Fusion Trader

End of a Chapter

2007-05-16T00:11:00.000+08:00

Dearest friends, bloggers and passer-bys,
Its been two months since I started this blog and with great sadness, I am closing this blogging chapter of my trading journey. I sincerely thank everyone for their support either by participation or just reading the articles posted here. I noticed its even a breakout - 10,000 hits :).

After meeting the masters over the weekend, I realised the disparity is great, so great that I am left with no choice but to close this blog to find time. Time to strengthen my foundation, time to relearn what I have learned, time to unlearn what I have learned, time to get in tune with Nature.

Final Notes of My Stand
Luck
I do not know about luck but I know this - Luck is when Preparation meets with Opportunity. Yes, I have emphasized a lot about Preparations over and over again in my blog. Without proper preparation, one cannot capitalise on opportunities that arise. What is the will to win, if there is no will to prepare?

Continuous Learning
I have yet to meet with a master that thinks that no more learning is needed. A true master would never stop learning. The three masters I met have such high level of skill and yet, they are discovering new things each day. They have yet to stop learning, they knew one thing - when they took on this path, this trader's path, they have made the market their best teacher and vowed to continuously learn from it.
I have always correct anyone who tried to call me sifu. I know that they only meant respect or maybe out of politeness but seriously, I am unworthy. I have yet to attain such level of skill. I have yet to achieve anything that is worth shouting about. I have to decline the title.

Trading Plan
Before a trade is even made, a trading plan MUST, I repeat, MUST be drawn up. Else, one would be at serious disadvantage. In the market, we are up against people with more money than we have, more skill than we have. How can we possibly stand a chance if we do not even have a plan?

Stop Loss and Trailing Stops
To me, this is imperative, irregardless whether one is a trader or an investor. Perhaps the stop point would be different, but nonetheless, this is a life saver. Anyone who lived through the recession periods would understand this concept. Or they better do.
Even the most fundamentally strong company would not be spared. To watch your investment decline 80% of its value is not an easy sight. And it tests every bone of your body as an investor. Yes, the stock is undervalued but it may remain so. Yes, it will rebound - some day but you may need the cash. You may get retrenched, your children may need to further their studies, there could be other emergencies, countless and endless possibilities. In recession, Cash is King.

Average Down
I have not recommended anyone to average down. Its like compounding the initial error. Now, what about investors, should they average down? I do not know about shoulds or shouldn'ts but I know this - you may average down SUBJECTED TO identification of critical points where beyond would render the average down and the initial entry wrong and stop loss MUST be executed - this means an impeccable discipline and emotional control.

Feel the Market
Several months earlier, I was chatting with booffett - who draws chart with pen and graph paper. It was my lack of understanding that computers could replace this function. I am beginning to appreciate drawing charts by hand. I am drawing 50 charts per day by hand and I hope to increase this number. ;)

Nature
I speak about Nature. It may be too complicated to explain but remember the most important indicators where all are derived from - Price, Volume and Time.
Price, Volume and Time. Master this and the world will be your oyster.

Moving forward
For Fusion Picks - which I must add was not really successful, remember to place stops and trade according to initial plan.
Market - From what I see, the general KLSE is weak, while KLCI is strong. Bullish uptrend is expected to continue despite May Factor etc. However, remember your stops. Never forget them.
Stocks - KLCI or related should perform and give a better chance of success.
Futures - Well, doubt futures traders would find any comment from me useful. See you in battlefield :P.

Resources
There are many resources around on the net - this means tremendous savings in money - rather than buy books or attending seminars, one could read and learn by themselves. The money would be better spent paying for tuition to the market.

Kenneth Factor
Just in case anyone thought this is for Kenneth Factor, do visit this link - under the comments section. I take this as a peace treaty signed between Kenneth and myself. I have nothing further to add.

Steps
Brian McKnight has this song - Back At One. For trading there are steps too:
1) Learn
2) Analyse
3) Backtest
4) Foreward Test
5) Trade
6) Post Mortem
7) Back to (1)

And to Make Money from Trading
All that is needed is this -
1) Trading System
2) Emotional Control
3) Money Management and Discipline

Oh, if anyone is looking for me
I ll be around in forums, or you could mail me directly. :)

Once again, thank you everyone for your kind support and patronage.

Good Luck and Happy Trading!

Meeting the Masters

2007-05-12T00:05:00.000+08:00

Dearest bloggers,

For the past few days, there have been a lack of updates in this blog.
I would like to take this opportunity to thank everyone who still come and visit daily and also apologize for the lack of updates. Reason is I have been making some preparations to meet with three master traders during the weekend. I believe that the visits would be fruitful and I may be able to advance another level in TA.
Of course, once I am back, I will be updating the blog.
Stay tuned :)

Comment Moderation

2007-05-10T21:41:00.001+08:00

And so, most of you would have known about this Kenneth character.
And regretfully, due to this, I must enable comment moderation.
Only Kenneth's spam of same message over and over again using multiple names will be filtered.
This applies to both Fusion Trader and Fusion Pick blogs.
What this comment moderation means is that each time a comment is posted, I would need to allow the comment to be published. So there would be delay in seeing comments published.

So what is with this Kenneth character?
Well, the summary of chronology is this:
In a Google group called Bursamaster, the owner made a buy call from 0.26.
By end of the day, it shot up to 0.33.
He maintained his buy call, but the following day, it closed 0.305 followed by the next day 0.325 followed by 0.31. With these consolidation signals and supposingly some news that this counter would not be moving soon, the owner Bursamaster issued a sell call.
Come another commenter Sunny to ask everyone to hold the stock. And average down if price falls any further. Prices continue to fall. And when the people there asks about Infotec, came several other comments to ask to hold. Prices will not fall beyond 0.25 was the comment.
But it did. And when questioned about it, the answer was buying support comes from below 0.25.
I pointed out the simple trading rules - Never Average Down. Cut your losses.
Kenneth disregard, and question the practical usage of the trading rules I ve mentioned.
Thereafter he continued to encourage everyone to hold, and average down.
Today it close 0.22.

Someone by the name of Kaza, found out that the comments to ask to hold and to average down - Sunny, Kenneth, and many others, was in fact the same person - by virtue of using the same IP Address.
Kenneth tried to divert the attention and allege that Bursamaster, Kaza and myself are the same person - by virtue of Bursamaster suggested stop loss - which I supported as best course of action - and the fact that Kaza exposed him. So it must be same person, or so he claims.

Subsequently, he came over to spam my blog and continued to spam in Ben's chatbox as well.
Sample of his spam (which are all the same, so I deleted most of it) could be seen in 2 previous posts before this one.

