There is an old saying among traders that goes something like this...
The markets can stay l much longer than you can stay solvent.
There is no doubt we have seen some irrational markets in the last decade. First, we have the 1999 Internet stocks bubble, which boggles the mind. Then we have the housing market. And lets not forget the crude oil market where one ridiculous price target after another was being gobbled up by the press. Even worse, many of those prices were reached.
Looking back, it seems obvious that those markets were whipped up in a frenzy of greed and those prices couldn't possible be sustained. After going through events like these, you would think there is no way other bubble markets could be formed again in our lifetime - right?
The fact is that greed blinds many people and causes them to do irrational things. There have always been bubble markets and there always will. Just look how quickly the appetite for investor risk returned as the stock market is up 60-70 percent from its lows. This just happened to occur mere months after our economic system was on the brink of disaster. Can you spot any bubble or irrational markets right now? I wouldn't say any markets are currently in the bubble phase, but they likely will be.
Gold would be my prime candidate for eventually being a bubble market. I have to say the stock market would certainly qualify as an irrational market at this point. I believe gold prices will move much higher in the next couple years, but a target price is almost out of the question. The point I'm trying to make is that these types of irrational markets tend to move much higher than most people would expect. Therefore, it can be very costly to fight them.
Friday, January 01, 2010
Trading and Intuition
I was once asked by a trader how they could determine if a market was moving decisively (i.e. was moving in a single direction), and my answer was that if they were not sure, then the market was not moving decisively. In other words, if they looked at a chart and they didn't immediately know which direction the market is moving, then it was not moving in a single direction.
Intuition and Instincts
I was suggesting to the trader that they use their intuition and instincts in deciding if the market was moving as they required, rather than a fixed measurement (e.g. an indicator being above or below a particular level). Intuition and instincts either play an important role in trading, or they play no role at all. This is because they apply differently to discretionary and system trading.
Discretionary Trading
Discretionary traders can (and very often do) use their intuition to confirm (or negate) their trading decisions. For example, a trader might decide not to make a trade because the trade would require a slightly larger stop loss than usual, even though all of their entry requirements had been met.
While discretionary traders are able to use their intuition and instincts in their trading, they need to make sure that they do not confuse them with fear and greed. For example, whenever a trader decides not to enter a trade based upon their intuition or instincts, they need to know why they are doing do, otherwise it is possible that the decision is based upon fear of a losing trade. Similary, if a trader decides to hold a trade longer than usual, they need to make sure that it is their intuition rather than greed that is making the decision.
Knowing the difference between intuition and emotions is something that will come with experience. In the meantime, if you are making a trading decision and you find that your heart is racing or that you are starting to sweat, you are probably making an emotional rather than an intuitive decision.
System Trading
System traders on the other hand, cannot use their intuition in their decision making process. System traders make their trading decisions during their testing and analysis of their trading system, rather than during live trading. If a system trader starts using their intuition and instincts to modify their trading decisions, they are no longer a system trader, and they may need to modify other aspects of their trading accordingly (i.e. there is no such thing as a part discretionary and part system trader).
Intuition and Instincts
I was suggesting to the trader that they use their intuition and instincts in deciding if the market was moving as they required, rather than a fixed measurement (e.g. an indicator being above or below a particular level). Intuition and instincts either play an important role in trading, or they play no role at all. This is because they apply differently to discretionary and system trading.
Discretionary Trading
Discretionary traders can (and very often do) use their intuition to confirm (or negate) their trading decisions. For example, a trader might decide not to make a trade because the trade would require a slightly larger stop loss than usual, even though all of their entry requirements had been met.
While discretionary traders are able to use their intuition and instincts in their trading, they need to make sure that they do not confuse them with fear and greed. For example, whenever a trader decides not to enter a trade based upon their intuition or instincts, they need to know why they are doing do, otherwise it is possible that the decision is based upon fear of a losing trade. Similary, if a trader decides to hold a trade longer than usual, they need to make sure that it is their intuition rather than greed that is making the decision.
