Day Trading or Trade on multi month cycles or Investing Part II

Earlier, I had a blog post on which style of playing the market I should adopt.

As I proceed on, I become more and more convinced that a longer term approach is more feasible for me. Although I do see people earning nearly $6k extra monthly by day trading even with a full time job, I'm not sure if they can focus or are focussing on their day jobs. I know I can't.

While it's true that you don't need your job if you can consistently profit near to $6k monthly just by trading alone, that isn't really the desired path I want to take for reasons below:

Day Trading or Trade on multi month cycles or Investing

Sometimes, I just wonder which is better....

I have seen people in my age group day trading (contra) successfully, making a few grands a month.

I have seen people in my age group trading on positions and multi month market cycles.

I have seen people in my age group doing FA investing.

Introduction to Technical Analysis and Fundamental Analysis

Introduction to Technical Analysis and Fundamental Analysis

Let me begin by stating that I'm a believer of both camps of technical Analysis and fundamental Analysis. This article is primarily focused on the very basics of what is technical and fundamental analysis, and some of the criticisms on them.

Technical analysis and fundamental analysis are merely two different analysis methods. In a nutshell, technical analysis looks at price actions and indicators, and uses this data to predict future price movements. Fundamental analysis, however, looks at economic factors, business fundamentals, stock price vs value, etc.

Reasons for current portfolio

The most important thing about trading and investments is the reason why you are willing to part with your monies...

This post is to serve as a reminder to me on my wrong buys, bad buys, as well as proper buys, that's currently on my portfolio... A separate post will be used for completed sells....

My personal short write ups:

Stock: SPH (average $3.65)
Reason for purchase:
Dividends counter. Defensive stock in a defensive business. Positive expansion into magazines and property arena.

IF SANTA CLAUS SHOULD FAIL TO CALL BEARS MAY COME TO BROAD & WALL

An interesting paragraph from Stock Trader’s Almanac 2010


Santa Claus tends to come to Wall Street nearly every year, bringing short, sweet, respectable rally within the last five days of the year and the first two in January. This has been good for an average 1.5% gain since 1969 (1.5% since 1950). Santa’s failure to show tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices. We discovered this phenomenon in 1972.

Lesson learned from Ying Li's loss

Loss, but I'm happy. The reason being, I learned a valuable lesson in trading.

Sell on emotions ==> the worst mistake a trader can make. I bought near the lows at 0.63, I sold at the low at 0.62, to see it rise to 0.66 in 2 days.

Lesson learned: because I used the daily charts, I should wait for a few days, not just 2 days, before cutting losses. For such short time frame as I have done, I should see the hourly charts in the future, and not the daily charts. My set up was there, but my time frame was wrong.


My reason for purchase was because... Ying Li was at the support of the down channel. The CCI and %R sold severe oversold, and a rebound is due soon. Indeed, it rose today.

Trading is not as easy as seeing indicators and buying or shorting because of indicators. It's also about money management and emotional control... something which cannot be easily learned from books.... I have much to learn :)

Lost $75 -- mistake detected

Today, I shorted the Philips CFD index today using poems CFD at STI 2773, but covered at 2782 when STI broke 2780 resistance... Fortunately for me, no brokerage charge as it was my first trade.

As milamberz in CNA forum puts it:

Shorting --> Indefinite losses if you cannot control your cut loss pts. Stocks are meant to create wealth and go up with inflation. Since duno how many eons ago, there is no such thing as deflation anymore. If there is no deflation, stocks can only get more expensive. Hence longing is a more logical choice if you believe in inflation rather then deflation. SAY if you shorted at 1900. Are you sure STI will get back to 1800 for you to cover? Pscyhologically you are at a losing end already.

--> Furthermore, there are finance charges for shorting. This is a killer as it means you cannot hold your shorts for long whereas if you long, you can hold the shares as long as you play within your means

---> Even at such a stage, shorting may mess up your mind as it stops you from going long at certain point. There are risk involved.