For those who are interested of the Bursamaster's Google Group, the link is here
http://groups.google.com/group/bursamaster

Thank you guys for all your support and jumping to my defence.
I sincerely appreciate it and would do my best to share more of what little TA knowledge I have.

Once again, thank you. :)

PS: Thank you Kenneth to you as well, for without you, my traffic counter would not have broken the 9,000 mark today :)

Fusion Pick Launched

2007-05-08T02:17:00.000+08:00

OK, so finally I decided to blog about my picks. :P
Yeah, slightly overdue but oh well...
Enjoy and don't forget to read my disclaimers.
I ll post the disclaimer all around Fusion Pick when I find the time.

Why do I Trade? Part 4: The Trader's Path

2007-05-04T18:35:00.000+08:00

I am a trader. I realised that I ve always been a trader - only that I did not realise until I was tested. And someone once said, "Man are like teabags, you will never know how strong he is until he gets into hot water". How true this is. Without being tested as I had (as mentioned in my previous post), I would never have known that I am a trader.

Money is not the main objective for me now. I know for a fact that I could trade for a living. I know that once I ve conquered the pain that I endured. I know that the experience though painful was there for a reason - to serve as a reminder not to be complacent and disregard the trading rules. To follow my own trading plan. To give me the strength that I need each and every time, that I must execute the inevitable stops. I ve grown and became wiser, though I ve yet to attain the wisdom that many readers of this blog has. I ve still much to learn.

One may wonder, could I have avoided the disaster should I have met with the wise people I met on the net? Whose wisdom I ve always revered? If previously, I ve met people like Ben, Lsb, Theng and Csong? To be frank, I doubted very much. Some lessons have to learned the hard way. Some mistakes need to be learned in order for one not to forget. Some experience is needed for one to advance to another level.

Today, when I trade, I look at points, I look at percentage. I really do not have much idea how much profit or loss I ve made until I close the books. I find by looking at points or percentage, I trade better. Perhaps there is less connection with the $$$, perhaps, I really do not know. But this is the manner I trade now.

But why do I still trade - Money? Freedom? Well, I ll be honest with you, they have bearings, and weightage to it. Its like once you ve tasted the money, you re tainted. Its most difficult not to be addicted. But there is considerable risks with a mere trading for money mentality, as evidenced by my horrifying experience.

Freedom? Well, I ve long know that I cannot work for others. I m a perfectionist. Perhaps the word is too strong but consider this - when I make a decision, I placed the highest importance for the betterment of the organisation. One may think, yeah this should be the way. But then, in reality, this is not the way. When top management makes a decision, the number one consideration is being placed in satisfaction of certain parties. Yes, I am referring to office politics. I, for one, when given the authority to make decision, does not bow to these inefficient, ineffective practices. When traveling, I do not buy wine for bosses, I do not lick boots, though my crime would involved laughing at boss' stale jokes during meetings, lunches or dinners.

Therefore, with such mentality and holding such principles, I am really not suited in the corporate world, particularly MNCs. However, I am not looking at trading merely as a means to be free from what I am not suited for. While I may be unsuitable for the corporate world, it does not automatically mean that I am suitable for trading.

Some of you may have heard me mentioning about "the charts talk to me". While I do not want to give an impression that I am a mad person, or I am talking bullshit, I feel a "certain connection" when I look at charts. And it is a feeling which I could not describe other than saying that the charts speak to me. I could as if hear the charts telling me the direction of where it is heading. OK, I realised I am beginning to sound like a lunatic. So I shall not continue about it.

But the long and short, I enjoy looking at charts, deciphering the hidden meanings. While doing something I enjoy, what's more, I could actually make some money out of it. Isn't it just perfect? Doing something you enjoy while able to make money out of it? To the end, why do I trade? Its the love of the game - love of trading itself. :)

And why is this important? Otherwise, when met with huge profits, I would be overly excited while when met with huge losses, I would be overly depressed. To which, both is detrimental to trading. There should be another motive behind the money making objective to trade. That said,

Good Luck and Happy Trading!

EDIT: For MTV - Told you its Youtube Mania here :)
This one by Clay Aiken, supposingly an American Idol (sorry, I don't watch :P)

Why do I Trade? Part 3: Pain

2007-05-04T00:15:00.000+08:00

I watched Grey's Anatomy the other day (I seldom watch the television by the way), and it was this one episode about a little girl who thought she was a superhero. She could feel no pain no matter the seriousness of the injury. Of course, she was not a superhero, it was some scientific disease or something where one could not feel pain. I could not remember what symptom it was called (Hehe, I m a trader, not a doctor).
But due to this illness, the girl kept asking everyone to punch her in the stomach to prove that she has superpowers (hence no pain). And the doctors found out that she was suffering from internal bleeding.
At the end of the episode, the narrator said something to the effect of,
"We all want to live a life without pain, but we forget the very reason why we feel pain"

In my previous post, I described the euphoria of making money - of feeling like I am some sort of genius in trading. However, this was far from the truth. Very far. While I have discovered knowledge, I have yet to acquire wisdom. I was ready to make big money but I was not worthy of keeping it. I sinned.

No, not the typical sin - but trading sins. I overtraded. Would the concept of trading one lot be the same as trading 10 lots? Or 100 lots? Logically, it would appear so. However, we know its not true. Yet, when you ve just discovered your own holy grail, you feel invincible. I mean, why wouldn't you? Out of 10 trades, 9 trades are big wins, while there's one minuscule trade is stopped. What could go wrong with a superb system like that?

The trader, unfortunately. It always boils down to either the people or the system. When something goes wrong, look no further, its either the system or the people. Often, its the people. Afterall, people are the ones who set the system anyway. This is true for trading, this is true for all things in life.

The phenomenal rise, ended with a phenomenal fall.

Once I overtraded and things did not go as what I foresee, I could not be my usual self. While my system says, stop, I went on to commit another trading sin - averaging down. As I average down further, the more I could not execute stop loss. I then risk even more funds into a losing position - this is in direct violation again to not commit more than 20% of trading capital into one trade. Ultimately, when things still did not go my way, I plunged into the worst sin - revenge trade. At the end of the day, I lost much. I was barely saved from being a bankrupt. But what was worse, was that I lost my confidence to trade.

I could not look at the market. I could not see the screen. A mere mention of anything remotely similar to stock market would be tantamount to taking a knife and cutting a part of me. The pain was excruciating. I could not sleep. I could not sit. I could not eat. I could not do anything. When I talk, my voice was quivering. My knees were weak, my hands shivering. I became a living zombie. No one could console me as I could not concentrate on what they were talking. In my mind, the whole scene just repeat itself in a neverending loop. The torture of living the mistake over and over again was just too much. How? Why? How and why could this happen to me?

