HEDGE FUNDS ARE SUSPICIOUSLY popular these days among financial cognoscenti. The Institute for Private Investors' survey of extremely wealthy investors indicated that about 80% have some investment in hedge funds and nearly a third have more than 25% of their assets in them. Private and public pension funds are increasing their stakes in hedge funds in the hopes of scoring double-digit returns on investments. This raises public policy concerns as poor performance will not affect just rich investors but also put employee pensions and taxpayers at risk.
Undoubtedly, some of the 8,219 hedge funds will produce excellent returns for the $1.2 trillion in assets entrusted. Yet it is almost certain that in aggregate, hedge fund returns will be disappointing. It just isn't possible for every manager -- like Lake Wobegon's children -- to be above average. Indeed, their proliferation suggests a much more interesting investment opportunity: selling hedge funds short.
Think like a hedge fund manager for a moment. Is it possible that large classes of these funds with similar strategies will actually beat the market, especially net of their hefty fees? If all the funds "exploit market inefficiencies," as they claim to, will there be enough inefficiencies to go around? Or will the enormous growth of the industry cannibalize those fleeting opportunities? Because of their size, number, leverage and active strategies, hedge funds now represent more than half of the trading in many markets. If they all make the same market bets, can anyone make money? And if they take opposing sides of the same trade, half are assured of losing. Either way, it will be very hard to add value and cover fees, commissions and other costs.
While this critique can also be applied to mutual funds and other active managers, the scale of fees and expenses incurred by hedge funds puts them in a category of their own. Because of their leverage and turnover, hedge funds' costs per unit of capital are many times those of mutual funds -- and so are their fees. Their performance fee structure is a "heads we win, tails we don't lose" proposition for the managers (at the investor's cost).
So, why do people still throw money at them? Largely because of wishful thinking and behavioral quirks. Most people recognize that stocks and bonds will not continue to produce the double-digit returns they have in the past three decades. However, some don't want to accept that those returns are unavailable anywhere. So, these people irrationally wish for a new type of investment - hedge funds - that can produce these kinds of gains. This is paradoxical, considering that the funds invest primarily in the very same securities that they are expected to outperform-namely stocks and bonds. Any individual investor may be right to think that his hedge funds -- like his children -- are exceptional. But, if everyone believes it, that's collective folly.
This folly persists because hedge funds benefit from several well-documented anomalies (more formally called cognitive biases) in the way people make decisions.
The first is the "winner's curse," named for the tendency of people to overbid in auctions (therefore the winner ultimately feels cursed). The hiring of hedge funds is like an auction. Investors are guessing at the future performance of these enterprises. Some guesses will be high, others low. Those most bullish about a fund's prospects will invest. The result is that each fund is valued by those who are most optimistic about its prospects.[drawing]
Overconfidence, the second peculiarity, aggravates this problem. In Nobel laureate Daniel Kahneman's words, decision-making involves a combination of "high confidence and low accuracy." Kahneman notes that "hindsight bias" worsens overconfidence. We do not learn from experience. Even when we get feedback such as investment returns, we tend to attribute the bad outcomes to luck or other people's failings and the good outcomes to skill.
A behavioral aberration called "base rate neglect" also contributes. The Lake Wobegon effect is real. Studies have found that almost all of us believe we are safer-than-average drivers. Similarly, all hedge-fund investors believe their fund is above average. When we make assessments, we tend to focus on the particulars of the situation and ignore the larger context. In assessing hedge funds, that means we put too much weight on the fund itself and not enough on the fact that these vehicles collectively fail to achieve returns that compensate for their very high fees.
Of course, there's another reason people overvalue hedge funds that is not a behavioral quirk. Millions (perhaps billions) of dollars are being spent convincing us that they are good investments. Much, much less is spent arguing the contrary. It would be unusual if this marketing did not affect our judgment.
What's a rational person to do? Not investing in hedge funds is a good start. But, ideally, you would like to invest less than zero -- in other words, to sell them short. While logical, this is difficult to do. But nothing is out of the reach of Wall Street financial engineers. One of their tools is called a "swap" -- a basic financial agreement between two parties. Jane, for example, could agree to pay Fred the return on a hedge fund in exchange for a payment from Fred of a short-term interest rate. Fred benefits if the hedge fund's returns are good while Jane benefits if returns are poor. Effectively, Jane has sold the hedge fund short.
Swaps could be an effective way for investors hankering to be part of hedge funds closed to new investors. In effect, they could bet on continued good returns from the fund while bearish investors would be happy to bet on faltering returns. Now, it must be mentioned that swaps entail significant risk and require very substantial capital. They should be engaged in only by very sophisticated investors. Of course, that is supposed to be true of hedge funds, too.
What would happen if investors could short hedge funds? Very likely, sellers would zero in on funds of hedge funds to sell short. They have two layers of fees, which reduces their performance. In addition, they diversify, which reduces the risk -- for both investing and shorting. Making this short interest visible would provide a valuable signal to investors currently funneling billions of dollars into these outfits.
Last month the European Central Bank cited hedge funds as a "major risk" to financial stability and further noted that the industry "warrants close monitoring despite the essential lack of any possible remedies." The Securities and Exchange Commission's effort to monitor them has been frustrated by a court ruling. While such monitoring is desirable, the ability to short hedge funds would also help maintain rationality. There have also been a number of frauds exposed recently. Short sellers have been effective in sniffing out fraud in other venues and could play a useful role here too.
The creation of a short interest in hedge funds would also offer a new opportunity: The funds could short each other, and new entrants could spring up to short all the existing players. It's just the sort of game hedge funds love to play.
JONATHAN REISS, former head trader in international bonds for Sanford C. Bernstein & Co., is founder of Analytical Synthesis, a research firm focused on financial innovations in the public interest. He says he is both a safer-than-average driver and a better-than-average investor.
Tuesday, October 9, 2007
Wednesday, September 26, 2007
Trading Lessons from Leonardo Da Vinci
A good read that adapts Leonardo Da Vinci precepts to trading.
Article source : http://www.michaelcovel.com/archives/cat_systems_trading.html
Article source : http://www.michaelcovel.com/archives/cat_systems_trading.html
A Matter of Perception
May 17th 2007
From The Economist print edition
Averages need to be treated with caution
CONSIDER these two statements: the American stockmarket was overvalued in 2000; company profits are high relative to economic output. Many people would agree with both propositions, but implicit in each is that there is a correct, or normal, value for shares or profits. The corollary is that when share price or profits are too high or too low, they will eventually revert to the mean. But what do people mean by mean? Efficient-market theory, which states that prices already reflect all available information, presents an immediate problem for the idea of a reversion to the mean. If share prices were obviously too high, investors would sell their holdings until prices fell to the correct level. There would be no extremes to revert from. However, in the light of the dotcom bubble, it seems inherently unsatisfying to argue that markets are always fairly valued. Such a position also gives a green light to those who argue that “it's different this time”, and who use any old valuation measure (price per eyeball for internet stocks) to justify share prices. Pinning down the right mean, however, is difficult. American profits look high by the standards of the past 20 to 30 years. But they do not look unreasonable relative to 1950s and 1960s levels. Perhaps the 1970s and 1980s (which saw high inflation and double-digit interest rates) were the aberration and the immediate post-war era was the norm. Things get even more complicated when investors start to talk about stockmarket valuations. Most analysts tend to use the prospective price-earnings ratio as their chosen measure, rather than the historic figure. They justify this by saying that investors look forward, not back. But banks are in the business of selling shares. Since analysts nearly always forecast rising profits, the prospective p/e ratio is usually lower than the historic one; that makes the market sound cheaper.