My emotional maturity clearly is not sufficient to short. I will need to brush up on this.
Going short is much tougher than going long.

My main mistake here is exactly what I talked about way earlier.... pre-empting the market. Granted, Yahoo charts wasn't working today, so I couldn't check the intra day indicators. However, that's not an excuse.

When trading with Elliott wave patterns, a high probability set up would be to wait for a pattern to be complete before entering the trade. I did not do this. Lesson learned.
Higher probability can be achieved if we couple a complete pattern with trendlines and candlestick patterns.

Going forward, I must remember not to be itchy hand to pre-empt the market..... :(

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.

Crash coming... Panicking? Don't!

Ok, an imminent crash is coming. Do you panic? Run! Shout help?!

DON'T!

First, ask yourself if you are a trader or an investor.

Trader
If you are a trader going on the long side, then it's time to cut loss or look for an exit strategy. Then place yourself on the short side. Being nimble is key.

A trader thrives on volatility and nimbleness. Be it bull or crash, both are opportunities to profit from going short or long. The key is discipline in following a system.


Investor
If you are an investor, a crash is an opportunity to buy more of your favourite company at a lower price!

A crash is like a sale. When there are sales in shopping centres, throngs of people buy more. Yet when the stock market is giving a sale, people run. Is there any logic in that?



It's time to stay calm and rational, to define your money and risk management strategy in such turbulent times.

Pre-empting the market too early?

I don't really understand why people attempt to pre-empt the market with Elliott waves when the waves are not near completion. Why jump so fast to short?

Reasons:
1) Corrective waves could be complex. This is expected to be a corrective wave at the primary level right? It could well be an A-B-C-X-A-B-C or a A-B-C-D-E triangle...

2) Impulse waves of C could have extensions too.

3) Although Elliott waves of different indexes do tend to move in tandem, there's no rule that state that they must do so.

I read somewhere, the cure to negative divergences could be even higher prices... I thought trading is about buy high sell higer, or sell lower buy lower... Hmmm....


Well, I'm still new and noob at trading. Am I missing something out?

A little story on Mr. Market

This is the era where many many people are now financially aware because of books like rich dad poor dad, because of Adam Khoo's types of books, because of so many new finance books popping up here and there...

And with the advance of internet technologies, coupled with online brokerages which charge lower commissions, more and more people are being lured to equities, properties.... Greed drives their buying, and all became victims of the Greater Fool's Theory.

So what happened? Equities rise and rise, and everyone becomes happier and happier. You sell to me, I buy from you, etc, and the price goes higher. But all these are gains without work! Gains without any productivity! Gains that do not contribute much to the increase in GDP!

Sooner or later, the dream will burst. I.e. Oct 2007. Many dreams were shattered. But there are still newbies like me who just got financially aware as well, jumping into the bandwagon. IT'S VERY CHEAP NOW, we would shout, and jump in to catch..... a falling knife...

Panic of all panics! The market goes lower. Bums like me hold on. Others, having read and decide to apply TA (halfway), sell off their holdings during March in expectations that they can buy back lower at a later price. Some included shorts to help earn back lost capital. Why not? They say. Trade the trend! It's a downtrend!

Yet, Mr. Market heard them. The market rose against all odds, again and again. Load more shorts! Short every peak! Market will come down again! Mr. Market knows it and move higher, grinning evilly at these newbies as they pay him more and more.

It's a new bull MARKET!!!!! Don't SHORT! BUY! BUY BUY! Buy high, sell higher! Everyone started putting their remaining cash to long. Mr. Market smiles encouragingly, and climbed higher as a enticement for them to buy even more and regret selling early. But... the economy has yet to return to full recovery. There are still many potential problems with the massive amount of printed money. Don't care! Trade the trend! It's an uptrend! STI WILL GO TO 3000 and beyond!

STI rose and rose. RECESSION IS OVER! BERNANKE SAYS SO! BUY NOW!!! STOCKS ARE STILL CHEAP!!! And the buying continues.

What will happen next? We have to watch over the next few months.

The trend is your friend!

