Personality and Philosophy (aka PAP)

Let's touch on how one formulate a winning strategy for stock trading from my amateur perspective. It is widely known that most technical strategies fall into two categories, namely enter on breakout or on retracement. It is not a question of which is a better way to trade, but which really suits your personality and trading philosophy as a trader. That is why most people cannot reproduce the results on their own after attending seminars conducted by professionals trainers!! It is simply a mismatch in personality and trading philosophy... While most trainers teach methods, rules, secrets, procedures which are essential to expedite learning, I feel beginner traders should not be totally spoon feed and had their creativity bounded by hard set rules. They will progress faster by picking up just the fundamentals, and through their creativity and experience, formulate a strategy that suits both their personality and philosophy. The art can only be perfect by the student, and the trainer can only be a catalyst...

Simple questions to ask about personality and trading philosophy:

1. What is my trading horizon (i.e. Day trader, swing trader or position trader)?
2. Do I prefer a mechanical or discretionary approach to trading? 
3. Can I stay emotionless and execute trades consistently?
4. What is my risk appetite? Am I an aggressive breakout trader or a more conservative retracement trader?
5. Which do I value more: capital preservation or capital expansion?
6. Do I have a realistic expectation on my returns?
7. Can my lifestyle cater for my trading strategy?
8. Do I love this business?

Before ending this article, let's take a look at this counter: ARA Asset Management. Whether you are a breakout or retracement trader, both will make you money when you find the right trading method that suits you!!!

Happy profits!!!

A titanic....

An interesting counter appears in my search for weak counters trading on the Singapore Exchange. It is none other than the big ship which makes up the component stocks of STI Index: NOL. While several research houses have placed target of ~2.60 for this counter amid better economic conditions, the price keeps slipping lower for no apparent reasons. One thing about research houses targeted price is they are based on fundamental valuation (i.e. P/E, sum of part, future value etc) which seems logical, but seldom will they tell you about their Time Frame. This is the most important piece of information for all investors! I believe a mismatch in investment time frame/horizon is the key reason why investor reading research reports lose their hard earned money to market predators!!!

On a macro level, STI close above 3050 today, which means STI is gaining some strength. However, it is not known if the sharp rally last week is due to short covering as a result of Japan crisis panic selling the week earlier. Do note last week rally is done with a relative smaller volume and is still below 50MA. Intermediate bias is still bearish though that can change with more information coming in the next few days. In other words, let Mr. Market show its trump card to you rather than you trying to guess or outwit him :)

Let's take a look at Titanic NOL. Strong selling volume with strong bearish candle that close right at the critical support level 1.93. Note support level are zone, not exact level. If price pierce through the closest low 1.90 make on 17th Mar, it may suggests selling to the next support level 1.75-1.78. Other supporting evidences pointing to further price decline include the downwards sloping 20MA, the weakening momentum, and rising oil prices due to Middle East situation. An possible catalyst to push price down to 1.78 level could be the ex-dividend date on 15th April. It is commonly known that price will gap down by the dividend amount (i.e. 0.04 in NOL case) the next trading day after ex-D.

Happy profit!!!

Lessons from the fall of China Gaoxian and similar S-Chips!

I was so disgusted and angry with China Gaoxian after reading an article in Straits Times Money today and decide to share some thoughts on this once favorite counter... Company founder sold 60 million shares at IPO price at the point of listing. Insiders have been selling their shares to innocent investors between 2005 and 2008. A major shareholder sold off a large percentage of his holdings after the lock up period. I think this incident, together with similar counters like Hongwei Technologies & China Hongxing Sports, should be a stern warning to investors putting their hard earned money into them. Lesson must be learned to avoid mistakes and being conned by these companies!

Let's talk about China Gaoxian, one of the Singapore largest IPO in 2009. After making a spectacular move between Oct and Dec 2010 and its dual listing in Korea Exchange, majority of the investors are so confident that price will continue to push higher. In fact, some in the forums are shouting sky prices for this counter, and rallying others interest to satisfy their deeply rooted belief China Gaoxian will be a multi-bagger in 2011. When price falls unexpectedly on 25th Jan, this should already be a sign of problem (loss of confidence) but vested people dismissed it as a normal correction and a great opportunity for bargain buying. On 25th Feb, price gives its last warning to those straddled on this ship, before a trading halt and a request for suspension on 25th Mar. Those unfortunate investors may never get back their hard earned money... haiz! :(

Key lessons to learn even though many have been iterated times and times again by many professionals before! Just consolidate some that comes to my mind...