Finding "cheaper" is not the objective. Buying and selling to a profit is the objective.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
From The Economist print edition
Averages need to be treated with caution
CONSIDER these two statements: the American stockmarket was overvalued in 2000; company profits are high relative to economic output. Many people would agree with both propositions, but implicit in each is that there is a correct, or normal, value for shares or profits. The corollary is that when share price or profits are too high or too low, they will eventually revert to the mean. But what do people mean by mean? Efficient-market theory, which states that prices already reflect all available information, presents an immediate problem for the idea of a reversion to the mean. If share prices were obviously too high, investors would sell their holdings until prices fell to the correct level. There would be no extremes to revert from. However, in the light of the dotcom bubble, it seems inherently unsatisfying to argue that markets are always fairly valued. Such a position also gives a green light to those who argue that “it's different this time”, and who use any old valuation measure (price per eyeball for internet stocks) to justify share prices. Pinning down the right mean, however, is difficult. American profits look high by the standards of the past 20 to 30 years. But they do not look unreasonable relative to 1950s and 1960s levels. Perhaps the 1970s and 1980s (which saw high inflation and double-digit interest rates) were the aberration and the immediate post-war era was the norm. Things get even more complicated when investors start to talk about stockmarket valuations. Most analysts tend to use the prospective price-earnings ratio as their chosen measure, rather than the historic figure. They justify this by saying that investors look forward, not back. But banks are in the business of selling shares. Since analysts nearly always forecast rising profits, the prospective p/e ratio is usually lower than the historic one; that makes the market sound cheaper.
Finding "cheaper" is not the objective. Buying and selling to a profit is the objective.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Tuesday, August 14, 2007
YouTube Michael Covel Clip
Here is a Micheal Covel video on trend following.
Article source : http://www.michealcovel.com/archives/2007_07.html
Article source : http://www.michealcovel.com/archives/2007_07.html
Tuesday, August 7, 2007
Micheal Covel YouTube Videos!
View some great videos by author Micheal Covel about great traders and hedge funds :
http://www.youtube.com/profile?user=TrendFollowing
Micheal Covel's first book was 'Trend Following'(Pearson, April '04)and his second book is 'The Complete TurtleTrader' (HarperCollins, October 2007).
http://www.youtube.com/profile?user=TrendFollowing
Micheal Covel's first book was 'Trend Following'(Pearson, April '04)and his second book is 'The Complete TurtleTrader' (HarperCollins, October 2007).
A View On Trend Following
This is an interesting exchange about trend following trading.
Article source : http://www.michaelcovel.com/archives/2007_02.html
Article source : http://www.michaelcovel.com/archives/2007_02.html
Tuesday, July 31, 2007
Do you have passion for what you do?
A nice article by Carmine Gallo, for a little motivation...
It's not every day you get the chance to pick the brain of a man whose real-life rags-to-riches story was turned into a Hollywood movie starring one of America's top actors. But the other day I had the opportunity to spend time with Chris Gardner, subject of the 2006 movie The Pursuit of Happyness, in which Gardner was played by Will Smith.
... I have spent the last several years interviewing inspiring leaders, and I can say without hesitation that passion is the No. 1 quality that sets them apart...
Article source : http://biz.yahoo.com/bizwk/070724/jul2007sb20070723608918.html?.v=1&.pf=career-work&printer=1
It's not every day you get the chance to pick the brain of a man whose real-life rags-to-riches story was turned into a Hollywood movie starring one of America's top actors. But the other day I had the opportunity to spend time with Chris Gardner, subject of the 2006 movie The Pursuit of Happyness, in which Gardner was played by Will Smith.
... I have spent the last several years interviewing inspiring leaders, and I can say without hesitation that passion is the No. 1 quality that sets them apart...
Article source : http://biz.yahoo.com/bizwk/070724/jul2007sb20070723608918.html?.v=1&.pf=career-work&printer=1
Keep It Simple
Sometimes, with all the noise, all the complexity, all the trading rules...simple is where it is at. Jeffrey Strain recently listed 5 ways on Yahoo Finance where patience can help you achieve wealth. Sure, some of it is the standard issue stuff we all should know, but his points are good reminders.
1. It helps forgo instant gratification: Being patient allows you to wait until you have the money to purchase the things that you want. But it's not easy to show patience in a society where instant gratification is advertised as being the norm and credit is easy to obtain. If you aren't patient, however, it means that you will likely use a credit card to pay for things you don't have the money to pay for. This is how people get into credit card debt, which will deteriorate savings and hinder your ability to become wealthy.
2. It helps you save: Part of being able to save 10% of your take-home pay is making sure that you spend your money wisely. Having the patience to wait until a product's price comes down will go a long way toward helping you build wealth. People who have to have the latest gadgets the instant that they appear end up paying a premium. When the technology becomes more mainstream, its price becomes more reasonable. Having the patience to wait before you buy often is the difference between having 10% to invest and not having it.
3. Patience helps avoid "get rich quick" schemes: Whether it is the lottery or some hot stock pick, the urge to try to get rich quick is glorified in the media. The problem is, most people who are rich don't get there the quick way. Most have built their wealth over time. While the media glamorizes the few who do get rich quick, most people who try that route don't end up wealthy.
4. It helps you stay on your wealth-building plan: Wealth doesn't usually appear instantly and doesn't present itself unexpectedly. It usually takes a well-thought-out plan over a long period of time. Taking the time to build a solid plan and then sticking to it will ensure that you have a much greater chance of creating and keeping your wealth than if you try to make your fortune instantly.
5. Patience helps you look long term: Even if you create a solid wealth-building plan, there will still be bumps in the road. When these bumps occur, it's important that you have the patience to stick to your plan instead of panicking. If you end up abandoning your plan at the first sign of trouble, you will likely end up much less wealthy than if you have the patience to stick to your plan the entire time. Stocks fluctuate over short periods of time, but they usually go up over a long period of time. It's important to take a patient, long-term view in wealth creation.
Article source : http://www.michaelcovel.com/archives/cat_psychology.html
1. It helps forgo instant gratification: Being patient allows you to wait until you have the money to purchase the things that you want. But it's not easy to show patience in a society where instant gratification is advertised as being the norm and credit is easy to obtain. If you aren't patient, however, it means that you will likely use a credit card to pay for things you don't have the money to pay for. This is how people get into credit card debt, which will deteriorate savings and hinder your ability to become wealthy.
2. It helps you save: Part of being able to save 10% of your take-home pay is making sure that you spend your money wisely. Having the patience to wait until a product's price comes down will go a long way toward helping you build wealth. People who have to have the latest gadgets the instant that they appear end up paying a premium. When the technology becomes more mainstream, its price becomes more reasonable. Having the patience to wait before you buy often is the difference between having 10% to invest and not having it.
3. Patience helps avoid "get rich quick" schemes: Whether it is the lottery or some hot stock pick, the urge to try to get rich quick is glorified in the media. The problem is, most people who are rich don't get there the quick way. Most have built their wealth over time. While the media glamorizes the few who do get rich quick, most people who try that route don't end up wealthy.
4. It helps you stay on your wealth-building plan: Wealth doesn't usually appear instantly and doesn't present itself unexpectedly. It usually takes a well-thought-out plan over a long period of time. Taking the time to build a solid plan and then sticking to it will ensure that you have a much greater chance of creating and keeping your wealth than if you try to make your fortune instantly.
5. Patience helps you look long term: Even if you create a solid wealth-building plan, there will still be bumps in the road. When these bumps occur, it's important that you have the patience to stick to your plan instead of panicking. If you end up abandoning your plan at the first sign of trouble, you will likely end up much less wealthy than if you have the patience to stick to your plan the entire time. Stocks fluctuate over short periods of time, but they usually go up over a long period of time. It's important to take a patient, long-term view in wealth creation.