It was a difficult time for myself. Perhaps it was a difficult for others but it was not my concern. I wasn't capable of being concerned of anything during that time anyway. The story could have ended here, indeed, for many it would have, but this is not how the story ends. It continues...

~to be continued...

And here's a little music video from a band called Simple Plan to add to the drama. Enjoy!

Will HOT Commodities stay as the world economy slows?

2007-05-02T23:45:00.000+08:00

In 2006, the world economy grew 5.4%, the fourth consecutive year of above 4% growth and thus the strongest in more than 3 decades. Inflation remains low despite continued headwinds from HOT commodities. In the past five years, oil has risen about 170% to USD60-65 a barrel while the global inflation declined a little to 3.8%. Some say we have entered uncharted waters and the commodities will remain hot going into, at least, the next decade.

But, let me just take you through the bulls’ case for commodities and global growth by drawing on the case of crude oil.

The past three global recessions were all triggered by high oil prices due to oil supply disruptions: the OPEC oil embargo in 1973-74; the Iranian revolution in 1979; and Iraq's invasion of Kuwait in 1990 (figure 1). Since mid-1990s, however, the oil price-GDP relationship has reversed. An increase in oil price does not cause GDP to fall, instead it reflects strong demand growth, notably in China, Asia ex-China and the US. In 2005, oil price surged 35% after a lag-effect coming from the previous year’s consumption growth of 3.5% - the highest since 1978 - despite a 4% supply growth during the same year. The kind of increase we are seeing now is less damaging as it is driven by the demand-side equation which tends to be more sustainable. Unlike in the past, a surge in oil price reduced consumption and dragged the global economy into recession, which later led to a price decline when supply returned to normal.

These have led me to believe that a commodities super cycle is underway. A super cycle is a prolonged (decade or more) trend rise in real commodity prices, driven by urbanization and industrialisation of a major economy (according to Citigroup’s Report: China - The Engine of a Commodities Super Cycle - 31 March, 2005. The current case simply refers to China.

According to the IMF World Economic Outlook, September 2006, China accounted for at least half of the increased demand for industrial metals - Zinc (113%), Lead (110%), Nickel (87%), Tin (86%), Steel (54%), Copper (51%), Aluminium (48%) - between 2002 and 2005. In 2004, China overtook the US in the consumption of basic agricultural and industrial goods. Among the five basic food, energy, and industrial commodities—grain and meat, oil and coal, and steel—consumption in China eclipsed that of the US in all but oil. She is now the fourth largest economy in the world, and is expected to be the largest by, as early as, 2026 – The Economist. Of course, this is not going to be easy, a host of factors, namely limited supplies of energy and raw materials, questions over its innovation capability, inequality and corruption, risks to social stability and the environment and choice of political system will be a real test to her. But, it’s not just the demand-side equation that has the say. Supplies of most commodities are very tight that they cannot rise fast enough to meet additional demand. There has been no discovery of significantly large oil fields in the past 30 years, only one lead mine open in the world for the past 20 years, planted acreage of wheat has declined steadily since the early 1980s and the list goes on and on.

Jim Rogers, the best known advocate of HOT commodities, laid out that a secular bull market in commodities is underway, in as early as 2004, when his HOT Commodities was published in 2004. He observes that the 20th century has seen three secular bull markets in commodities (1906-1923, 1933-1955, and 1968-1982). Each of those secular bull markets has lasted a little more than 17 years. If his view holds, we are currently in the middle of yet another secular bull market in commodities that began in 1999.

So, will the boom continue as the world economy slows? US, being the largest importer of China and the world, just reported that it grew at a worse-than-expected 1.3 percent rate in the first quarter of this year, marking the slowest period of growth in four years. If the above case for oil holds, the demand for commodities should decline when the world economy slows, thus commodities prices should fall. More worryingly, we are struggling with issues like China’s overheating economy, US housing slump, the end of asset allocation into commodities (increasing demand for commodities-related investments as an asset class by non-commercial users), the unwinding of Yen carry trade (please refer to my earlier post) and a broad-based increase across all asset classes since 2002 (All the World’s a Bubble). It seemed that the end of commodities boom was near when they succumbed to the ripple effects from the global stocks rout on 27 February. However, commodities rebounded early last month. The much-awaited corrections for commodities market did not come as yet. Consolidations are inevitable during a secular bull market but they could still increase much higher before going into the consolidation phase.

Table 1: Selected Commodities Price Increase
change since January 1999 (%)
	Nominal	Real
Nickel	1,093	856
Uranium	954	745
Crude oil	436	329
Copper	338	251
Lead	281	206
Rubber	239	172
Zinc	239	171
Tin	162	110
Gold	125	89
Aluminium	121	77
Corn	75	41
Hard logs	66	33
Wheat	59	27
Soybeans	41	13
Soyoil	41	13
Coffee beans	26	2
Cotton	4	-16
Palm oil	-2	-22
Sugar	-6	-25

Perhaps it’s good to draw some inference from the historical prices of commodities – gold, tin, lead, copper, cotton, hard logs, crude oil, uranium, zinc, aluminium, nickel, soybeans, soyoil, corn, wheat, palm oil, rubber, sugar and coffee beans – in real (adjusted for inflation) and current prices. From January 1999 to Mar 2007, nickel increased the most, by a stunning 1093%, uranium 954% and crude oil 436% in nominal terms (see table 1).

Although we have always thought that copper is very expensive, it has only risen by 338% over the same period and a 251% increase in real prices. Interestingly, the figures suggest why Jim Rogers are so bullish on agricultural commodities. After adjusting for inflation, they are ranked at the bottom of the table, showing the least increase or decline (cotton, palm oil and sugar) in the past few years. Palm oil looks really cheap, down 2% from 1999’s level at current prices and 22% in real terms. Figure 2 suggests palm oil should go up to USD1,600 to surpass its previous high recorded in May 1984. At current price of RM2,300 (USD673) per tonne, it is 55-60% off from the previous high or equivalent to 1.3 times of its current price.

Another important thing to note is that copper, nickel, zinc and uranium are at or close to their historic highs. One common characteristic among them is that they are in tight supply despite rising prices (but the world sees IPOs everyday). In the mining industry, it takes years of exploration before one can bring the metals out of the ground and most mining companies are not willing to spend hugely in an investment that might not result in any tangible output for at least a decade. The same goes for other commodities. For example, it takes 5 years for a coffee tree to mature. It is still very much a fundamental play in commodities markets. Some commodities are not cheap but some are. Commodities do not move in tandem. Each commodity has its own supply-demand equation, though some may be directly correlated with other commodities, e.g. a palm oil might be related to soybeans, soyoil, ethanol and crude oil. One needs to study the fundamentals driving the supply and demand of a commodity before investing in commodities.