1. Never receive tips. The forum is a place where tips and rumors are being circulated. No one can verify if they are true! Even if it is true, by the time it reaches your ear, someone higher in food chain may has already capitalized on it. Be accountable for your investment; don't rely on tipsters.
2. Never trust what professionals and analysts say. Most are paid employees and must generated news to secure their rice bowls. Some may even have hidden vested interest. Trust only your own judgment and analysis.
3. Never trust accounting figures and ratios only. This does not mean I reject fundamental investing. But figures can be manipulated! A cash rich company on paper may be an empty shell, especially if majority of its operations are based overseas. Beside reading annual financial reports, an investors needs to ask questions. Is the products/services well received by customers? Are the stores doing well? Are the management sincere and people with integrity?
4. Learn to read technical chart. Yes I mean it even for those fundamental players! Before making any stock purchase, I will encourage everyone to open the chart and take a look at the technical picture. It can be as simple as checking if price is above/below its long term Moving average (see examples below how a simple long term 150MA can help trim your losses). Chart will be a critical tool to get out of a sinking titanic if the stock is not behaving well. Don't lock your money in laggards; there are always be better ones hiding at the corner.
5. Always have a stop loss ready in place after each purchase. No matter how attractive or rosy a stock is, have a stop loss in place. No one can tell how low a stock can go after it is hit by news or aggressive sellers. Low can go lower! Capital preservation must always come before capital growth. Just remember there is NO growth without capital.

SP on TURBO mode!!!

Look at those impressive volume since last year June on this compressed daily chart! Isn't it amazing? That is almost a 100% return for a buy and hold investor! Is this counter worth playing?

On the daily chart, the scene isn't that pretty. True, the trend is clearly upwards, and the counter holds well even during the Japan crisis selldown. But look at the price action and volume!! It is not easy to trade a counter with frequent price gap, zero price range for certain days, and random volume spike unless one is on a higher time frame like the weekly chart or is a buy & hold investor. Even though the bull momentum is strong, price is approaching 0.20-0.22 critical resistance zone, which make the overall risk reward ratio low. So an easy SKIP... there are always better candidate out there! Furthermore, STI has approached the critical resistance zone highlighted yesterday, so any purchase must be cautious in a unclear market situation...

Some thoughts about volume and price. Does volume push price, or price attract volume? Seems like a chicken and egg story, haha!! Happy profit everyone!

Location location location....

Almost all regional indexes close near their respective critical resistance level today! Is this a conspiracy move by the big players? What happen for next few days is really worth watching....

A possible scenario may be price consolidation with tight range right under resistance level; ultimately waiting for news catalyst to gain momentum to pierce the supply line or continue its downward slide.

Golden Agri-Resources...

Gold has been surging since last year amid inflation fear due to Fed money printing activities! Local STI counter Think Environment got a gold mine and its share price double just after 5 months since Nov2010. Even in turbulent conditions like recent Japan crisis, Think Environment refuses to bow to the bearish sentiment and continues to head north. Does everything that bear the GOLD word worth investing? Haha! Let's take a look at Golden Agri-Resources Ltd...

Last year Dec, it reaches a high of 0.80 before it free falls to recent close of 0.645. That is almost a 25% drop in market capitalization within a span of ~3months. Price is still below the critical resistance 0.65, which represents the confluence between last year 2010 Jan high and 50% retracement from May 2010 low. It is now in a tight consolidation pattern, below moving average 20&50MA which are sloping downwards. Coupled with decreasing momentum, intermediate trend appears bearish.

Near term, the price level 0.615 must be closely watched as this represents both the low of recent swing and the 61.8% retracement from last May low. Suppose price breaks down, then next major support will be 0.565.

Mystery numbers on credit cards!!! Now you know it...

What does the string of numbers represent on your new credit card? Well, this picture should give you a clear understanding of this essential financial tool!


Credits goes to the creator of this info mint.com/blog

SIA Engineering...

Let's take a look at SIA Engineering... It shows similar price action per the example on Genting Singapore PLC yesterday. Let's zoom in on the daily chart.