Article source : http://www.michaelcovel.com/archives/cat_psychology.html
Negatively Skewed Trading Strategies
An article titled Negatively Skewed Trading Strategies (PDF) by Glyn A. Holton is definitely worth reading.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Tuesday, July 17, 2007
Trading as a business
Charlie Wright of Fall River Capital offers some pearls of wisdom about trading as a business:
"Thinking of trading as a business has helped me enormously as a trader. It puts everything into perspective and helps me deal with my own psychological difficulties with trading execution. Once I stopped viewing trading as speculation, my trading improved. Once I realized that I was not going to get rich quick, that trading was not easy money, my trading improved. Once I realized that almost no businesses are successful overnight, my trading improved. Once I realized that I had to make an investment in the business, both in terms of my own education and in equipment and working capital, my trading improved. One concept that is commonly taught in business schools is that of 'barriers to entry.' This is a very simple concept that has important ramifications as you consider trading as a business. The basic principle is that the higher the barriers to entry in a business, the higher the investment to establish market share but ultimately the higher the margins and profits. A good example is the beer business. Controlled by several large breweries, it would be financially very difficult to start up a new brewery and acquire significant market share. When Phillip Morris bought Miller, they spent over a billion dollars to acquire the business and do the advertising and promotion necessary to obtain market share. But Miller was successful, and when they achieved the share of market they wanted, the profits were outstanding. The reverse is also true. If an industry has low barriers to entry, and there is a relatively small up front investment, there is much competition for profits and lower margins. This is the case for many service businesses, real estate brokers, securities brokers, cleaning services, etc. Restaurants are also a relatively low investment business. All you need is some decent space for tables and some cooking equipment and you are in business. However, the competition for customers is intense and thus the margins are low. There is no good or bad when analyzing barriers to entry for a particular industry. If the investment is low, the stress comes from being smarter and superior than everyone else at making money. If the barriers are high, the stress comes from taking the large financial risk and the uncertainty of obtaining the target market share. Either way, the business is always difficult. Trading is a low barrier business. You basically need a computer, a broker, and a modest amount of capital and you are in business. But because of the low barriers to entry, the competition for profits is very high. There is no such thing as gaining market share. Many people wrongly conclude that low barrier businesses are easy to start and trading is no exception. Many new traders think that trading will be easy and they will get rich quick. Experienced traders know that this will not happen. Trading is as difficult as any business I have ever been involved in. The main point to remember is that trading is a business with low barriers to entry. This means that the competition for profits is very high and you will have to be smarter, more disciplined or more creative than the majority to make money."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
"Thinking of trading as a business has helped me enormously as a trader. It puts everything into perspective and helps me deal with my own psychological difficulties with trading execution. Once I stopped viewing trading as speculation, my trading improved. Once I realized that I was not going to get rich quick, that trading was not easy money, my trading improved. Once I realized that almost no businesses are successful overnight, my trading improved. Once I realized that I had to make an investment in the business, both in terms of my own education and in equipment and working capital, my trading improved. One concept that is commonly taught in business schools is that of 'barriers to entry.' This is a very simple concept that has important ramifications as you consider trading as a business. The basic principle is that the higher the barriers to entry in a business, the higher the investment to establish market share but ultimately the higher the margins and profits. A good example is the beer business. Controlled by several large breweries, it would be financially very difficult to start up a new brewery and acquire significant market share. When Phillip Morris bought Miller, they spent over a billion dollars to acquire the business and do the advertising and promotion necessary to obtain market share. But Miller was successful, and when they achieved the share of market they wanted, the profits were outstanding. The reverse is also true. If an industry has low barriers to entry, and there is a relatively small up front investment, there is much competition for profits and lower margins. This is the case for many service businesses, real estate brokers, securities brokers, cleaning services, etc. Restaurants are also a relatively low investment business. All you need is some decent space for tables and some cooking equipment and you are in business. However, the competition for customers is intense and thus the margins are low. There is no good or bad when analyzing barriers to entry for a particular industry. If the investment is low, the stress comes from being smarter and superior than everyone else at making money. If the barriers are high, the stress comes from taking the large financial risk and the uncertainty of obtaining the target market share. Either way, the business is always difficult. Trading is a low barrier business. You basically need a computer, a broker, and a modest amount of capital and you are in business. But because of the low barriers to entry, the competition for profits is very high. There is no such thing as gaining market share. Many people wrongly conclude that low barrier businesses are easy to start and trading is no exception. Many new traders think that trading will be easy and they will get rich quick. Experienced traders know that this will not happen. Trading is as difficult as any business I have ever been involved in. The main point to remember is that trading is a business with low barriers to entry. This means that the competition for profits is very high and you will have to be smarter, more disciplined or more creative than the majority to make money."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Technical Analysis Definitions
Micheal Covel wrote on the definition of technical analysis :
A definition of technical analysis seen recently:
"Technical analysis uses deviations from the efficient market hypothesis to make best guesses about future movements in the financial markets."
I have a different take in my book:
Now here is where the understanding of technical analysis gets tricky. There are essentially two forms of technical analysis. One form is based on an ability to "read" charts and use "indicators" to divine the market direction. These so-called technical traders use methods designed to attempt to predict a market direction. Here is a great example of the predictive view of technical analysis: "I often hear people swear they make money with technical analysis. Do they really? The answer, of course, is that they do. People make money using all sorts of strategies, including some involving tea leaves and sunspots. The real question is: Do they make more money than they would investing in a blind index fund that mimics the performance of the market as a whole? Most academic financial experts believe in some form of the random-walk theory and consider technical analysis almost indistinguishable from a pseudoscience whose predictions are either worthless or, at best, so barely discernably better than chance as to be unexploitable because of transaction costs." This is the view of technical analysis held by the majority—that it is some form of superstition, like astrology. Technical prediction is the only application of technical analysis that the majority of Wall Streeters are aware of as evidenced by equity research from Credit Suisse First Boston: "The question of whether technical analysis works has been a topic of contention for over three decades. Can past prices forecast future performance?" However there is another type of technical analysis that neither predicts nor forecasts. This type is based on price. Trend followers form the group of technical traders that use this type of analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. Trend followers respond to what has happened rather than anticipating what will happen. They strive to keep their strategies based on statistically validated trading rules. This enables them to focus on the market and not get emotionally involved.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
A definition of technical analysis seen recently:
"Technical analysis uses deviations from the efficient market hypothesis to make best guesses about future movements in the financial markets."
I have a different take in my book:
Now here is where the understanding of technical analysis gets tricky. There are essentially two forms of technical analysis. One form is based on an ability to "read" charts and use "indicators" to divine the market direction. These so-called technical traders use methods designed to attempt to predict a market direction. Here is a great example of the predictive view of technical analysis: "I often hear people swear they make money with technical analysis. Do they really? The answer, of course, is that they do. People make money using all sorts of strategies, including some involving tea leaves and sunspots. The real question is: Do they make more money than they would investing in a blind index fund that mimics the performance of the market as a whole? Most academic financial experts believe in some form of the random-walk theory and consider technical analysis almost indistinguishable from a pseudoscience whose predictions are either worthless or, at best, so barely discernably better than chance as to be unexploitable because of transaction costs." This is the view of technical analysis held by the majority—that it is some form of superstition, like astrology. Technical prediction is the only application of technical analysis that the majority of Wall Streeters are aware of as evidenced by equity research from Credit Suisse First Boston: "The question of whether technical analysis works has been a topic of contention for over three decades. Can past prices forecast future performance?" However there is another type of technical analysis that neither predicts nor forecasts. This type is based on price. Trend followers form the group of technical traders that use this type of analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. Trend followers respond to what has happened rather than anticipating what will happen. They strive to keep their strategies based on statistically validated trading rules. This enables them to focus on the market and not get emotionally involved.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Tuesday, July 10, 2007
Top 10 Ways To Lose All The Money In Your Trading Account In 30 Days Or Less - Guaranteed!
I came across the list below from 'Craig' here. It is a great list:
#10 - Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!
