bad news may cause mass panic which leads to panic selling…
The key to be a successful trader is to survive all this mistakes long enough in order to find the correct way to get it right… Which is why the rule of thumb for trading is to “keep loss small and let profit run”.
But how small is small? When to cut loss? This will be discussed further in future postings… But to make it simple, when you enter a trade, there has to be a buy signal that you use. It doesn’t matter if it is trend, MACD, Moving average, breakout… etc. But you must know why you entered in the first place… So, you must be prepared to cut loss once you find that the reason is no longer there… For example, if you entered because of uptrend, you must be prepared to cut loss once you realized you made a mistake when the price violates the trend.
However, another important point to remember about cutting loss is affordability. As we know, the financial status of everyone is different and this can affect the cut loss level to a certain extent. Some people like to say that your cut loss level should not be more than 2% of your capital. I would like to say that your cut loss level should be kept to the amount that you can afford if you were to make 5 consecutive losses, or 2 % of your capital, whichever lower.
With this affordability in mind, you will use them when choosing counters. I think we should not enter a trade when the cut loss level is above your affordability. It is safer to pass those trades. So, please remember this two points, Cut Loss & Affordability when you choose to trade.
Happy trading…
Wait… Let me explain…. First of all, technical analysis (TA) is not a miracle method that can give you 100% accuracy. No matter how much you have read, how many charts you have studied, how great indicators are, technical analysis is just not correct all the time…. Especially when you are just starting to try this technique. You may hear your friends or some super guru on TA tell you about this miracle setting or indicator that will help you pick out winners… But once you try things out… You may find that it is just not that simple… So many things can go wrong… Misinterpretations, misleading and contradicting indicators, unexpected change in crowd behaviour… etc… So, how can you make sure that you are correct 100%? Whether you like it or not, TA is actually using the chart to predict the behavior of the crowd based on history… But whipsaws do happen… a simple bad news may cause mass panic which leads to panic selling…
The key to be a successful trader is to survive all this mistakes long enough in order to find the correct way to get it right… Which is why the rule of thumb for trading is to “keep loss small and let profit run”.
But how small is small? When to cut loss? This will be discussed further in future postings… But to make it simple, when you enter a trade, there has to be a buy signal that you use. It doesn’t matter if it is trend, MACD, Moving average, breakout… etc. But you must know why you entered in the first place… So, you must be prepared to cut loss once you find that the reason is no longer there… For example, if you entered because of uptrend, you must be prepared to cut loss once you realized you made a mistake when the price violates the trend.
However, another important point to remember about cutting loss is affordability. As we know, the financial status of everyone is different and this can affect the cut loss level to a certain extent. Some people like to say that your cut loss level should not be more than 2% of your capital. I would like to say that your cut loss level should be kept to the amount that you can afford if you were to make 5 consecutive losses, or 2 % of your capital, whichever lower.
With this affordability in mind, you will use them when choosing counters. I think we should not enter a trade when the cut loss level is above your affordability. It is safer to pass those trades. So, please remember this two points, Cut Loss & Affordability when you choose to trade.
Happy trading…
Monday, April 9, 2007
Be independent, but do not go against the crowd
How do you make decisions regarding your trade? According to Dr. Alexander Elder in his book “Trading for a living”, a successful trader must think independently. He needs to be strong enough to analyze the market alone and carry out his trading decisions. Sounds simple huh… Maybe not for everyone. Most people are sucked into the crowd and start to behave alike. The crowd behaves in a predictable manner because their actions at many times are repetitive and primitive. So, if you are able to think independently and make wise decisions, you will be able to take money away from crowd members.
However, there is one very important and crucial point to remember. Although I said that we should be independent in our decision making and we should not go against the crowd. As I have mentioned in my previous posts, the price of stocks are determined by their supply and demand. These two factors are directly determined by the crowd. If the crowd suddenly increases their demand for a particular stock, the supply will be short and the price will rise. The demand may be unjustified or may seem ridiculous to you, but you should not be going against it. The crowd may be stupid, but they are the most powerful force that will determine your gain or loss. They are the one that will determine the trend, so you can either tag along, or you stand aside.. Do not attempt to go against it. For example, you do not buy on a downtrend and you try not to sell in the middle of an uptrend. The more you are able to manipulate the behaviour of the crowd, the more successful you will be in the stock market.
So be independent without going against the crowd.