Knowing the difference between intuition and emotions is something that will come with experience. In the meantime, if you are making a trading decision and you find that your heart is racing or that you are starting to sweat, you are probably making an emotional rather than an intuitive decision.
System Trading
System traders on the other hand, cannot use their intuition in their decision making process. System traders make their trading decisions during their testing and analysis of their trading system, rather than during live trading. If a system trader starts using their intuition and instincts to modify their trading decisions, they are no longer a system trader, and they may need to modify other aspects of their trading accordingly (i.e. there is no such thing as a part discretionary and part system trader).
How to Control Trader Stress
Now, that we can recognize the signs of trader stress, let’s learn how we can control it. Here is when the hard work begins, right? Wrong. Controlling trader stress requires only a few simple steps. But you must also make a commitment to change bad trading habits and constantly monitor your behavior as a trader.
Every trader is different. Every trade is different. The market is constantly changing. This constant change can be a major source of stress for any trader. Most traders hold multiple open trades at any one time. The market is constantly changing and moving. Events happen: war, peace, elections, natural disasters, weather, and even holidays. Almost any event can affect the market and your trades. Change can be very stressful—all change even happy events. Every trader’s life is constantly full of change. Does that mean that a trader’s life is constantly full of stress? Not necessarily.
Three Steps to Controlling Stress
There are many things that traders can do to control stress, including implementing the stress-free trade. However, three basic steps should help the trader to manage trader stress. Let’s review the three steps to controlling stress.
* Use a trading system.
This is very important! One way to control change and stress is to use a trading system. A trading system can limit your response to change. It can also remove stress from the trader’s life by preparing for any event in the market.
A trading system can help a trader know when to buy and sell at certain prices, know how long to hold, know when to take a profit and when to cut losses, and know when to do nothing. A lot of events might still be happening, but the trader who follows a system has his eyes and attention on the trading system rather than the fluctuating events.
A trading system is an empowering and consistently stress-reducing tool for all traders.
* Make a trading schedule.
Many traders hold the belief that they must be constantly trading. Instead of trading on one’s own schedule, they feel that they must trade whenever the market is open and slow down only when the market closes. Stock traders have a built-in limitation since the market is open for a limited number of hours every day. The Forex market is different because it is open for 24 hours a day. Without a schedule for one’s trading, a trader can feel guilty, overwhelmed, and panicky.
A trading schedule helps the trader regain control over his day and trading activities. The schedule can be a daily or weekly schedule though I don’t recommend a monthly schedule because it’s not specific enough to be helpful.
Most importantly, when you’ve made a schedule, stick with it. Hold it sacred. Consider it your work schedule (actually, it is!) so you have control over your trading day.
* Set goals for trading.
This is an incredibly powerful way to stay focused. Traders often get buried in the minor details of trading that cause them to forget their ultimate goals. Having trading goals will help to place every trade in perspective. Each trade is not a life or death event when placed in the context of one’s long-term and short-term goals. The problem is that goals are often vague or ill-defined.
A goal is tangible and achievable. A trader can have many goals—related and unrelated to trading. An example of a goal: To earn $5,000 a month trading, to learn how to use oscillators, or to work full-time as a trader. Many people add a time element to their goal setting, but this is optional.
Finally, write down your goals and review them on a regular basis otherwise, it’s very easy to forget your goals and start focusing on the daily details.
So, yes, there are a few stress-controlling tools every trader can use even when the trades go badly. I must emphasize, though, that stress is caused only by one’s response to an event or situation. Control the response. Control the stress!
A Few Reminders
Let’s conclude with a few reminders:
* Traders can control stress regardless of what is happening in the market.
* Traders can live healthy, enjoyable, and stress-managed lives -- forget what you see on television or in movies!
* Either stress controls you or you control the stress. You decide.
Happy and healthy trading!
Every trader is different. Every trade is different. The market is constantly changing. This constant change can be a major source of stress for any trader. Most traders hold multiple open trades at any one time. The market is constantly changing and moving. Events happen: war, peace, elections, natural disasters, weather, and even holidays. Almost any event can affect the market and your trades. Change can be very stressful—all change even happy events. Every trader’s life is constantly full of change. Does that mean that a trader’s life is constantly full of stress? Not necessarily.