#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT THEN. Always do what your technical indicator says to do. It takes precedence over price action.
#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.
#7 - Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.
#6 - Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a "good company", consider going on margin to pay for shares in their stock.
#5 - Forget about developing a trading plan. If you see a good stock just buy it. Don't worry about when your going to sell. No need to get caught up in the details. Besides, you'll probably get rich the first year of trading anyway.
#4 - Buy expensive computers and trading software. While your at it, buy a couple more TV's so that you can watch CNBC on multiple screens! You NEED all of these gadgets in order to trade stocks successfully. Then watch the money roll in!
#3 - Always follow your emotions. They are there for a reason. If you feel nervous, sell the stock! If you are excited, buy more shares. This is the best way to trade stocks and fatten up your trading account.
#2 - Don't worry about using stop loss orders. When the time comes, you will be able to sell your shares and take a loss. Your emotions won't even come into play. Besides, stop loss orders are for sissies!
#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry about how much you can lose on a trade. Only think about how much loot your gonna make. Then start planning that trip to Fiji
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
#10 - Put all of your efforts into finding the perfect technical indicator. Once you find this magical indicator, it will be like turning on a water faucet. Go all in. The money will just flow into your account!
#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT THEN. Always do what your technical indicator says to do. It takes precedence over price action.
#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips. Also, ask all your friends and family for stock tips. They are usually right, and acting on these tips can make you very rich.
#7 - Watch what other traders do and be sure to follow the crowd. After all, they have been trading a lot longer than you so naturally they are smarter.
#6 - Pay very close attention to the fundamentals of a company. You MUST know the P/E ratio, book value, profit margins, etc. Once you find a "good company", consider going on margin to pay for shares in their stock.
#5 - Forget about developing a trading plan. If you see a good stock just buy it. Don't worry about when your going to sell. No need to get caught up in the details. Besides, you'll probably get rich the first year of trading anyway.
#4 - Buy expensive computers and trading software. While your at it, buy a couple more TV's so that you can watch CNBC on multiple screens! You NEED all of these gadgets in order to trade stocks successfully. Then watch the money roll in!
#3 - Always follow your emotions. They are there for a reason. If you feel nervous, sell the stock! If you are excited, buy more shares. This is the best way to trade stocks and fatten up your trading account.
#2 - Don't worry about using stop loss orders. When the time comes, you will be able to sell your shares and take a loss. Your emotions won't even come into play. Besides, stop loss orders are for sissies!
#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry about how much you can lose on a trade. Only think about how much loot your gonna make. Then start planning that trip to Fiji
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
The Ten Trading Commandments!
One man's Ten Commandments (PDF). An excerpt:
"Discipline trumps conviction. No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you're smarter than the market."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
"Discipline trumps conviction. No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always try to define your risk and, above all, never believe that you're smarter than the market."
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Tuesday, July 3, 2007
Introduction To Trend Following Trading
The best tour of Trend Following trading you can find is the book Trend Following. However, even if you have not yet had a chance to read it, continue reading below to learn more about this still relatively unknown style of trading. What is Trend Following trading? A good definition:
Let's break down the term Trend Following into its components. The first part is "trend". Every trader needs a trend to make money. If you think about it, no matter what the technique, if there is not a trend after you buy, then you will not be able to sell at higher prices..."Following" is the next part of the term. We use this word because trend followers always wait for the trend to shift first, then "follow" it.
Trend Following (and the Turtle trading system) is reactive and systematic by nature. Trend Following does not forecast or predict markets or price levels. Prediction is impossible!
Trend Following demands that you have strong self-discipline to follow precise rules. It involves a risk management system that uses current market price, equity level in an account and current market volatility. Trend Followers use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, Trend Following trader's average profit per trade is significantly higher than the average loss per trade.
Trend Following is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with Trend Following through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance.
What must all trend followers consider?
Price: One of the first rules of Trend Following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where price will go next or what it should be doing are useless. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing.
Money Management: The most critical factor of Trend Following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.
Risk Control: Trend Following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.
Rules Rule: Trend Following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.
Trend Following answers these critical questions:
1. How and when to enter the market.
2. How many contracts or shares to trade at any time.
3. How much money to risk on each trade.
4. How to exit the trade if it becomes unprofitable.
5. How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good Trend Following systems (including the Turtle trading system) average five or six trades per market per year. What do you need to get started?
- An active mind, willingness to learn and passion to win.
- No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key is the price on the chart.
- Discipline and common sense to do the right thing per all rules.
- About an hour each day at the end of the day to check trades.
- A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.
Article source : http://www.turtletrader.com/it.html
Wonder what makes a professional trader?
Brett Steenbarger writes on his blog about what makes a professional trader. Nice article. Below is the complete article :
Here are a few observations that have hit me between the eyes over the past several days:
1) Many of the best traders follow and trade a variety of markets. They go where the opportunity is. When volatility dries up in one market, they have others to turn to. The small, neophyte retail trader often becomes pigeonholed in one market and overtrades it, desperate to turn a small account into a larger one. The professional trader may have a top-down or bottom-up perspective on markets (developing ideas from big economic trends or from individual company and sector results), but they have a framework for how to think about markets. Inexperienced traders lack such a framework.
2) Many of the best traders think big--as in big picture. Because they follow multiple markets, they are aware of the relationships among these markets. This enables them to develop trade ideas that connect one market to another, capitalizing on big picture themes. Knowing how interest rate differentials around the world affect capital flows is an obvious example of that. Another example is knowing how one asset is priced relative to others to capitalize on mispricing. The novice trader trades small patterns, losing sight of the context in which those patterns occur. They lack a framework for thinking about proper and improper pricing.
3) All of the best trading firms have risk managers. They stay on top of how individual traders (and the firm as a whole) are performing. They help traders adjust their position sizes to fit their portfolio needs, and they help traders during drawdown periods. It is very difficult for individual, solo traders to fill this role for themselves. The excellent traders spend significant time and effort on risk management: they know how much they want to gain and put at risk in each trade. Small traders tend to put a far larger portion of their capital at risk with each trade than large, professional traders.
4) Many of the best traders think small--as in very reasonable profit goals. This is very interesting. I never hear the pros talking about tripling their money in a year. It's the small traders, feeling a desperate need for a kill in order to make a living, who take those kind of risks. Many of the best traders I know focus on consistency and favorable risk-adjusted returns. I essentially never hear small, retail traders focus on risk-adjusted returns. I don't think I've ever met a retail trader who knows what his or her Sharpe Ratio is, for example. I don't think most newer traders could even explain the concept of VAR.
5) Many of the best traders use psychology to amplify strengths. This is one thing that a majority of "trading coaches" don't get. They are so accustomed to working with small, retail traders that their vision becomes limited to the kinds of problems that beginners have. On average, if a person lacks discipline, emotional control, etc., they don't get hired at a good firm. The best traders do experience drawdowns, but they work on themselves to identify and build strengths, not to develop simplistic "trading plans". A great deal of what's out there labeled as "trading psychology" could be relabeled as the psychology of the beginning trader. It's not that it's useless; it's that it doesn't speak to the seasoned professional. To the extent that trading shrinks emphasize positive thinking as the key to trading success, they don't understand trading--and what it takes to generate alpha--at all.
Ultimately, whether one is a professional or an amateur is a function of their approach to their work, not their setting. It is, of course, easier to live up to professionalism when you're surrounded by professionals. The best traders I know spend significant time generating trade ideas, researching markets, and staying on top of developments world wide. The ratio of time spent in preparation to time spent actually in trading has, in my experience, been a worthwhile measure of a trader's professionalism--regardless of setting. The best traders, like the best athletes, are always working on themselves, always refining what they do. In an important sense, they don't just use psychology to improve their performance. They work on their performance as a means of extending their personal mastery.
