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Monday, November 16, 2009

Went for ChartNexus Accelerated Learning Program

I went for ChartNexus's Accelerated Learning Program today, courtesy of Philips CFD. It's a basic course covering the following:
  • Understanding the concept of price movement
  • Analysing volume on the charts
  • Trading on support and resistance
  • Utilising important candlestick reversal patterns
  • Money Management: Your key to survival
The trainer was Kelvin.

Ok, most of the things were really basic. The reason I went?
  1. I brought my gf along, so that she can understand a little on what is technical analysis.
  2. I want to see if my self-study so far have missed out any important thing. As I always say, incomplete knowledge can kill.
So what transpired?

Morning, I went to had a nice breakfast with my girlfriend at Burger King.



After which, we went to Realty Centre.




This is where Chartnexus held the course.




What I realised I missed out was my understanding of the concept of risk/reward ratio in trades, and certain money management skills. These were definitely taught in books, but somehow, I have been careless in not mastering them well.


Reward-risk Ratio

In every trade, we need to calculate the reward-risk ratio before entering. The ratio should be greater than 1 before we decide to risk going in. Kelvin taught about ESP, Entry, Stop loss, Profit Target.

DBS was used as an example with Friday's close. From the chart, DBS's support was at $13.76 and resistance at $14.80. Stop loss is calculated at 4% delta from the support (or resistance if we short sell) line.

In the example,
DBS -- Long trade
Entry = $14.10
Stop loss = $13.20
Profit Tgt = $14.80

From here, we calculate that
Risk = $14.10 - $13.20 = $0.90
Reward = $14.80 - $14.10 = $0.70

The reward-risk ratio = 0.7 / 0.9, which is smaller than 1. This makes the trade not worthwhile.



Money Management Strategy -- Position Sizing

As George Soros put it:
The number of times you win or lose doesn't matter. It is how much you lose when you are wrong and how much you win when you are right that matters.
To manage position size, only risk 2% of the total trading capital per trade. An example of $50000 trading capital was given, and the risk is about $1000 (2%).

However, to me, this is a little subjective as not everyone starts with the same amount of trading capital. Everyone's risk appetite is also different.


All in all, it was quite fun. Although there wasn't much new things for me, the 2 things I learned were some of the most important basics that all traders must know.

So now, trading or investing? I'm still experimenting with it. But from my dividend investing strategy so far, I have garnered sufficient dividends to give me buffer for attempting more trades from now. Let's see how it goes then.

2 comments:

  1. Hi Jun Wei,

    For money management, they "borrowed" from Dr. Elder's 2% and 6% money management rules.

    Cheers!
    dream

    ReplyDelete
  2. Hi dream

    thanks for the info!

    ReplyDelete

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