However, there is one very important and crucial point to remember. Although I said that we should be independent in our decision making and we should not go against the crowd. As I have mentioned in my previous posts, the price of stocks are determined by their supply and demand. These two factors are directly determined by the crowd. If the crowd suddenly increases their demand for a particular stock, the supply will be short and the price will rise. The demand may be unjustified or may seem ridiculous to you, but you should not be going against it. The crowd may be stupid, but they are the most powerful force that will determine your gain or loss. They are the one that will determine the trend, so you can either tag along, or you stand aside.. Do not attempt to go against it. For example, you do not buy on a downtrend and you try not to sell in the middle of an uptrend. The more you are able to manipulate the behaviour of the crowd, the more successful you will be in the stock market.
So be independent without going against the crowd.
Sunday, March 25, 2007
Winner Vs Loser
How do you differentiate a winner from a loser? You can tell from the mentality that they have....
One very significant and common mentality in a loser is DENIAL.... There are a few things that they deny about... The 3Ds.... And many times, they occur in a sequence.... I think it is important for you to identitify it and learn to overcome it one by one... It is a three step process to have a winner mentality ready....
1) Denial of failure
2) Denial of responsibility
3) Denial of no control
When someone loses money in stocks... They would try their best to hide it... Do you remember asking someone or being asked, "How are your stocks doing?".... Hehe... sound familiar? What answers do you get? Hehe... Typical one would be..."Ok la...", "Break even la...." or " Got loose a bit la....". Let me translate for you what they means... They all basically means almost the same thing... "I AM LOSING MONEY LAH! DUH!"..... They will not admit that they failed... Little did they know that to admit failure is just the first step of upgrading themselves into winners....
Lets say they managed to overcome their first obstacle and they are now willing to admit they they failed... Then, they will start to deny that they are responsible to the loss... They will blame everything that they can think of on earth, in hell or heaven... They blame their remisser, luck, wrong information, set up, and even bad karma.... The only one who did not and never made any mistake is themselves.... How can they ever improve themselves if they have such mentality? We should be responsible to our own actions and decisions... If we make money, it should be out of OUR good judgement, if we loose money, it is due to OUR poor judgement... It is always a good idea to keep a diary or a record of all transactions, and you MUST include the reasons why you buy and sell a particular stock, the gains or loss and what went right or wrong... Study the history... Don't make the same mistake twice...
If the person manages to go through the second test, now they shall have to test the "denial of no control". What does this mean? Denial of no control means the person denies that he is unable to control his greed and desire to gamble.... Someone who is in control will make his trade when he thinks it is the right company and the right time based on solid and sound reasons.... When they know it is not the right time, they will stay and wait for the time to be right... Someone who is not in control however, will put their bet no matter what... They takes unnecessary risks and takes risks with things that they cannot afford to loose (MONEY), for many reasons... Be it greed or excitement.... This is the thoughest test of all because most people will not be willing to admit that they are not in control of themselves... It is like crazy people never admits that they are crazy... But the problem is, they must accept that in order for them to get well...
So, are you able to withstand the test of these 3Ds? It is ok to have them now... Once you identitify them, pull them out from your mind with their roots... Set your mentality right... Then you have the chance to do well in stocks or in life and be the ultimate winner..... "Malaysia Boleh"..... Hehe....
One very significant and common mentality in a loser is DENIAL.... There are a few things that they deny about... The 3Ds.... And many times, they occur in a sequence.... I think it is important for you to identitify it and learn to overcome it one by one... It is a three step process to have a winner mentality ready....
1) Denial of failure
2) Denial of responsibility
3) Denial of no control
When someone loses money in stocks... They would try their best to hide it... Do you remember asking someone or being asked, "How are your stocks doing?".... Hehe... sound familiar? What answers do you get? Hehe... Typical one would be..."Ok la...", "Break even la...." or " Got loose a bit la....". Let me translate for you what they means... They all basically means almost the same thing... "I AM LOSING MONEY LAH! DUH!"..... They will not admit that they failed... Little did they know that to admit failure is just the first step of upgrading themselves into winners....
Lets say they managed to overcome their first obstacle and they are now willing to admit they they failed... Then, they will start to deny that they are responsible to the loss... They will blame everything that they can think of on earth, in hell or heaven... They blame their remisser, luck, wrong information, set up, and even bad karma.... The only one who did not and never made any mistake is themselves.... How can they ever improve themselves if they have such mentality? We should be responsible to our own actions and decisions... If we make money, it should be out of OUR good judgement, if we loose money, it is due to OUR poor judgement... It is always a good idea to keep a diary or a record of all transactions, and you MUST include the reasons why you buy and sell a particular stock, the gains or loss and what went right or wrong... Study the history... Don't make the same mistake twice...