A small trader can approach his or her craft professionally. There are few models, however, for such professionalism--particularly when many of the "gurus" themselves do not begin to approximate what the pros are doing.
Article source : http://traderfeed.blogspot.com/2007/05/what-makes-professional-trader.html
Here are a few observations that have hit me between the eyes over the past several days:
1) Many of the best traders follow and trade a variety of markets. They go where the opportunity is. When volatility dries up in one market, they have others to turn to. The small, neophyte retail trader often becomes pigeonholed in one market and overtrades it, desperate to turn a small account into a larger one. The professional trader may have a top-down or bottom-up perspective on markets (developing ideas from big economic trends or from individual company and sector results), but they have a framework for how to think about markets. Inexperienced traders lack such a framework.
2) Many of the best traders think big--as in big picture. Because they follow multiple markets, they are aware of the relationships among these markets. This enables them to develop trade ideas that connect one market to another, capitalizing on big picture themes. Knowing how interest rate differentials around the world affect capital flows is an obvious example of that. Another example is knowing how one asset is priced relative to others to capitalize on mispricing. The novice trader trades small patterns, losing sight of the context in which those patterns occur. They lack a framework for thinking about proper and improper pricing.
3) All of the best trading firms have risk managers. They stay on top of how individual traders (and the firm as a whole) are performing. They help traders adjust their position sizes to fit their portfolio needs, and they help traders during drawdown periods. It is very difficult for individual, solo traders to fill this role for themselves. The excellent traders spend significant time and effort on risk management: they know how much they want to gain and put at risk in each trade. Small traders tend to put a far larger portion of their capital at risk with each trade than large, professional traders.
4) Many of the best traders think small--as in very reasonable profit goals. This is very interesting. I never hear the pros talking about tripling their money in a year. It's the small traders, feeling a desperate need for a kill in order to make a living, who take those kind of risks. Many of the best traders I know focus on consistency and favorable risk-adjusted returns. I essentially never hear small, retail traders focus on risk-adjusted returns. I don't think I've ever met a retail trader who knows what his or her Sharpe Ratio is, for example. I don't think most newer traders could even explain the concept of VAR.
5) Many of the best traders use psychology to amplify strengths. This is one thing that a majority of "trading coaches" don't get. They are so accustomed to working with small, retail traders that their vision becomes limited to the kinds of problems that beginners have. On average, if a person lacks discipline, emotional control, etc., they don't get hired at a good firm. The best traders do experience drawdowns, but they work on themselves to identify and build strengths, not to develop simplistic "trading plans". A great deal of what's out there labeled as "trading psychology" could be relabeled as the psychology of the beginning trader. It's not that it's useless; it's that it doesn't speak to the seasoned professional. To the extent that trading shrinks emphasize positive thinking as the key to trading success, they don't understand trading--and what it takes to generate alpha--at all.
Ultimately, whether one is a professional or an amateur is a function of their approach to their work, not their setting. It is, of course, easier to live up to professionalism when you're surrounded by professionals. The best traders I know spend significant time generating trade ideas, researching markets, and staying on top of developments world wide. The ratio of time spent in preparation to time spent actually in trading has, in my experience, been a worthwhile measure of a trader's professionalism--regardless of setting. The best traders, like the best athletes, are always working on themselves, always refining what they do. In an important sense, they don't just use psychology to improve their performance. They work on their performance as a means of extending their personal mastery.
A small trader can approach his or her craft professionally. There are few models, however, for such professionalism--particularly when many of the "gurus" themselves do not begin to approximate what the pros are doing.
Article source : http://traderfeed.blogspot.com/2007/05/what-makes-professional-trader.html
Taking a loss!
From Trader Daily:
The most common reason traders are reluctant to take a loss is their fear that once they do, the trade will rebound. Sound familiar? If this is how you think about taking losses, try to recognize that this kind of thinking might well prevent you from reaching your potential. It might even destroy your career. So stop trying to be right all the time - trading is a game of probabilities, which means winning and losing are necessary components. No one gives a bonus check to the trader who was 'right' the most over the course of the year. To coin a phrase, wrong happens. Great traders know how to implement damage control and are willing to take a loss. Are they scared and hesitant? Of course, but that doesn't prevent them from doing what they need to do to stay in the game. If George Washington hadn't decided to abort the Battle of Brooklyn and cede Manhattan to the British at the start of the Revolutionary War, for example, we'd all be eating 'crisps' and watching the 'telly' right now. He took a loss - but lived to fight on. That's what true champions must sometimes do. A client of mine - I'll call him Aaron - is a bond trader at a major bank. He was earning seven figures annually but envisioned taking his game to another level. During our first meeting, Aaron showed me his numbers, proudly pointing out that he was winning a healthy 81 percent of his trades. He rambled on, saying that his number was the highest in his group and telling me his managers had asked him to train other traders to be as 'consistent as I am.' I looked Aaron straight in the eye. 'Was your performance bonus based on your winning percentage?' I asked him. He paused. 'No,' he replied. 'Exactly my point,' I told him. Put simply, Aaron needed to stop obsessing about being right and start focusing on making money. Several follow-up meetings made it clear that he was taking his winners quickly and holding his losers way too long, even adding to them in some cases. I challenged him to think about what might be triggering this tendency. 'The trade can always come back,' he told me. 'Maybe I'm just not giving it enough time.' That's not an answer; it's a rationalization. 'Come on,' I told him. 'You're either a control freak or a perfectionist, but you always seem to have to be right. And this is limiting your ability to reach your potential.' Aaron, I was discovering, was afraid to admit when he was wrong. So I presented him with a simple formula to help him get out of his own way: H + W + P = E. Hoping + Wishing + Praying = Exit the trade now!
Doug Hirschhorn, a former Division I baseball player and commodities trader, has a Ph.D. in sport psychology. He is the coauthor of The Trading Athlete and has served as trading coach for Deutsche Bank, Schonfeld Securities and Balyasny Asset Management. He is currently a consultant for financial institutions, trading firms and hedge funds. E-mail him at headcoach@tradermonthly.com.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
The most common reason traders are reluctant to take a loss is their fear that once they do, the trade will rebound. Sound familiar? If this is how you think about taking losses, try to recognize that this kind of thinking might well prevent you from reaching your potential. It might even destroy your career. So stop trying to be right all the time - trading is a game of probabilities, which means winning and losing are necessary components. No one gives a bonus check to the trader who was 'right' the most over the course of the year. To coin a phrase, wrong happens. Great traders know how to implement damage control and are willing to take a loss. Are they scared and hesitant? Of course, but that doesn't prevent them from doing what they need to do to stay in the game. If George Washington hadn't decided to abort the Battle of Brooklyn and cede Manhattan to the British at the start of the Revolutionary War, for example, we'd all be eating 'crisps' and watching the 'telly' right now. He took a loss - but lived to fight on. That's what true champions must sometimes do. A client of mine - I'll call him Aaron - is a bond trader at a major bank. He was earning seven figures annually but envisioned taking his game to another level. During our first meeting, Aaron showed me his numbers, proudly pointing out that he was winning a healthy 81 percent of his trades. He rambled on, saying that his number was the highest in his group and telling me his managers had asked him to train other traders to be as 'consistent as I am.' I looked Aaron straight in the eye. 'Was your performance bonus based on your winning percentage?' I asked him. He paused. 'No,' he replied. 'Exactly my point,' I told him. Put simply, Aaron needed to stop obsessing about being right and start focusing on making money. Several follow-up meetings made it clear that he was taking his winners quickly and holding his losers way too long, even adding to them in some cases. I challenged him to think about what might be triggering this tendency. 'The trade can always come back,' he told me. 'Maybe I'm just not giving it enough time.' That's not an answer; it's a rationalization. 'Come on,' I told him. 'You're either a control freak or a perfectionist, but you always seem to have to be right. And this is limiting your ability to reach your potential.' Aaron, I was discovering, was afraid to admit when he was wrong. So I presented him with a simple formula to help him get out of his own way: H + W + P = E. Hoping + Wishing + Praying = Exit the trade now!