Lastly, my personal guess is that commodities should correct if the economy slows. Don’t have to worry about the corrections if you are in for long-term. Historically, markets consolidate in a big way during the secular bull-run. They are still the best long-term investment. As to what degree the correction will be, one need to look into the supply-demand equation of a specific commodity. A slowdown in the economy might be bad for metals but it might not be so for agricultural commodities. Do your homework before investing in commodities or commodities-related stocks.

This article is posted on behalf of Vola due to technicalities in posting, I think.

Why do I Trade? Part 2: The Best Business

2007-05-01T12:22:00.000+08:00

I was chatting with Mr CS Ong the other day and he mentioned that Trading is the Best Business. And I am inclined to agree. Trading should be viewed and conducted in a businesslike manner. But unlike conventional businesses, there is nothing one could just pack the bags and leave should one decides to. And once the skill is mastered, one could trade in any market. You need not be at a fixed location as like what a conventional business would require you to. And as Mr Lsb mentioned in the original post of Why Bother to Trade?, unlike conventional businesses, there is no need to manage assets and other people, etc.

And business, as we know, is somewhat synonymous to freedom. Mr Kiyosaki of Rich Dad and Poor Dad fame, has an interesting audio (Freedom or Security) which you could hear to demonstrate the point of freedom.
Somewhere in the 14th minute, the excerpt is as follows:

People who tries to find security are actually selling their freedom down the tube. Because the people that found this country, who fought the revolutionary war did not fight for job security. They fought for the right to be free. And freedom is a very, very high state...
How in the world can you say you have freedom when somebody tells you when you can eat lunch? How in the world can you say you have freedom when somebody tells you when you go to work and when you get off work? How in the world can you say you have freedom when somebody tells you when somebody have the right to fire you because they need to downsize?
when somebody has the right to tell you how much you can make? That is not what we fought for. Too many people has sold their freedom...

Of which, I am sure Mr Zewt would be inclined to agree with Mr Kiyosaki with his numerous postings on Modern Slavery.

And the key point as earlier mentioned was the mastery of trading.

When I first traded, I was mostly breaking even. There was not much gain nor loss at end of each month. Couple of hundreds gain this month only to lose a couple of hundreds in the next month. Then, I began to see the light. Somehow, they all began to fit and come together. I began to make money.

I felt like a money making machine for quite some time. I began to make the same amount that I was earning from my full time job. Then, it grew to twice the amount, thrice and on the peak of it, was five times more what my full time job was paying me. I was churning out an ROI of more than 20% per month. Yes, per month. No doubt, it was still a small capital base but the feeling was great. My trading funds just grew and grew.

You could feel the euphoria, when you finally found your own holy grail - a method that works for yourself. A method which promises you financial freedom. Finally, I see the promises of the treasures of the seven seas is realizing before me.

But then, our story has yet to end. I shall continue in the next article. Stay tuned. Hey, you! Yes you! Don't play with the remote. Haha. :)
(Marcus, yes, I m keeping the suspense alive :P)

~ to be continued...

As usual, you are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

Ebook: Bollinger on Bollinger Bands

2007-04-30T22:25:00.000+08:00

Previously I quoted the summarised rules of Bollinger Bands.
Now, the complete guide to Bollinger Bands is available - by the master himself.
Bollinger on Bollinger Bands.

As usual, you are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

Why do I trade? - Part 1 - Definitions

2007-04-29T12:08:00.000+08:00

Few days ago, I made a post - Why bother to trade?
I structured the post in such a way, which I think depicts the truths of trading and also provocative. While the total number of comments reached 18 comments, as at the time this post is being made, there is only a handful of people who commented. Which, I appreciate the comments made though, I am disappointed at the number of people who actually commented.

For the benefit of everyone, I would be putting down the definition of investing, trading, speculating and gambling. They are my definition and by no means correct, but they re my definition which I use.

Graham has a definition too. Let's look at Benjamin Graham's definition first.

What do we mean by “investor”? Throughout this book the term will be used in contradistinction to “speculator.” As far back as 1934, in our textbook Security Analysis,1 we attempted a precise formulation of the difference between the two, as follows: “An investment operation is one which, upon thorough analysis promises
safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

And also, the commentary,

What exactly does Graham mean by an “intelligent” investor? Back in the first edition of this book, Graham defines the term—and he makes it clear that this kind of intelligence has nothing to do with IQ or SAT scores. It simply means being patient, disciplined, and eager to learn; you must also be able to harness your emotions and think for yourself. This kind of intelligence, explains Graham, “is a trait more of the character than of the brain.”

I dislike the definition as it does not distinguish trading from investing. Trading would include
1) A trading system with more than 50% accuracy.
2) Emotional control - much like what is emphasized by Graham as well though a slight change is needed.
3) Discipline to carry out stop loss and to trade as per the trading system.

This would satisfy Graham's criteria for as an investment which "Promises safety of capital and an adequate return"
1. Why safety - Money management techniques would safeguard the trades/trader, limiting the exposure or risk taken. This is normally in two folds - one in the form of stop loss. Another is the size of the trade, hence no overtrading is done.
2. Adequate return - The system which has more than 50% accuracy. And with emotional control to execute the system, adequate return will be guaranteed over the long run. Law of averages promises this.

So let's return to my definition. But as I ve mentioned, they are my definition and by no means correct, but they re my definition which I use.
Investment - Long term venture with intention to purchase the business or part of the business. Mindset here is as a shareholder of the company. While a shareholder mindset investor may dispose the investment in short period, this should not be an active pursuit. An investor should have the mindset of letting the business grow, otherwise, he wouldn't venture into it in the first place. Having run my own business before, I could tell you from experience, a business needs time to grow, things definitely do not happen instantly. An investor should be able to see the long term prospect of the company and base his decision on that.

Trading - A short term venture whose intention is to capitalise on the short term swings of the market. There is NO intention to be a shareholder. Objective is speed - not being an owner. While a trader may go for long term, it should not be a buy and hold strategy. Otherwise, it would be an investment. Yes, a Turtle Trading strategy would be difficult to differentiate whether it is a trade or an investment.

