Friday, October 24, 2014

Finding Multiple Losing Trades

This article is more about futures trading using technical trend indicators and the capital risk ratio needed in order to have trading success.

As we will not know when we will keep buying and selling on trades that keep generating losses in a row on every single trade for more than we can afford to lose, we need to find the best solution by doing historical data collection and back testing them to find how is the pattern of the losing trades.

There was a very good example that happened recently on a technical trend indicator using in my 2 books especially in the "101indicators On Futures Trading" book where there were total 8 multiple losing trades in a row. If 1 point of losses is equivalent to 25 dollar, the 8 multiple losing trades had a total of 198 points of losses which costed a trader to lose slightly more than 5000 dollar per contract which included its trading cost. Without a higher capital risk ratio that more than 3x or even higher to 5x, a trader will fail to proceed his/her technical trend trading dream in futures trading after being hit with such a bad incident.

Remember, this can be happened in just a short period of time for less than a month while the technical trend trader may take more than three months only to recover the losses and accumulate profits in the next three months; which mean, it will be seven months to see a better result if the trader does face the losses in the first month where he starts. Can a novice trader equip with such a strong psychology patiently keep doing trades for seven months?

No doubt the technical trend indicator did make nearly 1000 points in 10 months in its accumulated profits since the beginning of this year, or 25,000 dollar per contract in accumulated profits in 10 months, it is still important for traders to realize that multiple losing trades will kill traders if there is no control in their capital risk ratio management.

In a simple note: Over-trading kills good technical trend traders. No need to keep searching high and low to find how to avoid multiple losing trades if you do not have such risk management discipline. Remember to find a technical trend indicator that can make good accumulated yearly profit year after year and you will be safe along your trading life cycle as a technical trend trader in futures trading.


Tuesday, October 21, 2014

Why Market Is Shortchanging Investors

Wouldn't it be nice if all investors in stock market could fatten up too and not the so called "zero sum" game investing terminology or jargon depend on the market up and down to get some profit or face losses along the trading life cycle?

20 years in capital market industry and still searching for a right alternative in accumulating wealth, I am wondering how can a market not shortchange investors! We all are being brainwashed on the zero sum game in capital market and are probably earning lower than inflation rate while seeing few top guns in listed companies being paid well with extravagant bonuses and shares options.

We are not jeremiad against those "excessive pay" but the yield they get and what investors have received is not well balanced. No doubt that investors can take advantage of market gains by selling off the shares to profit take or cutting losses, but why not the company simply pay higher dividends to attract and keep more investors? (Value Investing should be the main objective)

The capital market is used to raise money to grow your business from investors, but when your business has done well you have forgotten the investors? The partnerships have turned sore and those top guns may argue that their hard work should be well compensated, and should investors simply not be paid for the risks they are taking is no longer the issue for them!

While believing the zero sum game in capital market trading which had been inherited so long a go, is anyone thinking of win-win situation that can last forever by practicing the motto - never shortchanging investors while growing up your business. Don't use this well regulated platform to raise money if you fail to deliver value in the end.

Last but not least, investors must discern enough on value investing too. Investing stock is like buying a business. Buy only good stocks! Don't speculate unless you don't mind to buy high sell low.

(I am doing my best in telling the world of value investing, send this article to your friends if you think it can be a good reminder for investors)

Thursday, October 16, 2014

What Is 1000 Billion Meant To Me

1000 Billion!? A trillion!? Yes, it is 1000 Billion the figures that appear daily in my new computer system to reflect the financial health level of our top 30 component stocks in Bursa Malaysia. It is the market capitalization of the total 30 largest stocks that is reflected in the FTSE Bursa Malaysia Kuala Lumpur Composite Index, or FBM KLCI index in short, at about 1800 level.

Believe it or not, FBM KLCI index may have impact to our daily life! For example, they (the 30 stocks) have issued shares and borrowed money from all investors (included all of us who purchased the shares) through the shares listing in Bursa Malaysia. When listed in Bursa Malaysia, they have their values (that is, shares prices). With the shares prices and the issued shares, we indirectly get the 1000 Billion value which is reflected in FBM KLCI index!

If FBM KLCI index at 1800 level, we may have 1050 Billion in value for all the 30 stocks, and if FBM KLCI index down to 1750, we have 1000 Billion in value. FBM KLCI index fluctuate everyday and so it the 1000 Billion value!

Just imagine: if the 1000 value is going down below 500? FBM KLCI index "crash boom bang"! The money we "lend" to the 30 stocks will lose half the value and it will affect our daily life too! Again, you may think you do not lend the money to them and will not be affected, you are wrong because your government agencies do invest in the 30 stocks using your "money"!!! (your "money" did go up from 500 to 1000 before that!!!)