Doug Hirschhorn, a former Division I baseball player and commodities trader, has a Ph.D. in sport psychology. He is the coauthor of The Trading Athlete and has served as trading coach for Deutsche Bank, Schonfeld Securities and Balyasny Asset Management. He is currently a consultant for financial institutions, trading firms and hedge funds. E-mail him at headcoach@tradermonthly.com.
Article source : http://www.michaelcovel.com/archives/cat_trading_101.html
Friday, June 29, 2007
The Da Vinci Code : Application To Stocks, Futures & Currency Market
WHAT'S THE CONNECTION BETWEEN THE STOCK, FUTURES & CURRENCY MARKET, WITH THE DA VINCI CODE?This book attempts to show the application of the Da Vinci Code to financial markets by relating some interesting questions to the contents of Dan Brown's famous book, namely :
1. What has a stock, futures or currency's market's movement in common with the way Sauniere's body was found inside the Louvre - naked and posed like Leornardo Da Vinci's famous drawing, the Vitruvian Man, with a cryptic message written beside his body and a Pentagram drawn on his stomach in his own blood?
2. What has a stock, futures or currency market's movement in common with Leonardo's famous works, including the Mona Lisa and The Last Supper which Sauniere had an obsession with?
3. What has a stock, futures or currency's market's movement in common with the following cryptic numeric and two anagrams scribbled onto the parquet floor with a black-light pen by the dying-curator?
13-3-2-21-1-1-8-5
O, Draconian Devil!
Oh, lame saint!
For more info, visit http://www.picapital.com.my/
Kuala Lumpur Crude Palm Oil Futures : Forecast for the day, 29th June 2007 !
Kuala Lumpur Crude palm oil futures: Stopped out/S.A.
SEPT CPO futures closed higher by RM49 at 2383 on relatively high volume of 6,956 lots.
1. We were stopped out of CPO yesterday at 2364.
2. Yesterday we had called to go long if 2364 is touched.
3. We are going long because the stochastic is on buy signal from near an oversold area.
4. Also, price has move up above the lower Bollinger band.
5. But strictly speaking, we should not go long as this market is prone to U-turn back down.
6. As such a conservative trader (and we) would rather stay aside instead of going long today.
If you are aggressive then you can turn long, but place sell-stop below day before
yesterday’s low, i.e. @ 2314 OL.
7. The next up target is 2560 and the next down target is 2153.
General commentary: We were whipped by the rebounding market yesterday and stopped out at 2364. It was a tricky market alright, hence our suggestion to stay out today.
Next upside targets: 2560/2749 (hit)/3313 (targets revised on June 5)
Downside support: 2153
Ichimoku chart: (Based on kumo (clouds), CPO is long. Kumo support is at 2111. Ichimoku chart will turn short @ 2110 OL (updated on June 11, 2007)
Average True Range for CPO: A.T.R. is 85.36 for CPO. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To get the daily KL Stock Crude Palm Oil Futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
SEPT CPO futures closed higher by RM49 at 2383 on relatively high volume of 6,956 lots.
1. We were stopped out of CPO yesterday at 2364.
2. Yesterday we had called to go long if 2364 is touched.
3. We are going long because the stochastic is on buy signal from near an oversold area.
4. Also, price has move up above the lower Bollinger band.
5. But strictly speaking, we should not go long as this market is prone to U-turn back down.
6. As such a conservative trader (and we) would rather stay aside instead of going long today.
If you are aggressive then you can turn long, but place sell-stop below day before
yesterday’s low, i.e. @ 2314 OL.
7. The next up target is 2560 and the next down target is 2153.
General commentary: We were whipped by the rebounding market yesterday and stopped out at 2364. It was a tricky market alright, hence our suggestion to stay out today.
Next upside targets: 2560/2749 (hit)/3313 (targets revised on June 5)
Downside support: 2153
Ichimoku chart: (Based on kumo (clouds), CPO is long. Kumo support is at 2111. Ichimoku chart will turn short @ 2110 OL (updated on June 11, 2007)
Average True Range for CPO: A.T.R. is 85.36 for CPO. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To get the daily KL Stock Crude Palm Oil Futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Kuala Lumpur Stock Index Futures Outlook : Forecast for 29th June 2007 !
Kuala Lumpur Stock index futures: Stop out/SA
June futures closed lower by 6.0 point at 1347.5 on relatively low volume of 8,992 lots.
1. We continue to stay out as price closed within the Bollinger bands.
2. But if FKLI can close below 1348 today we would turn short.
3. Otherwise, any close above 1348 could be a “buy”.
4. We know that July is already below 1348. July closed at 1339.
5. But it is possible for July to rise to cover the down-gap and close above 1348 today.
6. If you are a contrarian, you would be buying July at the open and place sell-stop at 1334 OL but do not short yet.
General commentary: The Dow rebounded by 90 points and the ringgit was up by 160 pips but FKLI did not rebound in tandem. What a disappointment. Let us see if we are just as anemic today. If FKLI closes below 1344.0 OL (June contract), then cut loss on longs. If you are trading July contract, the stop loss would be 1334.5 OL.
Upside Fibonacci target 1466(Revised on June 15)
Downside targets: 1294/1257/1212
Ichimoku chart: (Based on Kumo (clouds) FKLI is still long. Kumo support is at 1206. Ichimoku chart will turn short at 1205 OL) (Updated on June 11, 2007).
Average True Range for KLFE: A.T.R. is 15.61 points for FKLI futures. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To get the daily KL Stock Index Futures Outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
June futures closed lower by 6.0 point at 1347.5 on relatively low volume of 8,992 lots.
1. We continue to stay out as price closed within the Bollinger bands.
2. But if FKLI can close below 1348 today we would turn short.
3. Otherwise, any close above 1348 could be a “buy”.
4. We know that July is already below 1348. July closed at 1339.
5. But it is possible for July to rise to cover the down-gap and close above 1348 today.
6. If you are a contrarian, you would be buying July at the open and place sell-stop at 1334 OL but do not short yet.
General commentary: The Dow rebounded by 90 points and the ringgit was up by 160 pips but FKLI did not rebound in tandem. What a disappointment. Let us see if we are just as anemic today. If FKLI closes below 1344.0 OL (June contract), then cut loss on longs. If you are trading July contract, the stop loss would be 1334.5 OL.
Upside Fibonacci target 1466(Revised on June 15)
Downside targets: 1294/1257/1212
Ichimoku chart: (Based on Kumo (clouds) FKLI is still long. Kumo support is at 1206. Ichimoku chart will turn short at 1205 OL) (Updated on June 11, 2007).
Average True Range for KLFE: A.T.R. is 15.61 points for FKLI futures. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To get the daily KL Stock Index Futures Outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Kuala Lumpur Stock Market Outlook : Forecast for the day, 29th June 2007 !
KUALA LUMPUR STOCK MARKET OUTLOOK: Forecast for Friday, June 29, 2007: KLCI can fall further if 1348 breaks down but any rebound can ‘save’ the market from a downtrend. Watch!
Technically speaking:
1. As at Thursday’s close at 1350.72 the KLCI was lower by 6.71 points or 0.49%. Losers led gainers 511 to 393. Trading volume was 1.0 bln shares.
2. The local bourse was under selling pressure alright with stocks like BAT, IJM, KLK, IOICORP, BURSA, ASTRO, HLFG, SIME and COMMERZ weighing down on the KLCI.
3. Stocks are weak, and many of our stocks have triggered sell signals, like MRCB, EMICO, ENCORP, AIRASIA, ATIS, FABER, KUB, PBBANK-CA.
