* Daily Commentaries on Futures Trading Malaysia FKLI and FCPO * Weblog Disclaimer: The information in this weblog has been obtained from sources believed to be reliable. Its accuracy and completeness is not guaranteed and opinions are subject to change without notice. This weblog is for information only and not to be construed as a solicitation for contracts. I accept no liability for any direct or indirect losses arising from the use of this weblog.
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.
<<一个投机者的告白>>, and please don’t get it wrong as <<一个偷鸡者的告白>> because the risk involve as a speculator always larger than a chicken stealer, hahaha. Anyway, the author of this book was called Andre Kostolany, and I will briefly describe a little biography about this author. Andre Kostolany (1906-1999) was a world-renowned stock market expert and speculator. He worked most of the time in France and Germany. He originally studied philosophy and history of art in Budapest but his father forced him to abandon his studies and sent him to Paris in 1927 to work as a broker. He began his career as a speculator and arbitrageur, and he was able to make a profit of the decline in market prices which began in the end of 1929, which the market was bearish at that time. He remains the stock market guru in Germany and his many insightful books are still available, but not in English, and his best quotation is “Never run after a bus or a stock. Just be patient, the next one will come along for sure.” However, Andre Kostolany died in 1999, but his memory lives on in the German-speaking world.
Basically, this is not a book that talking about technical, fundamental, or emotion trading, however, it is a book for the author to share out the experiences being in this speculation line throughout the years. Actually this author didn’t really spend his speculation career in stock market only, he also did speculate on currency, commodities, property and so on. As long there is potential reward waiting for him, he will go for it, and this is the role of being a speculator. One of the quotations in the second chapter was writing like this, “people that got lot money can speculate, people that less money cannot speculate, people that no money at all must speculate.” And he defines people that no money at all is those can’t afford to buy property or even can’t take care of themselves when they are old. If no money, then work for money, and this is what he did when he become bankruptcy from a failure speculation and then he try to work as a broker and consultant to build up his capital again. He also mentioned as long as human still living in this earth, the opportunity of speculate is always there because no matter the gambler earn a lot or lost a lot in the market, they will always in the market, and this is the reason why financial market is the only industry never obsolete by the era changing.
There are some very interesting parts that get from chapter 7 which is psychology of trading. Author classify investors in 2 major category, 1 is stubborn type and another 1 is hesitate type. So he was saying trading is a game to make the stubborn type investors become winners in the long run and their achievement is the scarification of those hesitate type investors. What make the difference between stubborn and hesitate type investors? There are 4: money power, mind set, patient and luck. Money power is relating whether the investors trading with money that are not use for emergency, mind set is how creative is your way of covert your idea into action, patient is testing how you undergo those pressure when the market was moving opposite of your direction while luck involve changes of economy policy, war, and natural disaster. If an investor lack of any out of the four determinant, investors will easily become hesitate investors. It was so true during a retracement of the markets, lot of investors that don’t have much holding power and patient; they are easily shaking and choose to cut their loss fast. However, for those investors that have lot of holding power and patient, they will keep buying those blue chips stock and just sit there for the price to rise above their entry level. This only can apply in an uptrend market but not a downtrend, so investors should know clearly what is the current condition before they make a decision to holding their investment for longer time. It is definitely an interesting book to read if you prefer story telling that kind of book. Each successful trader has their own story and insight towards trading, I wish by reading those books, it able to let me develop some necessary skill to survive in market by adopting some valuable ideas of their experiences.
An update for my recent trade again. I had officially turned long at 1323.5 on 9th June, Friday with a total loss of 13 points from my previous short position. Let’s me review the lesson that I learned from this trade.
Actually there was more than 20 points profits that I can earned from my previous short position, however, I end up closing the position with a losses of more than 10 points. At first I would say that I trying to fight against my own signal. Suppose there is a long signal trigger on 8th June, Thursday evening before the market closing, however, due to my emotion disturbance again, I couldn’t accept my position from a winning trade become a losing trade, I try to delay my cut loss so that hope the market will going into my favor. I have to admit, I hope the market, which the common mistakes that every amateur traders could easily make.
I found that the market was in a very tide zone, and I wondering is it the reason come from lack of foreign institution involvement in our market. As I using my signal very long time, I understand my signal that need to move more than 40 points than only can consider a safe run, or else any signal will easily caused a losses. If this sideways was only 1-2 months is ok for me, but if the sideways was maintain for 1-2 years, then I definitely can’t survive till a trend come. As a result, I really have to develop a method which allow me survive in the sideways and also catch the possible trend to come.
Besides doing my own analysis on the trade, I also like to access to some trend trader’s blog. By reading their trading diary, it did give some inspiration in improving my trading skills. Today I was accessing to 1 of my favorite trend trader blog. This guy was writing his own trading diary for 2-3 years and all his profit/loss of his position was clearly posted in his blog. From the ways of his trading, I can see that he using daily chart to trade and there are huge trend he able to catch as well he being suffered from major draw down before. Today when I try to access to his blog as usual, I found out this guy decide to stay out from the market till early of 2011 or permanent retirement from local market as he still need some time to consider it.
From what he stated in his blog, he did achieved 250% of profit in FCPO while 98% of profit in FKLI from the days he start trading. However, he loses around 90% and 50% for FCPO and FKLI respectively in this year. The profit that he earn in the market was very impressive and trading for a living always the ultimate dreams for every investors and I wish I can become like him 1 day. The reason for him to take stay out from the market was due to margin call on last Friday which mentioned in his blog. I pay my fully salute to this guy, because he is a full-time trader as he can spend most of the time with his family members and I wish he able to come back to market once again. I will never forget something that he write in this last update of his blog, “Topping up a margin call is never a wise move. For me, losing is losing and the more you top up, the more bigger the hole will turn out to be!” “Speculation is never a low risk job. You can obtain a three figure return (percentage) also means that you can easily lose out the same amount of percentage!” Even an experienced trader also has to take a break, so I really have to put more effort in brushing up my trading skill so that I can survive in the long run.