Speculation - While many have their own definition of speculation, my definition is being an operator. By this I mean to be able to "control" or influence the prices of a certain stock and enticing others to jump in on the wagon would be considered speculation. This is a highly specialized area where enormous amount of cash meets with the highest degree of skills.

Gambling - By gambling, I refer to the 90% of the market population. By jumping into a counter just because it is climbing up or just because it has shed 60% of its value is gambling. Why? Under what basis does one know that the trend will continue or will reverse? Without proper technique, its a gamble as there is no analysis nor any work done to justify the entry.
Majority of people also merely follow a tip. That would be gambling - no analysis done on the individual's part - no basis other than following the recommendation. The gamble is that the recommendation is correct. That is gambling.
Note: Even if I give certain recommendation, do make your own analysis and then derive on your own decision - then it could be either trading or investing. If you do not conduct your own analysis to ascertain the true picture of it, you re merely gambling that my recommendation is correct. I am known to be wrong. Everyone is known to be wrong. I ve yet to met anyone to be 100% correct. Show me one person who is 100% right all the time, and I ll show you a liar.
Then there are those who claimed to be traders but do not have a trading system - then they re not trading, they re effectively gambling. Without a system that works with the Law of Averages, there is NO safety. Hence - gambling.
Therefore, if there is no money management techniques incorporated into the trade entry, its gambling as well - NO money management concept - NO safety - GAMBLING.

~to be continued...

Further reading suggested on previous posts:
Gambling; Buy, Pray and Hold; Investing and Trading
Of Trader and Gambler

Ebook: Dr Alexander Elder 2

2007-04-28T01:38:00.000+08:00

And so, I left out the actual Entry and Exit book from my original post. Heh heh.
Here it is.

Alexander Elder - Entry & Exit

As usual, you are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

EDIT: I forgot to give credit to Mr CS Ong for finding and sharing this ebook with me.

The Yin & Yang of Candlesticks

2007-04-26T18:58:00.000+08:00

Everything in the universe has a balance. And the balance is seen in yin and yang.
So does candlestick. To ease our memory of the patterns in candlestick, we need to understand the concept of yin and yang.

Let's take a look at this candle - irregardless of whether it is a black or white candle - is this a hammer or a hanging man?

Without knowing the previous trend, one would not know but to learn this, it is easiest to learn both together. Even Nison grouped them together in his book Japanese Candlestick Charting Techniques.

The hammer and hanging man can be recognized by three criteria:
1. The real body is at the upper end of the trading range. The color of
the real body is not important.
2. A long lower shadow should be twice the height of the real body
3. It should have no, or a very short, upper shadow.

The only difference is one appears on the uptrend, signalling potential downtrend; while the other is the exact opposite - appears on the downtrend signalling potential uptrend.

"What is in a name?" - Shakespeare.
But if you would really want to remember the name, an easy way is visualisation - for example, hanging man - I would visualise that to be hanging, one needs to be on a high position - so hanging man would be hanging on the uptrend, signalling on potential downtrend. Why signal potential downtrend? Well, after being hanged, one would be dead. Kind of obvious isn't it?
And if hanging man and hammer is the exact opposite and one has learnt the hanging man, what would be the hammer? Yeap. the exact opposite. Easy, isn't it?

Now look at the below, what is this - a Shooting Star or an Inverted Hammer?

Again the concept to learn is the same as the above illustration of the Hanging Man and the Hammer.

Hopefully this article would ease one's learning on the Candlesticks. Enjoy!

Why bother to trade?

2007-04-26T00:39:00.000+08:00

WHY!!??

Why do you trade?
I often ask this question and often I am being asked this question.
Of course, the common answer is - for the money.
Some - for the adrenaline rush.
Others - for a different reason.

For those who trade for adrenaline rush, well, I could only tell you that trading is not supposed to be exciting. Its a business, not a game. And it may cost you if you re merely in for the excitement.

For money heh? Why trading?
The path of a trader is not easy, there is no easy money. Why do you trade?
For money?
There are numerous means for money - from getting an additional part time job to some Multi-Level Marketing (MLM) schemes.

Compare a sure part time income to the risk you re taking in trading. Why trade?
Compare MLMs with their "proven" marketing plans with the risk you re taking in trading. Why trade?
Want to trade for a living? Compare the security of a fulltime job vs the risk in trading - why trade?

Then some would say, trading is easier than others.
Getting a part time job is tiring. After working for 8 hours, its already exhausting. Part time job? You're kidding me!
MLM? Same with part time job. Most people are only free during the nights. So I have to meet them during the night AFTER my 8 hour fulltime job? Then every week, there is some sort of motivation meeting among members? You're kidding me!
Trading is different, every day I just buy some stocks and then sell them at a profit.

Bad news, buddy. Trading is worse than any part time job or MLMs.
I mentioned about plans - having the importance of having a game plan:
Game Plan
Being Bold and Able to Be Bold

That requires time and discipline.
Every single night (or day) without fail, one needs to prepare for the next day's trade.
If you re unprepared, my advice is - don't trade.
Why? The price movements of the counter you ve selected should not surprise you. You do not the time nor the luxury to be surprised. Act. Act immediately. And how could one act decisively if there wasn't a plan made in the first place?

Compare that to a part time job, compare it to a MLM scheme. Would trading really be better?
You would see that trading requires more discipline and is more risky. So I don't get it, why bother to trade then?

I'm curious. Do share your views. :)

Ebook: Dr Alexander Elder

2007-04-25T00:00:00.000+08:00

Dr Alexander Elder writes one of the best basic trading book covering from the right mindset, winning attitude, money management, and to essential technical knowledge.
Read all about it in Trading For a Living

After Trading For a Living, Dr Alexander Elder restrengthen and refortifies the principles to trading in Come to My Trading Room.

Maybe one still would have doubts. Perhaps Dr Alexander Elder is a genius. A rare exception. How could we mere mortals hope to emulate his successes? In the book, Study Guide to Entries and Exits, you will be shown to 16, yes 16 individuals who have different trading capitals base and levels of experience but are equally successful. They're all traders. :)

As usual, you are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

Metastock Version 8.0

2007-04-24T00:41:00.000+08:00

And so, many enquired as to where to download this.
I finally "found" a link which could resolve this issue.
The file is separated into two parts using Winrar. You ll need both the files.
Metastock v8.0 Part 1
Metastock v8.0 Part 2

Metastock v8.0 is the most stable version.
As per my previous post - Tools of Trade, you'll need to purchase the data from Bizfun.
Its only a one time fee of RM80.00. A superb bargain, I must add.

