Blue chips? Potato chips? or... ?

Also my article posted in www.talkandshare.com


Erm, this may be a little late cos was a little busy last few days, but still can use this for future reference... :)

Before i proceed, it is better if you have read this posting first...
http://www.talkandshare.com/index.php/ Technical-Analysis/378-Volatility-Vs- Severe-acute-distribution-Crash......- P.html
i think it is important to know wat kind of market movement it was before you proceed further.... Lets say, you have identitified it to be a volatile market... now wat?

Many of you will be asking wat counters should we buy next when the KLCI moves back up... One of the best method would be to use TA... if tat happens to be not at your finger tips yet.... well, you could still buy with the risk reward ratio method.... or also called, calculated risk... hehe....

why i say it is important to identitify the market sentiment first? well, this is so tat you can make sure you have the rewards favouring you... in the posting on volatile market, i mentioned tat the market movement will be down then back up.... so when it makes a dip down, you will expect it to move back up in a volatile market... so, here is the part tat u can use to pick your stocks....
when we say the market dips, we generally means the KLCI dips... a point to take note about the KLCI is tat, it does not represent the whole market, it does not represent every single counter out there... KLCI is calculated ­base­d on some calculations of the index ­link­ed counters.... so, wat is the significant here?

Well, when the KLCI dips, wat we can say is tat it shows most of the index ­link­ed counters would have diped... so, if the KLCI is moving back up or is showing recovery... it also literally means those index counters are also following... and since they have made a dip and is moving back up (correction), you can also say tat they are on a bargain price, so your risk will be reduced and the rewards will be increased... so, this is when the risk reward ratio will be favoring you...

Btw, since a lot of these index ­link­ed counters also happens to be blue chips, tat is why after the market dips in the volatile market, the blue chips will be the ones tat is climbing first... :)
but of course there are other reasons such as FA, investors will also pick them up at bargain prices... :P

So, to use this risk reward ratio properly, you should make sure of a few things:
1) make sure it is a volatile market and NOT a crashing market or recession...
2) the market is moving back up or recovering...
3) try to identitify index ­link­ed counters tat was battered due to the panic selldown and not due to its internal fundamental problems...
4) if money is on your side, you may look into blue chips tat are index ­link­ed and was hit by panic sell.... :)

So, Blue Chips anyone? :)

Regards & good luck!

Volatility Vs Severe acute distribution (Crash)

Haha.... another one of my article previously posted at the site: www.talkandshare.com


Since recently, the US DJI seems to be freaking a lot of people, i would like to take this opportunity to discuss a little bit about this topic...

First of all, whether the US is going into a recession, honestly... i dont know.... is it going to crash? again, i dont know.... so, wat do i know? nothing much... :P hehe.... but if i were to look at DJI charts, i can only say:
1) it is really very technically bound.... so if you want to know the DJI movement, study Technical analysis and apply on the chart....
2) it has not breached the trend at the time being... so if you think it is now a crash, i dont think so... :)

now, back to our topic... why do i put such emphasis on differentiating between volatile market and a crashing market? well, the biggest difference is tat, in a volatile market, you will see big waves of DOWN and UP... but a crashing market, there will be big DOWN and small ups, followed by more DOWNS... by looking at this, we can see a great difference in the method of play isnt it? since in Malaysia, we can only earn when stock price goes up... so, in volatile market, you can get stocks in "bargain" price because it will go back up in the waves...
But, in crashing market, it is a falling knife... so you get hurt when you try to catch it in between... because, price are going down... so the "bargain" today may be "expensive" tommorrow, and the day after next, and the week after next... tat is why the concept of "never try to catch a falling knife" exists....
and tat is why it is important to know wat kind of market it really is... as these two seems quite alike but the outcome (prognosis) is by far different....

So, how bout our KLCI... i believe the sudden drop is due to US... and since US is only volatile and never broke the trend, i would say it would and is moving back up... so our KLCI, with the fear removed, will correct itself back to its prior trend... which is range trading until it finds his new direction.... (for furter explainations on correction, read my post "market correction" in Market talk column)

Hope this helps in your trading plans....


Regards & good luck!

Market Correction?

Posted this article in a great site: www.talkandshare.com
so i decided to paste a copy here as well... :P


Market correction coming? Or it has been here for some time?

But wat is market correction? Does it always have to mean a bull market droping?

how about a bear market moving up?

hmm... to me, market correction means the market moving back to how it should be moving, or a sudden abnormal market movement moving back to the previous trend (correction).

if you look at the KLCI chart, many say tat the movement from 20th august - 28th september is a bull run...