Three Steps to Controlling Stress
There are many things that traders can do to control stress, including implementing the stress-free trade. However, three basic steps should help the trader to manage trader stress. Let’s review the three steps to controlling stress.
* Use a trading system.
This is very important! One way to control change and stress is to use a trading system. A trading system can limit your response to change. It can also remove stress from the trader’s life by preparing for any event in the market.
A trading system can help a trader know when to buy and sell at certain prices, know how long to hold, know when to take a profit and when to cut losses, and know when to do nothing. A lot of events might still be happening, but the trader who follows a system has his eyes and attention on the trading system rather than the fluctuating events.
A trading system is an empowering and consistently stress-reducing tool for all traders.
* Make a trading schedule.
Many traders hold the belief that they must be constantly trading. Instead of trading on one’s own schedule, they feel that they must trade whenever the market is open and slow down only when the market closes. Stock traders have a built-in limitation since the market is open for a limited number of hours every day. The Forex market is different because it is open for 24 hours a day. Without a schedule for one’s trading, a trader can feel guilty, overwhelmed, and panicky.
A trading schedule helps the trader regain control over his day and trading activities. The schedule can be a daily or weekly schedule though I don’t recommend a monthly schedule because it’s not specific enough to be helpful.
Most importantly, when you’ve made a schedule, stick with it. Hold it sacred. Consider it your work schedule (actually, it is!) so you have control over your trading day.
* Set goals for trading.
This is an incredibly powerful way to stay focused. Traders often get buried in the minor details of trading that cause them to forget their ultimate goals. Having trading goals will help to place every trade in perspective. Each trade is not a life or death event when placed in the context of one’s long-term and short-term goals. The problem is that goals are often vague or ill-defined.
A goal is tangible and achievable. A trader can have many goals—related and unrelated to trading. An example of a goal: To earn $5,000 a month trading, to learn how to use oscillators, or to work full-time as a trader. Many people add a time element to their goal setting, but this is optional.
Finally, write down your goals and review them on a regular basis otherwise, it’s very easy to forget your goals and start focusing on the daily details.
So, yes, there are a few stress-controlling tools every trader can use even when the trades go badly. I must emphasize, though, that stress is caused only by one’s response to an event or situation. Control the response. Control the stress!
A Few Reminders
Let’s conclude with a few reminders:
* Traders can control stress regardless of what is happening in the market.
* Traders can live healthy, enjoyable, and stress-managed lives -- forget what you see on television or in movies!
* Either stress controls you or you control the stress. You decide.
Happy and healthy trading!
Mistakes That Forex Traders Make
When getting started in forex trading, there are common mistakes to be avoided. This is a list of common forex trading mistakes.
1. Using Too Much Leverage
One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.
2. Over Trading
Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.
3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.
1. Using Too Much Leverage
One of the biggest advantages of forex trading is the ability to use leverage or trading on margin. One of the most common mistakes that forex traders make is using too much leverage. Using too much leverage is when you have a small account balance, but make a big trade. If the market moves against your position by just a small amount, it can result in large losses. Commonly, the beginning forex trader will get emotional and nervous and close the trade for a sizable loss.
2. Over Trading
Over Trading occurs when traders try to look for trading opportunities that are not really there. It happens to new traders very often, because they just want to trade. The result is usually a poorly executed trade that results in an eventual loss. Over trading can also result in traders making too many trades at once and using too much margin.
3. Picking Tops and Bottoms
Many new traders attempt to try to pinpoint where a currency pair will turn around and start moving the opposite direction. This is something that is difficult even for professional traders.
Trading Anxiety - Dealing with Trading Anxiety
Trading anxiety can be a problem for traders that have suffered from serious losses. Anxiety can cause a loss of confidence, fear of mistakes, and take away your ability to be objective
If you find yourself feeling sick and upset over your trading account, it’s likely that your risk management is not tight enough. To overcome this, you have to make a plan. Sit down and outline what you think you did that put you in the position that you are in. Once you have identified the mistake, make a trading plan to correct the mistake and make a note of how you will avoid this happening again in the future.
