Correction Coming??

Hello, I personally think there should be a correction on tuesday.... to understand market correction, good to read this article again before proceeding.... hehe... :P

http://survivingstockmarket.blogspot.com/2007/10/volatility-vs-severe-acute-distribution.html

Now, why do i say there might be a correction? why would i think there will be one in the first place...
well, on Friday, actually on my side, i think our CI is moving on a healthy ­style­... so am really expecting a good day, at least at the early session on Monday.... but.... walau eh... on the friday night itself, the DJI made almost a 400 point drop.... this itself is severe enough to make any healing wound to burst.... so i personally think Monday's drop is not due to our intrinsic factor.... it is more of a intermarket effect... so this made me to believe tat a correction should have happened on tuesday...
unfortunately, the whole regional market decides to bleed some more.... when i look at our intraday CI movement, and compared it with our neighbours, i notice tat we are actually performing quite well. which leads me to believe that recovery is indeed in place, only might be stalled or masked.... so i am actually putting quite high expectations on wednesday... :)
and i do hope tat it will not let me down...

but let me emphasis again, i am not saying that there will be a major change in the trend, when i say recovery, it just means tat there should be an upmove or an up swing.... wether or not it is enough to make a trend change, will still depends....


Regards & Good luck!

Helping out a friend... :)

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!

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How to use Volume

How to use volumes…. This itself is long enough to write a few articles… :P first of all, how to use volumes depends on what method you are adapting to…. to start from basic, volume is formed when transaction is done… every transaction or every volume means an agreement of price between buyers and sellers…. Volume is like and indicator for the sustainability of trend…. To make it simple, it is like fuel for the flame… the flame represents the trend, no matter up or down… so, if you see volume dying down, it shows signs of dying flame too…. and vice versa… simple? :P

Now, homework….
1) Are the statements correct?
a. Low volume equals illiquid.
b. Low volume equals price is about to drop.
2) What is true low volume and what is relative low volume? What is the significance?

Ok, lets go a bit deeper, if we are using trends or phases… how do we incorporate volume into them? Basically, we can generally divide the trend into three types or phases:
3) Uptrend
4) Downtrend / Distribution
5) Range bound

How does volume come in? Well, as stated above, when we see price moving uptrend, a healthy one will be accompanied with increasing volume because this means more people agree and supports the increasing price… so we can say it is sustainable…. and vice versa…

How about range bound? during range bound, volume is also normally in range… why? Because less transactions involved… now, towards the end of range, volume will pick up… because there will be more and more people involved and more transactions are being done… this is called public participation…

Homework:
1) Does public participation or volume picking means that uptrend is next?
2) Revise a bit on supply Vs demand.

Ok, stop here first, leave the deeper stuff for later… :P do post your answers and questions if you don’t understand or require further information…


Regards and happy learning

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

Fundamental Vs Technical

Actually there have been quite a lot of arguements on which is better... but if you ask me, i think both are good methods. it just depends on the user's ­style­ and preference... :)

Anyway, what is the difference between the two? Well, FA looks at balance sheets and annual reports to make their picks. TA looks at the charts to make their picks.

actually, both have some very different perspective on "expensive" and "cheap"... hence time to buy and when not to buy...

if you were to imagine stock is a product, you might be able to understand these methods better. FA uses annual reports to determine the current and future potential of a company and sets a value for it... for example, by using annual reports, FA defines a value or the price the stocks is worth.... either now or in future (investments). so when the current price is higher than wat they value now or the future potential, they consider it as expensive... but if the current price is below their value, they call it cheap or discounted... so it will mean time to buy... that is why you find investors using FA averaging down...
TA on the other hand do not really focus on the price itself or the potential of the company, but rather on the balance between supply and demand. no matter how good or how bad a company is, there will be a time to buy and time to avoid... TA buys when there is demand for the stocks... or when the demand is starting to exceed the supply... which also means tat the price is going up... so, wat is expensive and what is cheap for TA users? hehe...
Basically, expensive is the price when the demand is getting lower, which is when the price will start to drop... and cheap when the demand starts to pick up... so, TA actually averages up and dont average down (normally). because as i said, it is about supply and demand, when price go down, it means the demand is less, so TA will avoid such stocks...

to sum up, FA values a point or a range of a price tat they think the stock is worth, anything more is expensive and less is cheap...
TA tracks a movement of price, so you can say there is no cheap or expensive, only demand vs supply... buy when there is demand...So, this is why investors using FA averages down but traders using TA dont...

