Thursday, July 29, 2010

Another resistance being taken out

Once again, the markets break another stubborn resistance at 1360 and try to marching upward again, but are too bad the break up is not supported by higher volume. Honestly it is a quite suffers week for those position holders that holding long after the break up of 1350 and I also keep scratching my head for our market movement.

When looking at the chart back, it is definitely a good week for day traders as they can earn a lot of fortune by sell at 1358-1360 level and then buy it again at 1351-1352 level. I was begins my trading life as a day trader before, and my record was able to wining 5-6 times in a roll but in the end I still given out all my profit in a trend. This is why I reluctant to get in the market for scalping and I also understand how addicted it is when you winning in a roll.

However, I also get to know some people that very successful in day trading, so it doesn’t means day trader is unable to survive in the long run. Day trader are always try to trade in highly volatile market rather than nearly dead market to avoid slippage that will deteriorate their exit level. What I understand is that day traders have to focus more on their exit point rather than entry point, so when they are wrong, it require them to immediately to response to the market, cause a single delaying on decision making will bring disaster to their account. I admit I’m kind of traders that like to think, that’s why I think day trading is not suitable for my personality.

Tuesday, July 27, 2010

Clues from open interest and prices


may




june




july




spot

next



spot

next



spot

next


31/5

0

14466

14466

30/6

0

14449

14449

30/7




27/5

14250

12604

26854

29/6

8920

13322

22242

29/7




26/5

18642

8662

27304

28/6

10783

9240

20023

28/7




25/5

20135

5331

25466

25/6

14523

6517

21040

27/7




24/5

20059

3277

22336

24/6

16443

2483

18926

26/7

21304

5077

26381

21/5

20251

2301

22552

23/6

16946

1304

18250

23/7

19580

2110

21690

20/5

20866

2061

22927

22/6

19890

1055

20945

22/7

19539

1600

21139


As a futures technical trader, we are studying the market in 3 aspects which includes price, volume and open interest. Out of these 3, price is most important, however, volume and open interest did provide another confirmation on the price action and indication of changes of trend. By studying volume and open interest, it can serve as an alarm when we are too comfortable in riding the trend.

I am quite particular on open interest of our market because with the massive increase in open interest, the market only able to move significantly in 1 direction rather than in range. On 26/7/2010, the open interest was increasing 21.5% from 21690 to 26381 after successful breaking the resistance at 1350. Increasing in open interest only can bring meaning that more buyers come in and they feel the market able to go higher again in the future. On the hand, it also represent more sellers come into the market by judging any price above 1350 is a good price to short cause they carrying bearish view on the market. Open interest alone can’t give too much information on market direction, however, it is different story when it combine with utilization of price changes.

According to “Trading for a Living” from Elder Alexander, when open interest increase during a rally, it confirms the uptrend and give signal that it is safe to add long positions due to more sellers are coming into the market. When sellers can’t withstand the pressure of their losing position become wider and wider, soon they will close their position and their short covering is likely to push the price higher. Until a point where open interest goes flat during a rally, it warns the uptrend is getting old and best gains have been made and it is advisable to avoid go in any long position. When open interest falls during a rally, it shows both winners and losers are getting profit and cutting losses respectively, and the uptrend is ready reverse so it is time to goes short. In addition, when open interest increase during a trading range, it is a bearish sign because commercial hedgers and savvy institutions are more likely to sell short than speculators and making the prices couldn’t go up.

So our market was in the 1st situation or 4th situation? It is too bad that I don’t have any data to doiback testing on connection between prices and open interest, or else I can obtain another useful tool in identifying the market direction. So now our market was moving between 1350 and 1360, and it is still safe for long position as long our cash market didn’t close below 1350.


Monday, July 26, 2010

Trading 4

I was entering a long position for FKLI Aug at 1252 during market closing on last Friday (26/7/10). The long position being initiated is due to break up of my strongest resistance at 1350 together with the rally of regional markets. I hold my bullish view on our market as well as other market which supporting by major good financial report.

Though market was entering into bullish mode, but I don’t expect it able to achieve any higher attempt in short term and I expect it need to take quite some time to reach caused by lack of FDI involvement. According to world investment report 2010, FDI in Malaysia plunged 81% from RM23.47 billion in 2008 to just RM4.43 billion in 2009. The reduction in FDI definitely is not a good sign to the market because the funds are needed to sustain the volatility of market. When FDI is not in, eventually it is quite difficult to maintain some significant movement since our cash market are solely depend on local players only.

Anyway, I set my target profit around 1370-1380 and I will review it from time to time subject to any unexpected matters. On the other hand, I will pay my attention on new support point at 1350 and it shall alert me that bear is trying to take over the rally if market is touching this support point again.


Friday, July 23, 2010

Malaysia Boleh!!!

I’m sure it is quite disappointing for our local players that long our FKLI on previously. With the rally of Dow Jones for around 2%, our market again doesn’t show any buying interest from investors. When Dow Jones plunged 2%, there is no panic selling, when Dow Jones rally 2%, there is no enthusiasm in buying, so what does it means? Is it investors are totally out of connection with oversea market and they don’t know the performance of other markets?