This is written after reading the Jul 09 edition of Technical Analysis of Stocks & Commodities.

The old saying that the trend is your friend is important for every trader. A trend reversal does not occur immediately with the blink of an eye. In most cases, a trend slows down and stops before reversing; a pause occurs in its movement as a transition period, after which the trend continues or reverses.

During the transition, certain price formations/chart patterns emerges. These reflect mas psychology of the people playing the market. And since they are based on human psychology which does not change much over the years, we could predict with reasonable probability.

1) The condition of any model is the existence of the previous trend.
The previous trend is an important requirement for a model/chart pattern/price formation. You need to know the trend before being able to determine whether a reversal or a continuation would occur. If there were no trends, or if you could not identify any trend, then any possible price formations/chart patterns could likely be a false alarm. So, to be able to differentiate models, one of the key thing to know is to be thorough in your knowledge of areas within a trend structure.

2) The first signal of the oncoming reversal in the existing trend is often a breakthrough of an important trendline.
The breakthrough of the downward trendline by EW International in Mar shows the reversal that led to the multi-month rally till now. However, the breaking of the main trendline does not always signify a trend reversal. It's probably just a change in trend dynamics. Whther it will turn out to be a reversal or price consolidation will only become clear on hindsight. Of course, breakthroughs could mean completion of a price model formation as well (Head and Shoulders, double top, double bottom, etc).

3) The larger the model, the more significant the following movement.
"Larger" refers to the height, the width, the extent, of the price model. Height is proportional to the volatility of the price movements, while width represents the time duration the model took to complete or form. The longer it takes for the pattern to be formed, the more important the movement, and the more significant and powerful the following price patterns and movements.

4) A price breakthrough must be strong and vigorous.
In other words, the price should literally "fly" through the trendline, breaking it like a piece of tofu. Not hesitate around it.

I made a small mistake in selling UOB as soon as STI broke through my main trendline weakly. Indeed, STI rose and pushed itself into the trendline again after a few days.

5) Increased volume at breakthrough indicates movement.
Increases in market volume shows interest of market participants. More and more want to enter (or exit). The rule of the thumb is, volume should rise in the direction of the current price trend. In an upwards breakthrough, volume should increase as price increases, whereas in a downwards breakthrough, volume should increase as price decreases.


These classical form of technical analysis should help in determining the trends, trends reversal, or Elliott Waves. With a strong knowledge in different forms of analysis (including candlesticks and fibonacci), one can count with reasonable accuracy the waves and predict with even greater probability the subsequent price movements.

TA & FA

A long time since I have written into this blog. Many of my ideas has changed since the last posting. I shall summarize mainly in points instead of writing one whole long paragraph.

1) I have found renewed interest in Technical Analysis. :)
Basically, before my renewed interest, I thought all there was to TA was just looking at indicators, candlesticks, and finding patterns. Then thanks to Market Talk at CNA forum, I'm impressed by the vast knowledge of the forumers in charting channels, doing Fibonacci analysis, and best of all, applying the Elliott Wave Principle. It really opened my eyes to a new world in TA such that I begun re-reading up and hungrily searching for data on Elliott Wave counts!

In addition, I have learned a lot from many kind forumers at Market Talk CNA forum.


2) I have done a little bit of short term trades along with buying more blue chips. In addition, I have offloaded Darco when a certain financial institution did a classic pump and dump (in TA). My portfolio is rather different from the last time I posted it. Will do an update soon.


3) I have finally realised that one of the most effective ways to earn is to couple TA together with FA. TA is useful in helping to identify a good time to enter, while FA is used to identify good stocks that will generate good returns over the long run. Used properly, we can "time" the market effectively while buying good and undervalued stocks, hence multiplying our rate of return. In a way, the probability of going wrong is reduced.

I shall try to post some charts while polishing my TA skills. Hopefully I will have time to learn more FA as well at the same time.

Yet... even though I'm more into TA at the moment, my strategy for improving cashflow by dividend investing remains. Will delve more into this in a later post.