Regards...

Overbought and oversold

Hello, Recently these terms becomes very frequently heard... haha... this is expected as these indicators will be showed very actively on most charts due to the price movements...

So, maybe it is good to discuss a little about the functions and the limittations...

first of all, wat affects the price of stocks? i believe it would be the balance between supply and demand... ­

base­d on this, wat is oversold? meaning something is aggressively being sold... so the supply will be more while the demand for it is low... wat does this mean? there is too much products circulating and people are not willing or will not have to bid for the products with a higher price... so, the price will drop... and the opposite stands for overbought...

this is also why people depending highly on this indicator will buy when the stock is being oversold and sell when the stock is being overbought.

however, how dependable are these indicators? well, let us look at the pros and cons... the dependability will also depend a lot on which phase or trend the stock is in... wether it is on an uptrend, downtrend or range bound... why do i say so? there are some interesting points worth looking into...

if you believe tat overbought means time to sell and oversold means time to buy, let me ask you, how can a stock go into or continue on an uptrend if it is no high demand over supply? how can the price continue or start to go up if it is not being overbought? :)

how can a downtrend start or being kept if it is not being oversold?

this is also why the phase or trend of the stock is so crucial in determining how dependable this indicator is... hehe...

i do not use indicators, but if you insist on depending on this indicator, be aware of the phase, it is a lot more dependable when the stock is in range movements and highly dangerous if used solely on trending phase...

most indicators are not suitable to be used alone... and this happens to be high on the list... so, maybe it is safer to use this indicator to find stocks to be put into your radar while using other more fine tuned method or indicator to time the entry and exit point... :)

Correction or Crash?

Hmm... a lot of panic is starting with our market these days... and with today's superb drop... how many of us can sit still? a lot of topics like "wat to buy? is it the time to buy? it is bargain time! everything is cheap!". now i think it is important to revise the posting.. http:// www.talkandshare.com /index.php/ Technical-Analysis/ 378-Volatility-Vs- Severe-acute- distribution- Crash......-P.html

why do i say it is good to revise? it is because, correction has its opportunities like volatile market...

now, how about correction? i'm unsure of the world market sentiment, as i am not good at fundamentals... but if we take out our market and analyze it technically, i think it is more likely under correction rather than a crash... why do i say it is a correction? because it is an expected move form the charts from a few days back... if the supports do not hold, then it may not be a mere correction anymore... if it is a mere correction, support will hold and rebound will come... if it is not... i also got no eye see liaw...

so, the crucial thing now if you were to trade with a heavy weightage on CI, you will need to decide if this is a correction or a crash before making your next move... both starts with C, but the meaning and outcome is very different...

Regards and good luck!

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…

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…

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.

News and Effects

Good news! Good news! Good news about a particular counter is out everywhere.. newspapers, television.... You name it.... Maybe a large dividend, large project, huge profit... Anything.... Now, the basic instinct that we have is that when good news is out, the counter will sure have demand... When there is demand, the price will rise... So we jump in and grab the share by hook or by crook.. Whatever price also we are willing to pay as long as we get it fast. Then we can always sell at a higher price. This can be called, “Buy on news”. Is this concept true? Well, I would say the chance is 50%. Why do I say so? Let us investigate further....

Never forget that there is a group of people called speculators out there that will turn this logic upside down. They will cause the effect of “Sell on news”. They will snatch up the shares of a particular company before the news even came out. They will somehow get the information far earlier than anyone and they will start buying the shares at the lower price… Once the news is out, they will sell because by then the price would have risen and they take away the profit. Because speculators normally would grab a huge number of shares, so when they sell, they will cause the price to drop significantly.. And by then, everyone would panic and start their panic selling mode.. So the price will dip….

Case study: Stocks like Tebrau and UEMWRLD was rising tremendously before the announcement of the Nusajaya project.. By right, when the news actually came out, the shares should rise, but they took the other way instead….