What can Metastock do for you?
1) Data at your fingertips - everyday download the data and extract it. Thereafter, you can manipulate the chart to your liking without an internet connection.
2) Custom Indicator - as you grow in TA, you may want to customise some of your own indicators. MS allows you to do it.
3) System Tester - Have a new system to test out? MS has a System Tester function which could test your system's success rate.
4) Exploration - How to shortlist the large number of counters in KLSE? Easy, insert the criteria you want and MS Explorer will do it for you.
5) Expert System - Here you can insert certain buy/sell signal or even a commentary.

The long and short of this is, MS is by far, the best charting software. Its versatility and user-friendliness is thus far, in my opinion, unmatched.

PS: As usual, you are advised to download before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

Being Bold and Able to be Bold

2007-04-23T23:01:00.000+08:00

In my previous post about Trading Plan - I stressed the importance of having a trading plan. A trading plan should have at the very least, three elements:
1) Entry position
2) Position sizing
3) Exit position

By having a trading plan, effectively, an individual has an added edge over the others. One would know what, when and how much to enter for a particular stock. The price is 0.50 now, should I enter now? The price is 0.49, is it now a bargain (since its cheaper than earlier 0.50) or does it render the plan null and void (since crucial support is broken)? I don't know, but your trading plan should already tell you that.

Ok, so we know whether we should enter or not. Question is how much? Should it be 1 lot? 5 lots? 10 lots? Should it be 5% of your funds, or 10% or 20%? Again, I don't know. Your trading plan should also tell you that.

Exit. Now comes the really difficult part. When to exit - irregardless of whether the exit is made on a profit or loss, when do we need to exit? If we purchased at 0.50, should we exit at 0.48 or 0.45? If the price moved to 0.60, should we take profit, or should we let it run?

Point is actually, when the market is ongoing, we barely have time to analyse or to think. Most of the work should have been done the day before. On the market day, we merely execute the plan - entry and exit should be planned. And when the time comes, we need to be bold to carry out the plan.

Say the plan calls for entry at 0.50, but we hesitate, the next moment, its going to be 0.52. Then, we ll tell ourselves, it ll pullback later, it will. But we re merely consoling ourselves. Price went up to 0.55. Should we still enter? Now its 0.05 or 10% higher than our original planned entry price. What do we do now?

Same with exit - whether its profit take level or stop loss - should we exit at 0.50 as planned? Heh, heh, I can tell you from experience, the moment we hesitate, the price is not going to go our way, its going for 0.48, the next moment we hesitate again, its going to be 0.45, and then 0.42 and lower and lower.

So be bold my friends. Be bold in taking and making the decision. And have the trading plan in hand - to be able to be bold.

"Boldness has genius, power, and magic in it. Begin it now."
- Johann Wolfgang Von Goethe

Leading and Lagging Indicators

2007-04-22T13:41:00.000+08:00

I've always held the belief, and still do, that all indicators are lagging. Indicators are based on past price volume action, hence lagging. However, this is my personal belief.
Mainstream wise, TA indicators are grouped into Lagging Indicators and Leading Indicators.

Lagging Indicators

Trend indicators fall into this category as they assist us in identifying the underlying trend based on past movement. This would include indicators such as Moving Averages.
As per my previous post - One shoe size fits all, I had a section on Crossover with Moving Averages as examples - terms such as Golden Cross and Dead Cross should be a familiar term.
When a Golden Cross appears, it is normally after the change of trend has already occurred fo sometime, ie, not the first sign of trend change.
Same goes to a Dead Cross, the downtrend is already obvious from the price movement itself - hence why it is labelled as a lagging indicator.

So since it is lagging, why do we need these Lagging Indicators? Well, actually, we don't really "need" them. However, they assist in helping us to "visually see" the trend continuation. As for trend reversals, they are confirmations that trend reversals has already happened.
These Lagging Indicators can also be used as entry points for Fundamentalists whose Trading/Investing Plan mainly focuses on FA. A simple TA method to use for Fundamentalist is actually Moving Average Crossovers. A reliable indicator for safe entry when the holding period is for the longer term.

Leading Indicators

Leading indicators are those which are used to predict price movement - or potential trend reversals. Indicators such as the RSI would fall into this category.
As per my previous post - One shoe size fits all, I had many sections which demonstrates how it could be applied in practice.
So why is this considered Leading? Well, the idea is that these indicators are supposed to be used to predict the future price movement - as the key reversal point are being formed.
However do take note that, Leading Indicators are best used in a Trading Range rather than a Trending Market. Sometimes, an oscillator can remain overbought or oversold condition for some time, remember?

So anyway, there, a summary of leading and lagging indicators. A trading system, in my opinion, should have a mixture of these two elements as they do complement each other. One to identify early trend change, another to confirm and provide continuation signals.

Fear and Greed

2007-04-21T00:24:00.000+08:00

Fear, fear is my ally
- Darth Maul

Fear is the path to the dark side. Fear leads to anger. Anger leads to hate. Hate leads to suffering. I sense much fear in you
- Master Yoda

Fear and Greed has always been blamed behind every market movement. When the movement is up, it is due to greed. When its a correction, it is fear. Many strategies have also been formed around these emotions - buy when everyone else is fearful, for example is a contrarian strategy.
There have been a lot of talks about the importance of having neither fear nor greed. Total emotionless in trading as emotions clouds our judgment. While this sounds logical, is this truly possible and would it yield a better result?

To know this for sure, today we look into Automated Trading System.
Automated Trading Systems automatically executes signals from any strategy through a broker. It is a software that trades your Trading System for you. Manual entry is no longer necessary. Entry and exit are made at lightning speed, so to speak.

Locally, unfortunately, there is no such software for or use and testing, or so none to the best of my knowledge. However, overseas wise, this development have been for quite some time.

The question remains, is consistent profits from an Automated Trading System possible?
According to a survey (poll) conducted by a leading trading forum, the results are as follows:

Yes - large consistent short term gains - 37%
Yes - slow long term gains - 11%
Possibly but none would sell their system - 24%
No - its a trader's fantasy - 28%

There could be other reasons such as the complexity of programming what the human mind knows into the software. Or some other reasons. However, from the results of the survey, we could see that among the traders, not many of them have generated profits consistently from these Automated Trading Systems.

Therefore, I am inclined to conclude that there exist no evidence that trading without any emotions would yield better results.

Courage is resistance to fear, mastery of fear, not absence of fear.
- Mark Twain

I used to have the fallacy that one should trade without any emotions. However, lately, thanks to Ben of Wisdom Wise, I realised that one need not be a robot to trade. One merely needs emotional control, not emotional absence. Make fear and greed an ally.

If you remembered, I ve posted an excerpt from Wall Street previously - Greed is Good.