4. They are sold out as they have hit our sell-stop levels.
5. Right now, with the KLCI at the brink of falling below the lower Bollinger band, we would rather be safe and reduce positions by selling out those that have hit our stops.
6. But if the KLCI does not fall below 1348, the lower Bollinger band, but instead stage a rebound today, we may have to r-enter some stocks that we have sold out.
7. But as of yesterday’s close, we would classify this market of ours as weak.
8. Today we would wait-and-see, and stay out of the market.
9. There is no stock to watch.
10. The ringgit strengthened back from 3.4810 to 3.4650 for a gain of 160 pips. This could be a hint of a stock market rebound today.
CONCLUSION: The Dow rebounded 90.07 points, yet we lost 6.71 points or 0.49%. What is going on? It would seem that nothing works for the Malaysian market, regardless of how the Dow performed. What a disappointment. We hope to see a rebound today as any fall below 1348, the lower Bollinger band support may result in lower lows. Note that the RSI, stochastic and MACD indicators are already on sell signal.
Long-term Upside Targets:1492 (Target amended on 15/6/07).
Immediate downside targets: 1319/1291/1222
To get the daily KL Stock Market Outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Technically speaking:
1. As at Thursday’s close at 1350.72 the KLCI was lower by 6.71 points or 0.49%. Losers led gainers 511 to 393. Trading volume was 1.0 bln shares.
2. The local bourse was under selling pressure alright with stocks like BAT, IJM, KLK, IOICORP, BURSA, ASTRO, HLFG, SIME and COMMERZ weighing down on the KLCI.
3. Stocks are weak, and many of our stocks have triggered sell signals, like MRCB, EMICO, ENCORP, AIRASIA, ATIS, FABER, KUB, PBBANK-CA.
4. They are sold out as they have hit our sell-stop levels.
5. Right now, with the KLCI at the brink of falling below the lower Bollinger band, we would rather be safe and reduce positions by selling out those that have hit our stops.
6. But if the KLCI does not fall below 1348, the lower Bollinger band, but instead stage a rebound today, we may have to r-enter some stocks that we have sold out.
7. But as of yesterday’s close, we would classify this market of ours as weak.
8. Today we would wait-and-see, and stay out of the market.
9. There is no stock to watch.
10. The ringgit strengthened back from 3.4810 to 3.4650 for a gain of 160 pips. This could be a hint of a stock market rebound today.
CONCLUSION: The Dow rebounded 90.07 points, yet we lost 6.71 points or 0.49%. What is going on? It would seem that nothing works for the Malaysian market, regardless of how the Dow performed. What a disappointment. We hope to see a rebound today as any fall below 1348, the lower Bollinger band support may result in lower lows. Note that the RSI, stochastic and MACD indicators are already on sell signal.
Long-term Upside Targets:1492 (Target amended on 15/6/07).
Immediate downside targets: 1319/1291/1222
To get the daily KL Stock Market Outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Tuesday, June 19, 2007
Kuala Lumpur : Crude Palm Oil Futures
Kuala Lumpur crude palm oil futures: Maintain long/Sell-stop @ 2424 OL/F.B. @ 2501/T.P. @ 2560
SEPT CPO futures closed higher by RM32 at 2457 on relatively high volume of 11,525 lots.
1. We were again correct in calling for a buy and a “gap” to make up for the change of contract
month.
2. We are maintaining long but place sell-stop at 2424 OL to exit longs. If you want a tighter
stop, then use yesterday’s low, i.e. @ 2444 OL to exit longs.
3. If CPO breaches 2500, then “further buy” @ 2501 OH.
4. Next target is still at 2560.
General commentary: We were right about our “F. Tam white inside out up” pattern, which resulted in a higher close, up by RM32. Today CPO may consolidate or may rally to test 2560. We doubt it will stage a sharp pullback. But in case it does, our sell-stops are either at 2444 OL or 2424 OL.
Next upside targets: 2560/2749 (hit)/3313 (targets revised on June 5)
Downside support: 2466(hit)/2393(hit)/2307/2223/2153
Ichimoku chart: (Based on kumo (clouds), CPO is long. Kumo support is at 2111. Ichimoku chart will turn short @ 2110 OL (updated on June 11, 2007)
Average True Range for CPO: A.T.R. is 112.36 for CPO. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To know more about the daily KL crude palm oil futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
SEPT CPO futures closed higher by RM32 at 2457 on relatively high volume of 11,525 lots.
1. We were again correct in calling for a buy and a “gap” to make up for the change of contract
month.
2. We are maintaining long but place sell-stop at 2424 OL to exit longs. If you want a tighter
stop, then use yesterday’s low, i.e. @ 2444 OL to exit longs.
3. If CPO breaches 2500, then “further buy” @ 2501 OH.
4. Next target is still at 2560.
General commentary: We were right about our “F. Tam white inside out up” pattern, which resulted in a higher close, up by RM32. Today CPO may consolidate or may rally to test 2560. We doubt it will stage a sharp pullback. But in case it does, our sell-stops are either at 2444 OL or 2424 OL.
Next upside targets: 2560/2749 (hit)/3313 (targets revised on June 5)
Downside support: 2466(hit)/2393(hit)/2307/2223/2153
Ichimoku chart: (Based on kumo (clouds), CPO is long. Kumo support is at 2111. Ichimoku chart will turn short @ 2110 OL (updated on June 11, 2007)
Average True Range for CPO: A.T.R. is 112.36 for CPO. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To know more about the daily KL crude palm oil futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Kuala Lumpur Stock Index futures
Kuala Lumpur Stock index futures: Turn long/Sell stop at 1368.0 OL
June futures closed higher by 26.5 point at 1384.00 on relatively high volume of 6,960 lots.
1. FKLI leapt by another 26.5 points to close outside the upper Bollinger band, at 1384.
2. This is a strong buy signal. We have turned long at 1362.0 and we are maintaining longs.
3. Place sell-stop at 1368.0 OL.
4. We expect a strong rally today to “flush” out heavy shorts.
5. We should continue to see sharp rallies for now, until FKLI hits at least 1466.
6. Thereafter we will look for a toppish Japanese candlestick pattern to exit and maybe
even short.
7. For now, expect the “shorts” to be slaughtered!
8. Upside Wave 5 target is 1466. After that we look for a toppish Japanese candlestick
pattern before shorting.
General commentary: Finally, we have an upside breakout of a consolidation, exactly as we had anticipated. This consolidation started at least from April 5 and is therefore a 2½-month consolidation. As such, now that it is seen breaking out – you can expect a powerful rally. Shorts beware! Expect FKLI to hit 1466.
Upside Fibonacci target 1466(Revised on June 15)
Downside targets: 1294/1257/1212
Ichimoku chart: (Based on Kumo (clouds) FKLI is still long. Kumo support is at 1206. Ichimoku chart will turn short at 1205 OL) (Updated on June 11, 2007).
Average True Range for KLFE: A.T.R. is 19.54 points for FKLI futures. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To know more about the daily KL stock index futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
June futures closed higher by 26.5 point at 1384.00 on relatively high volume of 6,960 lots.
1. FKLI leapt by another 26.5 points to close outside the upper Bollinger band, at 1384.
2. This is a strong buy signal. We have turned long at 1362.0 and we are maintaining longs.
3. Place sell-stop at 1368.0 OL.
4. We expect a strong rally today to “flush” out heavy shorts.
5. We should continue to see sharp rallies for now, until FKLI hits at least 1466.
6. Thereafter we will look for a toppish Japanese candlestick pattern to exit and maybe
even short.
7. For now, expect the “shorts” to be slaughtered!
8. Upside Wave 5 target is 1466. After that we look for a toppish Japanese candlestick
pattern before shorting.