If the person manages to go through the second test, now they shall have to test the "denial of no control". What does this mean? Denial of no control means the person denies that he is unable to control his greed and desire to gamble.... Someone who is in control will make his trade when he thinks it is the right company and the right time based on solid and sound reasons.... When they know it is not the right time, they will stay and wait for the time to be right... Someone who is not in control however, will put their bet no matter what... They takes unnecessary risks and takes risks with things that they cannot afford to loose (MONEY), for many reasons... Be it greed or excitement.... This is the thoughest test of all because most people will not be willing to admit that they are not in control of themselves... It is like crazy people never admits that they are crazy... But the problem is, they must accept that in order for them to get well...
So, are you able to withstand the test of these 3Ds? It is ok to have them now... Once you identitify them, pull them out from your mind with their roots... Set your mentality right... Then you have the chance to do well in stocks or in life and be the ultimate winner..... "Malaysia Boleh"..... Hehe....
Thursday, March 22, 2007
Investor Vs Trader, Which one are you?
A lot of people including me, did not know what is the difference between an investor and a trader. I did not even know the existance of these two terms.. Until.......
My first email to Ben from http://bliswise.blogspot.com/ . And that was the first time I heard of these two terms...
So, what is an investor and what is a trader? An investor is someone who looks for fundamentally strong companies to invest in... But a trader, invest when the graphs and technical analysis tells them that the price of the particular stock will be going up... In other words, fundamental analysis looks into the intrinsic value of the company or how much the company is worth to invest in, hence - Investor. A trader however, looks at the company like a 'product'. Whether they can buy the stocks now and sell it with a higher price later... Which is like measuring the demand for the stock. Confusing? It's ok, there will be some postings in the future that will discuss more on fundamental and technical analysis.
Why is it important to know which one are you? Why is it so important to set the mentality right? It's because both have a very different game plan. How is it different? That will also be posted on future blogs... Hehe... Like that then can keep people coming ma... Hehe.... Anyway, this is just an introduction to the concept of investor vs trader. Something like a point to ponder and look into... Hehe....
My first email to Ben from http://bliswise.blogspot.com/ . And that was the first time I heard of these two terms...
So, what is an investor and what is a trader? An investor is someone who looks for fundamentally strong companies to invest in... But a trader, invest when the graphs and technical analysis tells them that the price of the particular stock will be going up... In other words, fundamental analysis looks into the intrinsic value of the company or how much the company is worth to invest in, hence - Investor. A trader however, looks at the company like a 'product'. Whether they can buy the stocks now and sell it with a higher price later... Which is like measuring the demand for the stock. Confusing? It's ok, there will be some postings in the future that will discuss more on fundamental and technical analysis.
Why is it important to know which one are you? Why is it so important to set the mentality right? It's because both have a very different game plan. How is it different? That will also be posted on future blogs... Hehe... Like that then can keep people coming ma... Hehe.... Anyway, this is just an introduction to the concept of investor vs trader. Something like a point to ponder and look into... Hehe....
Modify your dreams or magnify our skills
Haha... I copied my comments that I had posted in Ben's blog http://bliswise.blogspot.com/2007/03/modify-your-dreams-or-magnify-skill.html ..
Hi Ben, that is a very nice one...I remembered my school teachers and a lot of motivational books would always say aim high... If you aim for the sky, if you don't reach it, you will probably fall to the roof only... But in stock market and many other investment and business out there, if you aim for the sky when you obviously cannot reach, you may end up in the drain instead of the roof... I always believe when you aim, you should be realistic... as you stated, too much failure due to unrealistic aims and goals lead to demoralization... So it is always better to set goals that is achievable... When you reach it, set another higher one... Continuous achievements, though small, can be very good positive reinforcemets... I am still in the search for the right method and and techniques in the stock market.. Although i am facing a lot of failures and set backs... They will not stop me.. For i am gaining experience with each fall... I believe i will be able to use all these experience to enhance my skills... Especially now that i have found very good and experienced leaders here that are willing to guide me.. Thanks guys and gals...
Hi Ben, that is a very nice one...I remembered my school teachers and a lot of motivational books would always say aim high... If you aim for the sky, if you don't reach it, you will probably fall to the roof only... But in stock market and many other investment and business out there, if you aim for the sky when you obviously cannot reach, you may end up in the drain instead of the roof... I always believe when you aim, you should be realistic... as you stated, too much failure due to unrealistic aims and goals lead to demoralization... So it is always better to set goals that is achievable... When you reach it, set another higher one... Continuous achievements, though small, can be very good positive reinforcemets... I am still in the search for the right method and and techniques in the stock market.. Although i am facing a lot of failures and set backs... They will not stop me.. For i am gaining experience with each fall... I believe i will be able to use all these experience to enhance my skills... Especially now that i have found very good and experienced leaders here that are willing to guide me.. Thanks guys and gals...
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