So, “To buy, or not to buy?” Hehe… This is a tough question… That is why I don’t normally go for speculative stocks… But to know if there is already speculation in, you can tell by looking for clues. If the price of the stocks suddenly rises tremendously with super high volume for no particular reason, both from fundamental or technical point of view, it is a clue that something is fishy. Especially when there are rumours around about the company getting a huge project, etc… Be extra careful.. For those who have a huge taste and tolerance for risks and want to try out these stocks, you need to be very familiar with technical analysis… Make sure you enter early, place your stop loss plan… and FOLLOW it.. Try not to fall into the “last man on the block” syndrome.. That means, don’t be the last to enter or leave the building. Meaning don’t be the one to pay the highest but sell at the lowest price for the stock… Hehe…. These kind of stocks is like air filled balloons, they jet up when the air is released, but once all the air comes out, it makes a fast vertical fall…

Good luck and happy hunting…

The right edge

When talking about technical analysis, one major component is reading graphs... From various indicators, we try to determine the market trend and movement. We have indicators as volume, moving average, RSI,.......... sound complicated enough? Hehe.... Wait till you read the real difficult part...

As we look at the graph, we look at previous price and performance. To identitify the trend from previous performance is hard enough, but that is not the most difficult part. The worst part is the right edge of the graph. The more to the right, the harder it gets... To complicate the problem further, most indicators tend to give contradicting results when you needed them the most.... Sigh....

The past is solid and fixed, but the future is fluid and volatile. And we have to make decisions on the future instead of the past. So, in order to do it right, we need to be flexible and make your decisions based on probabilities.... However probabilities is not as simple as simple calculations... The probabilities to make mistakes is actually quite high... So, you can either wait for confirmation to increase the probabilities to get it right. But then again, even if you wait for confirmation to come, you can never tell if it is going to make a sudden turn in the trend...

This is the reason why before you decide to make any trade, the first thing that you need to do is to have a stop loss plan. Just in case your decision turns out to be wrong, you need to keep the loss as small as possible... So the most important mentality is "Keep the loss small and let the profit run". You need to keep the loss as small as possible in order for you to survive long enough to win... And in this way, you can increase the odds of you winning... So remember, NEVER EVER enter a trade without a stop loss plan....

Price have memories?

In my previous posting I mentioned that techical analysis is based on the believe that history repeats itself. Which means price have memories... It will remember the highest price, lowest price, volume and etc...

Does price really have memory? Logically, price is not a living being, so how can it have memory? But it does behave in a certain pattern... That is why you can predict (roughly) the support, resistance, trend or range... How is this possible? To understand this, we must first understand how is price determined and what influences it? In my previous posting http://survivingstockmarket.blogspot.com/2007/03/does-company-performance-affect-price.html , I mentioned that price is directly determined by the balance between the demand and supply... And these demands are made by human beings, who are alive and have memories and emotions. If price is to have memories, it will be the memories of these people...

As mentioned, technical analysis will sum up everything about the market into graphs to be interpreted. One basic concept about price is that everyone has an idea of how much the company is worth... So based on this perception, they will determine what is the most expensive price and what is the most bargain price... So, everytime the price for a particular stock is pushed up by demand, it will reach a particular price where most people think that it is the most expensive or the highest price offerable for the stock.. So, they will start selling and this is when supply overwhelms the demand and the price starts to drop. As the price drops, it will reach a price where most people thinks that it is the bargain price... So the demand will increase. When the demand overwhelms the supply, the price moves back up. And the cycle repeats itself...

So, whenever the price reaches the highest point, it will come down again and this point is called the resistance. When the price reaches the point when people starts to snatch it up again, the price will go back up, this is called the support.

Now, do you think the price have memories or people have memories?

Please take note... This is an oversimplified version... Further details will be posted in the future.. This posting is just the most basic concept... Do come back often to catch the details.. hehe...

Fundamental analysis Vs Technical analysis

We often come across these two terminology when we talk about stock picking. What are they? How do we use them to pick stocks?

Fundamental analysis looks into helps you select a fundamentally strong company. You can pick a company that is financially healthy using fundamental analysis. How to do that? You can find a posting on it here... http://survivingstockmarket.blogspot.com/2007/03/stock-picking-based-on-fundamental.html

How about techincal analysis? Techical analysis is based on the belive that:
1) Price or history repeats itself, which means they are using past trends to predict the future.
2) The price is the summary of the psychology and effects of public information on the crowd.

Basically, technical analysis tells you about the demand of the public towards a particular company regardless of the fundamentals of the company. There will be more postings on technical analysis in the future.....


In summary, like what Ben always say, "Fundamental analysis tells you which company to pick and technical analysis tells you when to buy."