Forgive Yourself
No one is perfect, everyone makes mistakes. The most important thing is that you learn from them. There are no perfect traders out there. Even professional traders take a heavy loss from time to time.
Unplug yourself
After a major loss, it’s important that you take some time off. Avoid the need to immediately jump back in to “win” your profits back. It is better to come back after you feel well rested, calm , and clear headed. Beating your emotions is the most difficult thing. If you are smart and recognize that you are being emotional, you can avoid compounding your mistake.
Keep a Forex Journal
One way to learn from your mistakes and to keep your anxiety down is to keep a forex journal. Use the journal to write down the trades you make and why you made them. After the trade is closed write down the result and any mistakes that you made if any. If you end up in a position where you feel like your account is losing too much and it’s making you anxious, review your journal. Look for any pattern of mistakes.
Forex is a Journey
Learning to trade the forex market is a journey. Trading anxiety can ruin you if you don’t handle it properly. Keep in mind that there is always another trading day. If the markets ever feel like they are too much, just turn off your monitors and come back tomorrow. They will still be there. The life you save could be your own.
If you find yourself feeling sick and upset over your trading account, it’s likely that your risk management is not tight enough. To overcome this, you have to make a plan. Sit down and outline what you think you did that put you in the position that you are in. Once you have identified the mistake, make a trading plan to correct the mistake and make a note of how you will avoid this happening again in the future.
Forgive Yourself
No one is perfect, everyone makes mistakes. The most important thing is that you learn from them. There are no perfect traders out there. Even professional traders take a heavy loss from time to time.
Unplug yourself
After a major loss, it’s important that you take some time off. Avoid the need to immediately jump back in to “win” your profits back. It is better to come back after you feel well rested, calm , and clear headed. Beating your emotions is the most difficult thing. If you are smart and recognize that you are being emotional, you can avoid compounding your mistake.
Keep a Forex Journal
One way to learn from your mistakes and to keep your anxiety down is to keep a forex journal. Use the journal to write down the trades you make and why you made them. After the trade is closed write down the result and any mistakes that you made if any. If you end up in a position where you feel like your account is losing too much and it’s making you anxious, review your journal. Look for any pattern of mistakes.
Forex is a Journey
Learning to trade the forex market is a journey. Trading anxiety can ruin you if you don’t handle it properly. Keep in mind that there is always another trading day. If the markets ever feel like they are too much, just turn off your monitors and come back tomorrow. They will still be there. The life you save could be your own.
2010 - 1/1
Wishing myself and my loved ones....A HAPPY, HEALTHY, SUCCESSFUL 2010 and for the rest of new DECADE!!!
Let's this be a new start for my life to become a full-time stocks and forex trader. And that I will be able to make enough to maintain my present lifestyle and have enough left to be able to go on year-end holidays if possible to buy a small flat hahaha :).
Then after a couple of years of trading....able to teach to some paying students. This would be the best possible wish and dream that I can think of at this present stage of my life.
I would be happy even if I just can mastered the stock market....no real need to be good in both as there are an "ocean of money out there" to be make from it. I am not that greedy hehehe!
Let's this be a new start for my life to become a full-time stocks and forex trader. And that I will be able to make enough to maintain my present lifestyle and have enough left to be able to go on year-end holidays if possible to buy a small flat hahaha :).
Then after a couple of years of trading....able to teach to some paying students. This would be the best possible wish and dream that I can think of at this present stage of my life.
I would be happy even if I just can mastered the stock market....no real need to be good in both as there are an "ocean of money out there" to be make from it. I am not that greedy hehehe!
Thursday, December 31, 2009
Outlook for 2010 - stock and forex
For the start of 2010....meaning come 4th Jan Monday, the stock would start higher then it will start to drift from there on becoz for the last couple of weeks before the end of the decade the market actually made up quite a bit of ground. So it wouldn't be a surprise for the market to pullback and rest if not then when the pullback happens it would be deeper and full painful for everyone. That is for SGX.