On the chart, the cyan line represents zone of strong price support. The white line represents a minor support zone. Price has cut the 4.23 level (top cyan line) and later the minor support level with strength (see volume circled red). Head and shoulder reversal pattern is also seen here. Together with the breakdown of rectangular consolidation, price is expected to hit the next support 3.80 level.

Genting Singapore PLC... Let's gamble!

I was looking through my chart and spot some interesting pattern formation on local hot favorite casino counter: Genting Singapore!! Recently, this counter has been losing steam against the STI index (i.e. under-performing). For those who bought last Nov, they will be sitting on a loss of ~18%... Let's zoom down to the chart!

At one look, the price is now below the long term moving average and starts to trend down. Since last year September 2010, price has been consolidating between the range 1.88 - 2.20. Supposedly price breaks the support (1.85 - 1.90), we could expect price to fall to 1.50. In technical analysis, this represents the breakdown of rectangular consolidation. For more information, please refer to this link: http://www.chartpatterns.com/rectanglecharts.htm

Watch 1.50 - 1.55* level for this counter.
This level represents the confluence of  half round number, classical rectangular pattern projection level, gap support from 16th Aug, Fibonacci ratio of 50-61.8%

* Note: support level represent a zone! There is no such thing as an absolute number for S/R.

STI impact following unfortunate disaster in Japan

Japan equity market is badly hit today after the unfortunate disaster on Friday. Short term drop over the next few days is inevitable as investors/traders protect profits and stay on the sideline, taking more clues on the events that will happen due course (i.e. damage from earthquake, nuclear plant meltdown, government support, economic activities, rebuilding plan etc). This is a time where risk aversion sets in, given that Japan is one of the largest economic power following US and China.

Potential Scenario:

1. Yen appreciate as carry trade unwinds with risk aversion.
2. Japan equity market drops by almost 21% for five months after Kobe Earthquake. It takes 11 months later to return to its pre-disaster level. Assuming a similar market reaction, from last Friday Nikkei 225 closing ~10300, we could expect 8300-8500 level in the months following.
   Watch critical support level 9000.

STI Reaction forecast:

If we assume a similar reaction for STI, based on a projected 10% drop and closing price ~3000,
Watch next level 2700.

This coincide with the low made in May and Feb 2010, which offer support for the index.
 

I'm sure the Japanese people and their spirit will pull the country out from this disaster, like what they have proven themselves after World War 2 and the Kobe Earthquake.

May God bless the people of Japan...

General Election and STI....

Year 2011 will be an exciting year because Singapore is going to have its General Election sometime in May!!! (I wonder will there be a holiday for the working people :p) General Election is a major event in Singapore, occurring once every 5 years, and draws headlines from many news media. Since Independent Day in 1965, the government of Singapore is formed by the PAP with majority seats. Will the opposition secure a bigger win this time round? Well, time will tell but the immediate concern as traders/investors is its impact on the STI index. Is it a blessing or a curse? Let's begin the analysis...

Let's rewind back to the last 3 General Election and look at its impact +/-2 months before and after Election on the STI Index. In particular, we will look at the Election that took place on the following dates:

1. 6th May 2006 (PAP = 66.6%)
2. 3rd Nov 2001 (PAP = 75.3%)
3. 2nd Jan 1997 (PAP = 65.0%)

In all the 3 instances, around two months before the election, STI index tends to out-perform. Whereas the situation is not so clear cut for the months after election. So, do use this causal cor-relationship carefully. Singapore is a small country, and many things on the international front can affect it.

In brief, trade with the market... often then not it lights the path what lies ahead through messages hidden in its price action! May profits followed everyone reading this article! 

Not again!!! I'm fed up with Fed....

Fed is hinting that if oil price goes higher, they may trigger another round of asset purchase. In layman terms, they are going to print more money!! US bills is starting to look like Japanese Banana notes. Take a look at this article:

http://www.marketwatch.com/story/fed-flexibility-key-with-high-oil-lockhart-says-2011-03-07?siteid=rss&rss=1

Asset purchase is like telling lies. 
It takes more lies (Asset purchase) to cover the first one (Fed mistake)!

Dun act SMART!!!