First of all, i'm not saying it is right or wrong, i'm just giving my opinion... to me, it is just a correction rather than a bull run... a correction from the sudden drop 31st July to 16th august back to the trend our CI is supposed to be moving before tat... meaning its intrinsic trend...

But, is correction normal? well, i think everything has its intrinsic value... when things go beyond tat, a healthy correction will bring things back to its intrinsic value... this is supposed to be healthy...

so, wat does this mean? it means tat, my take will be, the market (KLCI) will be moving back to its range trading (correction), and the next movement will determine if the bull or the bear will lead...

Regards & good luck...

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…

The Magic Hand

Recently, this term of “Magic Hands” is heard really often… I wonder why is it so often heard these days? “Magic Hand” or “Operator” has been there since the beginning of stock market and has been continuing since then. So, why now? Is it because it is like some fashion that has been popularized by some model? Hmm…. Maybe, or I guess might be because of a few reasons; 1) Timing 2) Easy to accept.

Timing:
Why do I say it is timing? One, it is believed that the upcoming and ongoing elections have its effect… It is believed that the government is behind and supporting the KLCI.
Two, recent price movements of KLCI. It is believed that the massive price movements recently is due to the supposed to come corrections are supported by the “Magic Hand” or the government. How true is this? I don’t know… But I will give my views later.

Easy to accept:
Why do I say it is easy to accept? It is because we have been in a community where we believe that the stock market is like a gambling place and it is controlled by the “Big Boys”, so small potatoes like most of the people only go to gamble their luck. With this mentality in mind, of course people will subscribe to the believe that the “Magic Hand” controls all the movement of the market.

My views:
Now, I will give you my opinion, but of course just my comment. I’m not saying I am definitely right. But maybe just for reference. As I have said, I fully believe that the so called “Magic Hand” or “Operator’ exists, but they have been here all these while, so there is nothing new about it and we need not get too paranoid with it. Very often these days when the KLCI goes up, we hear people saying the “Magic Hand” is doing its work, the KLCI goes down a bit, we hear people saying “Magic Hand” tired. But I believe the right thing and the right perception should be the same as before, the KLCI is up because buyers are buying and it goes down because the sellers are overwhelming the buyers. Isn't this the correct approach towards the stock market? An even more interesting phenomenon is that whenever the KLCI shoots up at the end of the day’s trading session, people will say it is the work of the “Magic Hand”. Well, maybe it is, but it is also very common for heavy buying at the end of the day. This can be read in “Trading For A living” by Dr. Alexander Elder.

The question now is, why are we so fascinated by this “Magic Hand”? Maybe it is because by believing that the movement of price is all controlled and fully manipulated, we need not learn anymore, because no matter how we learn, the price is beyond our understanding because they are controlled by something else. But HELLO! Since the work of operators are here all these while, and if you really put the effort into learning Technical Analysis (TA) properly, you would understand that the work of these so called “Magic Hand” is all written in the charts as any abnormal price movements will be plotted down as charts. Of course you can argue by saying that they will manipulate the charts to trick those TA believers. This is true, which is why we have a thing called cut loss in TA as a countermeasure.

We need to set our mentalities right to survive in the stock market. One, please wake up! Almost 95% of us are not stock operators and we would not get any information into how they work and how they plan to work. Thus we should not go into speculating. And we need not care about how they manipulate the price. Since we are here to make money, why don’t we concentrate on how to use their activity to make money? In order to do this, there is no such thing as a short cut. You will have to LEARN and READ. As I have mentioned, people take shortcuts by believing in “Magic Hand” because they would like to believe there is nothing they can do to predict their actions. So please, think again. TA may not be able to predict their actions, but they are are most accurate method to track their action that is readily available to the public (Who Are Willing To Learn).

It is always true that government tries their best to prevent their people from being too superstitious and believing only in the supernatural because this will stop the people from exploring into other means like science. Which means the country will not be developing. There is nothing wrong to ponder about their existence, but lets not get too carried away.

I know this piece of posting will offend a lot of people, but please… All I want is to give a wake up call to the readers. And it is to the benefit of the readers, not mine. So please do take some time to ponder over this. We are not operators, and we cannot see things through their perspective. All we can is to try to move along with their actions and effects through a method called Technical Analysis. Please do pick up a good TA book and read it To Understand. Please don’t just read to finish, get into the basis of how the method is derived. Please…. I do not want to see my dear friends to succumb into the mystic world and forget that they are living in a real world of science and art any analysis…

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...

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…