As for HK market....it would be a different tack with the market shooting higher at the start and it shall head higher for at least a few day longer before profit taking take holds. Then...it will drift lower till maybe end of the Jan before it starts the second round of moving higher esp towards the Chinese New Year period. Why this? That's becoz the HK market has gone thru a small correction prior to the X'mas and New Year period when most of the "ang mo" traders closed the books for the year and go for their year-end holidays. And since some of the counters in HK market...has fallen to attractive level...they would be buying opportunities for them. I shall be paying greater attention to this market and at the same time....clearing some of my SGX counters to do a house spring-cleaning and to raise fund for a better fight later.
For the moment....I shall keep my fund at present gearing, meaning that I shall not add any new fund to my trading thus I shall be controlled in a sense until I can show a profit for my present trading fund at MF Global. At moment....I have closed my book for the month with a 25% nett loss. Yes! I have traded actually for a full month.
For a review of what has happened that caused the 25% loss....was that I tried to do day trading with those pullback stocks with my view that this will be rebounding soon. yes....some do, but some don't. With faster drop that caused me bigger losses.
Thus....my trades can be summed up as winning small amount while losing bigger amount becoz of stocks "stopped out". During this 1 month period....I kena "9 to 10" stopped out situation which caused most of the damaged to the funding, while I make more winning trades but due to smaller wins which after minusing commission and interest charges as I am suing the DMA - CFD system, my fund is still showing negative balance at the end of 1 mth trading. That is also the main reason why...I didn't want to increase my funding anytime soon. Really cannot to afford to lose money at the same time I hate the idea of ever losing money.
For forex....the USD is still on the up-trend esp against Eur/USD now at 1.43 and USD/JYP which has increased to 93.2 but for longer term...the trend of USD is still showing a down trend movement.
As for HK market....it would be a different tack with the market shooting higher at the start and it shall head higher for at least a few day longer before profit taking take holds. Then...it will drift lower till maybe end of the Jan before it starts the second round of moving higher esp towards the Chinese New Year period. Why this? That's becoz the HK market has gone thru a small correction prior to the X'mas and New Year period when most of the "ang mo" traders closed the books for the year and go for their year-end holidays. And since some of the counters in HK market...has fallen to attractive level...they would be buying opportunities for them. I shall be paying greater attention to this market and at the same time....clearing some of my SGX counters to do a house spring-cleaning and to raise fund for a better fight later.
For the moment....I shall keep my fund at present gearing, meaning that I shall not add any new fund to my trading thus I shall be controlled in a sense until I can show a profit for my present trading fund at MF Global. At moment....I have closed my book for the month with a 25% nett loss. Yes! I have traded actually for a full month.
For a review of what has happened that caused the 25% loss....was that I tried to do day trading with those pullback stocks with my view that this will be rebounding soon. yes....some do, but some don't. With faster drop that caused me bigger losses.
Thus....my trades can be summed up as winning small amount while losing bigger amount becoz of stocks "stopped out". During this 1 month period....I kena "9 to 10" stopped out situation which caused most of the damaged to the funding, while I make more winning trades but due to smaller wins which after minusing commission and interest charges as I am suing the DMA - CFD system, my fund is still showing negative balance at the end of 1 mth trading. That is also the main reason why...I didn't want to increase my funding anytime soon. Really cannot to afford to lose money at the same time I hate the idea of ever losing money.
For forex....the USD is still on the up-trend esp against Eur/USD now at 1.43 and USD/JYP which has increased to 93.2 but for longer term...the trend of USD is still showing a down trend movement.
Reflections for 31/12/09 - Last day of 2009 and the Decade.
Yes....tomorrow will be the start to a new decade. Wow....managed to live and see thru this. For the past decade.....lost my mum on 27/9/2002 then my old man on 18/12/2007.
The last generation ( my old man's generation ) is dropping like fly....one after another.