I remember in last time, the movement of 1% in Dow Jones can easily cause our market to gap up or gap down more than 10 points, however, when looking at the chart now, it definitely quite disappointing and I’m sure this is the reason why more and more experienced traders unwilling to trade our market. The strongest resistance in FKLI still capped at 1350 and the support establish at 1340 with higher low pattern as you can see from the chart. I assuming the market was looking for a break up in nearer term corresponding with the breaking high of US market. As I looking back the chart in Dow Jones, the previous high in April was around 11200 while Hang Seng was 22000. To make a comparison, Dow Jones yesterday closed at 10322 and Hang Seng now doing around 20800 which means Down Jones need 900 points to go whereas Hang Seng still lack of 1200 points to break high. But looking at our market, we just less than 10 points to break previous high, so I really proud to be a Malaysian and Malaysia really boleh!!!


Thursday, July 22, 2010

Setting up trading plan

Recently I just start doing my manual best testing for the signal by applying stop loss and profit target level with discipline. Before I going review the result of my back testing, I would like to share a bit the strategy that I was using all the time.

Actually I was using moving average to trade the market, and I allocate 5k for trading 1 lot. I start to put myself in trading in the early of august and my initial capital was around 9k. I did suffer some draw down from the day I start trading and once my capital had grow till 10k, I start to trade 2 lots whereas start trading 3 lots once hit 15k plus using some flexible trading style. With such a method, I achieved 70-80% of capital growth around 1st of December, and for me it is quite impressive return which I don’t think there is any kind of investment can realized such a great return. So this are the ways how I trade futures in the past. Though I did success for some period in futures trading, however I still can’t go through greatest sideways that happen in April 2010. I am very disciplined trader in following every signal, but in the end disaster still approaching me, so I start to thinking how will be the result if I put my per-determined cut loss and profit taking level before I go in any trade.

In the past, I let the market to decide my cut loss and profit taking, but now I wish to have my own game plan before I going into any trade so that I know what I need to do when I right as well as what I need to do when I wrong. As a result, I adopting 1:3 risks to reward ratio which are 9 points cut loss and 31 points profit taking for every signal I going to trade together with miscellaneous rules to follow. I was doing the back testing from early August to December and I allocating 10k for trading 1 lot so that I can compare the return on different of trading method. Once I finished the testing, the result was quite disappointing…..For this 4 months of trading using new approach, I able to achieve 900 of profit only which is too much different from what I get in the past. As I looking back the at those trade, I had noticed I being stopped out a lot by the noise so the frequency of losing trade was higher than what I expected.

8000 vs 900….. 1 method that can increase my capital in faster way but more risk involves, whereas another method can allow me to survive in the market in long run, but the return was not promising as compare to 1st method. After this back testing, it raise up some question to me.

1.Is it our market volume too sluggish, so it is not effective in using predetermined trading plan?

2.Do I have to widen my stop loss so that to avoid those noises?

3.How I suppose to get in to the trend if the signal can give me 100 pts of profit since I setting up 31 pts profit target?

It is easy to set up a trading plan but it is not easy to follow it exactly. I think I have to work harder to come out some trading plan that really suitable to apply in our market. There is no perfect ways to beat the market. The only way to beat the market is finding some method that suit to our trading style and it is valid to survive in long run then it consider as ultimate trading plan. Guess what, my first trading plan was failed, but is ok, if I not giving up keep trying and trying again, I believe I can discover something in 1 day!!!

Tuesday, July 20, 2010

Strong market???

Market is full with unexpectation, sometimes it can't be explained logically. Last Friday (16/7/10), Dow Jones down for more than 2%, however, our cash market seem didn’t show any response. With the plunge of US market, cash market falling of 3 point and closed at 1333.5 compare to closing on Friday at 1336.5. Here is the question, why our market was not affected by fall of Dow Jones? Such a weird phenomena recall something I read before, "in an uptrend, investors are ignoring bad news and tends to respond to good news only." and I just wondering are we in uptrend market now?


Besides that, I had noticed today our cash market volume had achieved more than 1 billion of total shares traded today which is quite high compare to previous trading days. I always pay my attention to the total volume of a market because I know that trend can be sustained only with the support of higher volume. Rising prices of the shares associated with higher volume, we shall say that the bull was in charge, and investors are so optimistic toward the market and they willing to pay higher price to buy stocks due to they believe the market can rise more higher in futures. However, it is different story if a price doesn’t goes up yet volume goes up. This might indicate sellers are becoming enthusiastic to sell off their shares and it possible to pointing a major reversal. Nevertheless it still needs further evidence to judge the validity of the reversal trend from the holding power of daily chart market support together with volume was come from blue chips shares rather than penny stocks.


Without continuous good news from US market, our cash market was consolidating within the range of 1330-1340. The price level was still moving within the upper band of the Bollinger bands which shows the market still moving in a bull territory so the domination of bear can be ignore in nearer term. I would capped my short term support at 1330 while long term support at 1312. I think the market will trigger my short signal if the market playing below 1330 for quite some time.