Greed and fear - the notorious driver of the stock market.
Make them an ally.
To the end, we re only human.
Master your fear, master your greed, and have the wisdom to know when to be greedy and when to be fearful.

Ebook: Jesse Livermore

2007-04-20T02:48:00.000+08:00

Jesse Livermore was touted as the World's Greatest Trader.
Why? Is it because of his successes in becoming the World's Richest Man from zilch?
Or from his successful bear raids?
Or cornering of many commodity markets?

Perhaps. But to me, the title was worthy but for a different reason.
Jesse Livermore was perhaps one of the earliest to lay down the rules of trading.

Never risk more than 20% of your capital.
Do not buy a stock because it has had a big decline from its previous high.
Profits always take care of themselves, but losses never do.
Never average losses.
Markets are never wrong —opinions often are.

And he did so with much glory and pain as well. His phenomenal rise and fall is all summarised and offers a great learning to us all. I believe it even paved the way to the emergence of Money Management Concepts.

Reminiscence of a Stock Operator

How To Trade Stocks

How To Trade Like Jesse Livermore

Legacy of Jesse Livermore

As usual, you are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

The HOLY GRAIL

2007-04-19T21:04:00.000+08:00

In the ancient tombs of Pharaoh Tutankhamen of Egypt, it was said that there resides the Holy Grail for centuries. For centuries, many searched for this magical instruction on how to profit in the stock market but to date there has been no evidence of anyone succeeded in the quest. Rumor has it though that an elite few managed to unlock its secrets and earned vast fortunes from the market.

But beware! It is also rumored that the scroll of the Holy Grail is protected by the spirits of the Pharaoh’s himself! One wrong move, and the ancient spirits will descend a terrible curse on the unlucky one for seven generations.

This however, would merely mean nothing to the treasure hunters. Every year, new bands treasure hunters would emerge to embark a journey to seek this magical scroll of the Holy Grail.

Haha, thanks for indulging me with a little drama – just for humor J

Holy Grail, I m sure each and everyone of us, has at some point of our trading/investing lives, searched for this Holy Grail. And we would conclude that there are no such-a-thing as this rumored Holy Grail. And, oh, if you re still looking for it and have not given up hope on the Holy Grail, I must apologize for bursting your bubble. :P

However, allow me to share an excerpt from Van Tharp’s Trade Your Way to Financial Freedom, in which, I owe my gratitude to Mr CS Ong, I presume :)

The “Holy Grail” is not some magical source that is the key to the markets, as most people believe. The metaphor of the “Holy Grail,” according to scholars like Joseph Campbell, is all about finding yourself. Similarly, the “Holy Grail” in the markets - the key to unlocking profits - is all about finding yourself.
To unlock the “Holy Grail,” you need to appreciate your own ability to think and be unique. People make money by finding themselves, achieving their potential, and getting in tune with themselves so that they can follow the flow of the market.
Getting in tune with yourself means finding an inner peace inside. It means finding a balance between profits and losses. The Holy Grail is not a magical trading system; it is an inner struggle.
Once you’ve discovered that, and resolved the struggle, you can find a trading system that will work for you

Van Tharp couldn’t have said it better.

“If you look far, it’s very far away,
If you look near, it’s right before your very eyes”

- Chinese Proverb

John Bollinger on Bollinger Bands

2007-04-18T17:35:00.000+08:00

What is Bollinger Bands?
Bollinger Bands is a trading band indicator. It is an indicator that envelops the prices of a certain stock. It does NOT give a definitive buy or sell signal. However, it indicates an answer if the prices are relatively high or relatively low.

Who else to learn from about Bollinger Bands, if not John Bollinger himself?
So here are the Rules from John Bollinger himself.

One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. While there are many ways to use Bollinger Bands, following are a few rules that serve as a good beginning point.

Bollinger Bands provide a relative definition of high and low.
That relative definition can be used to compare price action and indicator action to arrive at rigorous buy and sell decisions.
Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.
Volatility and trend have already been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended
The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid colinearity.
Bollinger Bands can also be used to clarify pure price patterns such as M-type; tops and W-type bottoms, momentum shifts, etc.
Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.
Closes outside the Bollinger Bands can be continuation signals, not reversal signals - as is demonstrated by the use of Bollinger Bands in some very successful volatility-breakout systems.
The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the bandwidth are just that, defaults. The actual parameters needed for any given market/task may be different.
The average deployed should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.
If the average is lengthened the number of standard deviations needs to be increased simultaneously; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.
Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent.
Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance and the distributions involved are rarely normal.
Indicators can be normalized with %b, eliminating fixed thresholds in the process.
Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.

EBook: Benjamin Graham

2007-04-17T21:14:00.000+08:00

Benjamin Graham's Intelligent Investor
Touted as a MUST READ by many.
Finally I found the ebook version.
Enjoy!

PS: You are advised to download the ebook(s) soonest possible before the link expires or removed. I m not responsible of providing fresh links if they are no longer working.

2 X 5

2007-04-17T21:08:00.000+08:00

According to Benjamin Graham, “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

A trader would need to have at least the following:

1) Trading system which has more than 50% probability.
2) Emotional control - much like what is emphasized by Graham as well though a slight change is needed.
3) Discipline to carry out stop loss and to trade as per the trading system.

And with these three, it would fit to Graham's definition of investment which "promises safety of principal and an adequate return"
1) Why safety - Money management techniques would safeguard the trades/trader, limiting the exposure or risk taken. This is normally in two folds - one in the form of stop loss. Another is the size of the trade, hence no overtrading is done.

2.) Adequate return - The system which has more than 50% accuracy. And with emotional control to execute the system, adequate return will be guaranteed over the long run. Law of averages promises this.

So apparently, ALL traders are investors by Graham’s definition.

Allow me to share with you a video which would depict what’s on my mind. Oh, for those who do not understand Cantonese, please accept my apologies.

EBooks: Nicholas Darvas

2007-04-16T18:37:00.000+08:00

How I Made $2 Million in the Stock Market
Darvas Flow Chart

These ebooks are available for download in Blisswind Google Group.
And many more! Join today!
Hehe, good promotional gimmick, huh? But hey, it won't cost you anything :)

Game Plan

2007-04-16T15:19:00.000+08:00

Sun Tzu said,
“Warfare is a great matter to a nation; it is the ground of death and of life; it is the way of survival and of destruction, and must be examined thoroughly”

In which Maxforce interprets,
“Investment/Trading is a great matter to our financial wealth; it is the ground of financial ruin and of financial success; it is the way of unlimited riches and of bankruptcy declaration, and must be examined thoroughly.