This is an update of my trade that trigger on last day of June 2010. There is very clear short signal after Dow Jones overnight falls by more than 2% and I short 1 lot July contract at 1311.5. I thought I will be a little shaking after put myself in the market again, however, it is in the opposite way, and I was so calm with my short position. I’m glad that I still can maintain such a stable emotion while enter to the market again after a series of false signal, because I know that phobia on losing trade is hard to get rid if you unable to find a system to you think can beat the market. Actually I still use the same signal as last time, because I strongly believe this signal able to catch the entire trend for me and what I need want to meet just my friend because trend is my friend. Regarding how to survive in the sideways market, I still can’t figure out yet, maybe I still need to read more books then only can find out the solution. In the meanwhile, let’s see where the market goes. Up or down also doesn’t matter to me, as long it move in 1 single direction then it consider a paradise for all trend traders. Cheer for all market lovers!!!
Another great book being read, “Trading for a Living” by Alexander Elder. This book was again cover market psychology, computerized technical analysis which explained well the function of those popular indicators plus risk management. I quite enjoying reading the market psychology part, because it did mention how our emotion influences by the price movement. However, when comes to computerized technical analysis part, I skip a lot because I know what indicator I want to use in my trading and I always believe simple is the best.
Why do most traders lose and wash out of the markets? Emotional and little trading knowledge are two reasons, but there is another. Markets are set up so that most traders must lose money and trading industry kills traders with slippage and commission. Slippage is the difference of the price that you willing to pay and the price you actually pay. When you eager to enter or exit the market by giving market order and it often tends to become the worst price when the order had been done. On the other hand, commission is the service charges given to the broker whenever a trader wants to enter or exit a trade. When you record down the commission for every transaction being made, you will found that your commission will be an upward sloping graph and never slope downward because your broker will never give back the commission even though lot of trading transaction was being made. Trading is a minus-sum game, in order to survive in long run, traders must cautious on the damage cause by slippage and commission. There is 1 of my friend who work as a future broker and he got 1 client which trade heavily with him. He told me this client was trading half year and losing around 150k and surprisingly this client was contribute 100k commission to my friend!!! In this case, if you don’t want to see your accumulated commission become so much as this client, always seek for broker that able to provide the cheapest commission as possible.
Trading is so exciting that it often make people feels high. Nobody can get high and make money at the same time. Greed and fear are enough to destroy a trader, so we have to use our intellect rather than gut to beat the market. Besides that, there are 2 very interesting question that being mention regarding probability. First, a group of people had given 2 choices to choose: a 75% chance to win $1000 with a 25% to get nothing or another choice; 100% get $700. In fact, most of the people will choose the second option including me even though the first choice leads to $750 gain over time. This test explained that most of the traders are make emotional decision and willing to take smaller gain just like what scalpers that aim for little profit from a trade as long the profit was guarantee. Another test is given: people have to choose between a sure loss $700 or a 75% chance of losing $1000 and a 25% of losing nothing. What an impressive probability test, I admit I choose the second option as majority people does rather than first one and tends to suffer extra $50 in the long run. Again, it shows I still an amateur trader who trying to avoid risk and end up maximizes losses. As a result, we have to aim for the trade that give higher probability to maximize wins and minimize losses, and don’t ever hang on hope and irrationally avoid accepting small losses.
Actually I’m a person quite lazy to read. I will fall asleep if I reading something nonstop and I really mean it. However, it is time for me to change my attitude already, I have start reading and this is the only way I can gained more exposure of trading knowledge, or else I will be keep limit myself in a same box forever. After I suffer in the heaviest sideways ever, I stop trading until now. I know losing in futures market is unavoidable and it is part of the risk that must be taken but the frequency of losing make me unable to take it anymore. I very understand that as long there is an emotion disturbance, it means that there is something wrong with myself, and I have to stop trading. As a result, I download a lot of trading book and I hope after go through all the trading books, it can provide me some guidance to improve me trading skills.
So I start reading a book call “Trading in the Zone” by Mark Douglas. Actually this is neither a technical analysis nor a system development book but it is a book about market psychology that investors that encounter. This book I would say it is quite hard to understand or maybe my trading experience was not so deep enough, so some part that the author mentioned was quite confusing. However, there is some part that I really agree with it and it did help me to understand myself what kind of emotion problem I did encounter when I start involve in trading. At first, author was mentioned the only key the success in trading, is not about consistency in winning or consistency in following your signal, it is about the consistency in following your own rules. In order for you to achieve the consistency, you have to rigid to your rules and flexible on the expectation. Rules are about entry point, cut lost and profit taking while expectation is the outcome of the trade. Most of the trader was doing opposite ways, and they will tends to overtrade during a sequence of winning trade while they also become unconfident whenever there is a series of losing trade.
If futures market is all about a probability game, so the only thing have to keep focus is eliminate the emotional risk of trading by establishing a mindset such as: 1) Anything can happen, 2) You don’t have to know what is going to happen next in order to make money, 3) There is a random distribution between wins and losses for any given variables that define an edge, and 4) Every moment in the market is unique.If you able to establish such a mindset, then you will be more stress free in execute any trade and I am sure all the top traders are having the same mindset as what author mentioned. It was very great I able to finish this book in 1 week and I did benefit something from this book. Emotion always constitute a large portion in making decision for any trade, so when one day I can trade without any emotion, then I will view that the path of becoming a successful trader and become nearer and nearer.