Today let's look at the counter SMRT. Fundamentally if you think about this business, this should be a no brainier winning counter given that most of us take MRT to work. Just look at the morning crowd everyday! Further, they have no other competitor in Singapore; a virtual monopoly if you removed the Public Transport Council that nags over their price hike.

Look at the chart formation. Price is undergoing a tight consolidation and today there is a bearish candle with above average volume to the downside. Remember, today is a sideways intraday market for STI. SMRT performance is below average. In other words, it is losing momentum.

Mid term price level stands at 1.85.

Welcome to the Casino!!!

Today I went for a short seminar on basics of stock investing. I think it is quite interesting to share some of the concepts learn with the readers!

CLASSIFICATION OF PLAYERS IN THE MARKET

Who are always winning and who are always losing? The answer is winners are always entities like countries SWF, conglomerates, huge institutions, and hedge funds to a certain extent. And losers are always people like you and me, the retail players. If you categorize money funds into large, medium, and small, their market actions is like the following:


Large fund = Thief
They accumulate and distribute shares in large quantities silently. They do not want anyone to know their operation and identity. Deadly and silent is their motto.

Medium fund =Guerrilla
With their cash power and ability to move funds quickly across continents, they are the best people to take advantage of price discrepancy and leverage. Strike and go is their motto.

Small fund = Hero
They often buy and sell without knowledge. They brat about their winning/purchases and keep quiet about losses. They like visibility and respect from their trading friends. Risk and show hand is their motto.

PROFESSIONALS VERSUS AMATEURS

Amateur strategy is a simple 2 steps process: BUY and SELL, BUY and SELL.... This cycle repeats till they run out of cash or get so terrified by losses and quit. Hence they make small money in Bull market and lose big money in Bear market. Professional strategy adds 2 more steps. Their process is BUY, HOLD, SELL, and CASH. They make big money in Bull market and lose small money in Bear market.

What is so special with these 2 additional steps? The differences lies in HOLD (able to hold their purchase when they spot a good deal; refusing to let go at any cost) and CASH (holding on to cash when opportunities are not available). Essentially, it is about WAITING and being patient.

THE FOUR LEVEL OF COMPETENCY

Trading/investing is an art. It is something like martial arts. There are different level of competency among its practitioners.

Level 1 = Amateur
Characteristics: At this level, the amateur gets a few winning trades from tips and herd following. He/she is very bold in their purchases. They soon realize they need more tools to win more money and start to improve their knowledge.
Money: Win small money

Level 2 = Aspiring Professional
Characteristics: At this level, the semi professional read many books and attend course that promises secret strategies that enable one to have an edge in the market. They realize the more they know, the more they don't know and embark on a journey to find the holy grail. They become very cautious with their investment and trading. Sometimes they get confused with the many tools at their disposition.
Money: Lose big money

Level 3 = Professional/Winner
Characteristics: At this level, the professional is very emotionless in their trading/investment. They got in boldly and get out swiftly when they sense the tides has changed. They remain low profile and seldom talk about their winnings or losses although they are consistently withdrawing cash from the market.
Money: Win big money

Level 4 = Guru
Characteristics: At this level, the guru is now longer looking at daily chart or staring into the screen. They form visions of what is going to happen in the future and ways to leverage that possible scenario to make money. Money is no longer important because they have plenty of them. It is just another string of numbers in their bank account.
Money: Win super big money

Image from money.cnn

That's all folk!
Have a great week ahead! cheers....

GP Batteries... Are they durable?

Let's take a look at this counter. For fundamental data, you can visit Reuter and check this counter. Price/book ratio is ~0.55 compared to industry of 1.99. P/E is also low, at 6.09 compared to industry of 8.53. ROE is 8.99, slightly lower than what I prefer (i.e. >15). It looks like a healthy company with dividend! Anyway, take a look at the technical picture.

From the daily chart, the first thing that catches my eye is the volume traded. Liquidity is generally very low for this counter, with 50VMA standing at 60,000 shares. Another thing about volume is it has been shrinking consecutively after the explosive volume spike between last year Mar to April time frame. Price range is tight for each trading day, and there is also frequent price gap out. Moving averages are all sloping downwards, and momentum is weakening faster than overall market. This are signs of deteriorating sentiments.

A possible area to look at is the nearby support 1.25. There may be a short re-bounce at this critical level though further confirmation is required to signal a change in the downside bias.