General commentary: Finally, we have an upside breakout of a consolidation, exactly as we had anticipated. This consolidation started at least from April 5 and is therefore a 2½-month consolidation. As such, now that it is seen breaking out – you can expect a powerful rally. Shorts beware! Expect FKLI to hit 1466.
Upside Fibonacci target 1466(Revised on June 15)
Downside targets: 1294/1257/1212
Ichimoku chart: (Based on Kumo (clouds) FKLI is still long. Kumo support is at 1206. Ichimoku chart will turn short at 1205 OL) (Updated on June 11, 2007).
Average True Range for KLFE: A.T.R. is 19.54 points for FKLI futures. This implies you need to put a stop above/below this A.T.R. or you can get stopped out due to the volatility factor. We advocate a 1.5 x or 2 x the ATR. We are using a 5 days ATR.
To know more about the daily KL stock index futures, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
KL Stock Market : Forecast for the day!
KUALA LUMPUR STOCK MARKET OUTLOOK: Forecast for Tuesday, June 19, 2007: KLCI expected to breakout, but only select stocks are in demand. Pick your stocks wisely. SLB/Hold.
Technically speaking:
1. As at Monday’s close at 1372.28 the KLCI was higher by 11.63 points or 0.31% but on slightly
higher volume of 1.36 bln shares. Gainers led losers 499 to 403.
2. Yes, we are just a whisker away from the all time high close, which was registered on June 6,
when it closed at 1372.38.
3. After witnessing this “breakout” of the Bollinger bands for a close above its upper band, you
can expect a “gap” up opening if the Dow closes in positive territory last night.
4. Note that the Dow is also a hair’s breath from its all time high. The Dow closed up 85 points, at
13639.50 on Friday while its all time high is 13692.00 clocked on June 1.
5. It doesn’t take a genius to figure out that if the Dow closes at a new record high on Monday,
you can expect our KLCI to “gap” up.
6. But, we are very disappointed with the performance of individual stocks even as the KLCI is
about to make another new record high close. There just isn’t much oomph at all on many of
our stocks as they remain lackluster and lacking in follow-through buying.
7. It is only a few situational stocks from the strong sub-sectors like property, oil and gas,
construction stocks that spice up what would otherwise be a very dull market.
8. Our stocks lack buyers. Where have all of them gone? Take a look at Singapore, Hong Kong,
Korea, Australia, China, Indonesia, Philippines and even Thailand where its index still sparkle
despite the political uncertainty caused by the military junta. It’s a crying shame for
Malaysian stocks not to be played up. Instead, at best we are only playing ketchup (catch-
up).
9. It is frustrating, as it would take a sharp-shooter to be able to buy the right stocks to see
some monetary gains. Again, what a shame!
10. Still, we are sharp enough to “zero in” to a few prospective ones like SAPCRES-WA, FAVCO,
BRDB, SAPTECH, EDEN, MUHIBAH, MUDAJAYA, BURSA, COASTAL, etc.
11. RANHILL was suspended after it was reported that it struck oil! It closed up 37 sen to close
at 2.18, off the high of 2.35. Based on Elliot wave, the targets are 2.65 and 3.70.
12. We think BURSA is potentially breaking out and the cheaper buy would be BURSA-CC,
which is at-the-money. It is good for 30 sen, at least, if Bursa hits 12.90.
13. New stocks-to-watch are KPS, BURSA-CC, SPSETIA.
14. PJDEV and PJDEV-WB also looks good.
15. The ringgit rose strongly by 350 pips from 3.4550 to 3.4200, and this should translate into
a stronger market for our stocks.
CONCLUSION: We expect a bullish breakout for the KLCI. Not all stocks would rally, as such if you want to capitalize on the KLCI rally, switch to stock index futures. If we are right about the Dow making new highs to 14400, our KLCI could test 1492 and FKLI to test 1466. This will be another good round for trend followers. Finally, our KLCI should be trending up for now!
Long-term Upside Targets:1492 (Target amended on 15/6/07).
Immediate downside targets: 1334/1291/1222
To know more about the daily KL stock market outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Technically speaking:
1. As at Monday’s close at 1372.28 the KLCI was higher by 11.63 points or 0.31% but on slightly
higher volume of 1.36 bln shares. Gainers led losers 499 to 403.
2. Yes, we are just a whisker away from the all time high close, which was registered on June 6,
when it closed at 1372.38.
3. After witnessing this “breakout” of the Bollinger bands for a close above its upper band, you
can expect a “gap” up opening if the Dow closes in positive territory last night.
4. Note that the Dow is also a hair’s breath from its all time high. The Dow closed up 85 points, at
13639.50 on Friday while its all time high is 13692.00 clocked on June 1.
5. It doesn’t take a genius to figure out that if the Dow closes at a new record high on Monday,
you can expect our KLCI to “gap” up.
6. But, we are very disappointed with the performance of individual stocks even as the KLCI is
about to make another new record high close. There just isn’t much oomph at all on many of
our stocks as they remain lackluster and lacking in follow-through buying.
7. It is only a few situational stocks from the strong sub-sectors like property, oil and gas,
construction stocks that spice up what would otherwise be a very dull market.
8. Our stocks lack buyers. Where have all of them gone? Take a look at Singapore, Hong Kong,
Korea, Australia, China, Indonesia, Philippines and even Thailand where its index still sparkle
despite the political uncertainty caused by the military junta. It’s a crying shame for
Malaysian stocks not to be played up. Instead, at best we are only playing ketchup (catch-
up).
9. It is frustrating, as it would take a sharp-shooter to be able to buy the right stocks to see
some monetary gains. Again, what a shame!
10. Still, we are sharp enough to “zero in” to a few prospective ones like SAPCRES-WA, FAVCO,
BRDB, SAPTECH, EDEN, MUHIBAH, MUDAJAYA, BURSA, COASTAL, etc.
11. RANHILL was suspended after it was reported that it struck oil! It closed up 37 sen to close
at 2.18, off the high of 2.35. Based on Elliot wave, the targets are 2.65 and 3.70.
12. We think BURSA is potentially breaking out and the cheaper buy would be BURSA-CC,
which is at-the-money. It is good for 30 sen, at least, if Bursa hits 12.90.
13. New stocks-to-watch are KPS, BURSA-CC, SPSETIA.
14. PJDEV and PJDEV-WB also looks good.
15. The ringgit rose strongly by 350 pips from 3.4550 to 3.4200, and this should translate into
a stronger market for our stocks.
CONCLUSION: We expect a bullish breakout for the KLCI. Not all stocks would rally, as such if you want to capitalize on the KLCI rally, switch to stock index futures. If we are right about the Dow making new highs to 14400, our KLCI could test 1492 and FKLI to test 1466. This will be another good round for trend followers. Finally, our KLCI should be trending up for now!
Long-term Upside Targets:1492 (Target amended on 15/6/07).
Immediate downside targets: 1334/1291/1222
To know more about the daily KL stock market outlook, subscribe to our daily stock and futures newsletter at http://www.picapital.com.my/
Tuesday, June 12, 2007
Profitability of Technical Analysis
DOES TECHNICAL ANALYSIS WORK?
Investors often ask these questions: Does technical analysis work? Is it of any value to the investor as an investment tool to forecast market trends? Are the financial markets a random walk?
This book reveals that the stock market is not a random walk.
Of 13 technical trading systems tested on Malaysian stocks, 6 systems consistently beat the market. Which systems are the best?
THIS BOOK WILL REVEAL THE 6 BEST TRADING SYSTEMS!
The results also show that technical analysis tools as represented by the technical trading systems do in fact work.
Amongst other findings, the Channel Breakout (C.B.O.) 20-20 trading system has been found to be the most robust and profitable tool for the trading of Malaysian stocks.
More Info Visit http://www.fredtam.com
Subscribe to:
Posts (Atom)