On my own family....the kids have grown up to be young ladies and looks like they too have their own agenda now. The eldest....is going to finish her final year and soon be posted to school to work and she too has sounded out that she is thinking of marriage. Anyway...I had advised her to finish her schooling, start work for a year or so then if still want to marry....go ahead then as her bf is also same age as her and he is planning to leave his regular post at the Air Force to go into Internet thingy full-time. Since they will be depending on one salary....it's a better idea to wait till whatever dreams or career is stabilised before getting married. Young people don't think too far...I guessed. Then the youngest one is still at Poly....she too into the City Harvest thingy same like her sister...and is pretty active with their activities. I am worried that she is not paying attention to her studies but whenever I talk to her, she would get her elder sister's support. Guessed not easy since they have already into it too deep.
For wife....yes, we are aging together and just go with the flow. She is pretty busy with her own studies at Ngee Ann Poly but she is coping well....work and studies.
For myself....my main aim and focus now is to learn as much as possible to trade better in stocks and forex. Still my main priority is in stocks as I have a better understanding of it as I had more than 20+ yrs of trading experience...true, I didn't do well and lost a fortune doing it but I am fully prepared to give my 100% focus to make this a full-time thingy for me esp after my company shut-down in the coming year. There is no other choice....esp since the money is in the stock market. Frankly if I can just keep a discipline hold of things and trade accordingly I should have no trouble of making 10% of my funding....which should be as good as my present pay. Then at the same time....pick up my learning curve for forex. In that...there are lots and lots of money to be had if one is to make enough eg 5k per month. But for now....I am just keeping my funding for both at 10K level. In fact lately....hardly
do much trades for forex as the market is very choppy due to the holidays and the traders on holiday moods and have closed their books for the year.
For the above to happen....I will be praying very hard that I can make this happened.
The last generation ( my old man's generation ) is dropping like fly....one after another.
On my own family....the kids have grown up to be young ladies and looks like they too have their own agenda now. The eldest....is going to finish her final year and soon be posted to school to work and she too has sounded out that she is thinking of marriage. Anyway...I had advised her to finish her schooling, start work for a year or so then if still want to marry....go ahead then as her bf is also same age as her and he is planning to leave his regular post at the Air Force to go into Internet thingy full-time. Since they will be depending on one salary....it's a better idea to wait till whatever dreams or career is stabilised before getting married. Young people don't think too far...I guessed. Then the youngest one is still at Poly....she too into the City Harvest thingy same like her sister...and is pretty active with their activities. I am worried that she is not paying attention to her studies but whenever I talk to her, she would get her elder sister's support. Guessed not easy since they have already into it too deep.
For wife....yes, we are aging together and just go with the flow. She is pretty busy with her own studies at Ngee Ann Poly but she is coping well....work and studies.
For myself....my main aim and focus now is to learn as much as possible to trade better in stocks and forex. Still my main priority is in stocks as I have a better understanding of it as I had more than 20+ yrs of trading experience...true, I didn't do well and lost a fortune doing it but I am fully prepared to give my 100% focus to make this a full-time thingy for me esp after my company shut-down in the coming year. There is no other choice....esp since the money is in the stock market. Frankly if I can just keep a discipline hold of things and trade accordingly I should have no trouble of making 10% of my funding....which should be as good as my present pay. Then at the same time....pick up my learning curve for forex. In that...there are lots and lots of money to be had if one is to make enough eg 5k per month. But for now....I am just keeping my funding for both at 10K level. In fact lately....hardly
do much trades for forex as the market is very choppy due to the holidays and the traders on holiday moods and have closed their books for the year.
For the above to happen....I will be praying very hard that I can make this happened.
Monday, December 28, 2009
My new trading outlook
Yes....it's worked esp regarding the need to sell during the first 15mins of market open for the highest price. Done for both my trades....it is the next highest price for the day for both stocks.
Now....the issue is to keep my mind off the market once out of it. Must be a strong mental attitude beside a good trading plan to be called a "trader". This part will be my worst enemy....I shall work on it from now on!
Now....the issue is to keep my mind off the market once out of it. Must be a strong mental attitude beside a good trading plan to be called a "trader". This part will be my worst enemy....I shall work on it from now on!
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