Sun Tzu continued later,
”Therefore, those skilled in warfare establish positions that make them invincible and do not miss opportunities to attack the enemy.
Therefore, a victorious army first obtains conditions for victory, then seeks to do battle.
A defeated army first seeks to do battle, then obtains conditions for victory”

in which Maxforce again interprets,
“Therefore, those skilled in investment/trading establish positions that minimize their risks and do not miss the opportunity to maximize their gains.
Therefore, a victorious investor/trader first place as many factor in their favor, then enters the trade.
A defeated gambler first seeks to make entry, then looks for conditions in their favor."

There can be no sufficient emphasis on to have a trading plan. Before one enters the trade, it is best to have a trading plan. This is not unlike warfare, before one gives battle, an attack or defense plan is drawn. Before a football game is played, the manager of the club would have communicated the formation, the game plan for the day.

In addition, Warren Buffett, also once mentioned, “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound framework for making decisions and the ability to keep emotions from corroding that framework”

Buffett basically had summed it all up.
However, all in all, a trading plan is only as good as a plan, if it is not being carried out.
Plan your trade, trade your plan.

Happy Trading!

EBook: Steve Nison

2007-04-15T17:19:00.000+08:00

OK, due to popular demand, I am opening a new section - Ebooks.
I hope this blog doesn't get shut down because of it.

Let's start off with Steve Nison's collection:
Japanese Candlestick Charting Techniques
Beyond Candlestick
The Candlestick Course

You are advised to download them soonest possible before the link expires or removed.
I m not responsible of providing fresh links if they are no longer working.
Enjoy!

PS: I m not using the Blisswise Google Group because there seemed to be problems everytime I upload there. Sorry Ben.

GREED IS GOOD

2007-04-15T00:50:00.000+08:00

Yeah, YouTube Mania has hit FusionTrader!!!

Cromwell:
Your company, ladies and gentlemen, is undersieged from Gordon Gekko! Teldar Paper is now leveraged to the hilt like some piss poor South American company. I strongly recommend you to see through Mr Gekko’s shameless intention here to strip this company and severely penalize the stockholders. I strongly recommend you to reject his tender by voting for management’s restructuring of the stock.

Gordon Gekko:
Well, I appreciate the opportunity you're giving me Mr. Cromwell as the single largest shareholder in Teldar Paper, to speak.
Well, ladies and gentlemen we're not here to indulge in fantasy but in political and economic reality.
America, America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder.
The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company!

All together, these men sitting up here own less than three percent of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock; he owns less than one percent. You own the company. That's right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their luncheons, their hunting and fishing trips, their corporate jets and golden parachutes.

Cromwell:
This is an outrage! You're out of line Gekko!

Gordon Gekko:
Teldar Paper, Mr. Cromwell, Teldar Paper has 33 different vice presidents each earning over 200 thousand dollars a year.
Now, I have spent the last two months analyzing what all these guys do, and I still can't figure it out.
One thing I do know is that our paper company lost 110 million dollars last year, and I'll bet that half of that was spent in all the paperwork going back and forth between all these vice presidents.
The new law of evolution in corporate America seems to be survival of the unfittest. Well, in my book you either do it right or you get eliminated.

In the last seven deals that I've been involved with, there were 2.5 million stockholders who have made a pretax profit of 12 billion dollars.

Thank you.

I am not a destroyer of companies. I am a liberator of them!

The point is, ladies and gentleman, that greed, for lack of a better word, is good.
Greed is right, greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.
And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.

Thank you very much

Trading Style and Timeframes

2007-04-14T22:14:00.000+08:00

Trading is an activity of buying and selling an instrument for profits. The instrument could be a stock, commodity, futures, currencies, you name it. Today, allow me to share with you the classification of trading style via timeframes. Some of these classifications, again, is not mainstream. It’s a mere opinion of mine.

1) Scalping

This involves a large number of trades for miniscule profits. The idea of scalping is to take small profits, a lot of times. Example, say you identified a stock with high volume, you enter the trade with large order. You exit the next moment for a profit of one tick movement. Instant profits.

This is only possible when you are constantly monitoring the market, able to key in your orders, orders are executed immediately, commission rates are superbly low.

In matured markets like the US, many could make a living via scalping. A scalper could easily scalp USD200 per day. Not bad for one tick movement per trade, huh?

2) Day trading

As the name suggest, day trading merely means that a trade is open and closed in the same day. A daytrader could use scalping methods and enter many trades for small profits each trade, or the daytrader could open a position at the start of the market and let the profits run until end of the market day.

This also requires a fulltime job to monitor the market, commission is best to be low, ability to key in own orders and the immediate orders execution are definitely a plus point.

3) Contra trading

Sadly, we only have T+3. I remember those days, it was T+21 or something like that. Anyways, contra trading refers to the method of utilizing the T+3 timeframe before settlement is needed.

The requirement for a constant monitoring reduces slightly. However, the risk remains high. Danger of overtrading is very real here. Many who have other fulltime jobs with this method have not produced good results. Problem is often the T+3. Timing must be so impeccable – for otherwise, losses will amount.

4) Swing trading

We had T+3 contra. So this method goes for week(s). This method attempts to identify small trends and uses oscillators to assist in finding possible retracements.

Advantages of using this method includes easily maintained for working professionals. Risk is lower as actual cash is required for the T+3 settlement. Also, successful capturing of the market fluctuations would be very rewarding.

5) Trend following

As mentioned in my previous post, Why I say ROI 20% pa is no big deal, the method used is actually a trend following method. This is not unlike the Turtle System by Richard Dennis. Identify the start of a new trend. Liquidate near the end of the trend. Movements in between are merely noises, however, could be used to plan for additional entries.

The strength of this method is that it does not need a constant monitoring. This style is suited to a busy working professional. Risk is generally lower too, as one is in to ride the longer haul.

Of all the five methods listed above, there is none which is clearly superior than the other. It is merely a personal preference. Another is the time factor – the time to monitor the market. Which style is yours?

PS: Trading style mentioned above is not exhaustive. I may have missed a trading style or two.

Site News: FusionTrader's FIRST Feed Exchange

2007-04-14T21:50:00.000+08:00

Well, FusionTrader has just made the FIRST Feed Exchange with Investlah Community
What is a Feed Exchange? I m not sure about the mumbo-jumbo terms, but look at the bottom of the right hand tab - there is one column named - Feed Exchange Investlah.com.
What happens is whenever there is a new post in Investlah Forum, it will be shown here as a link.
At the same time, Investlah has also revamp their main page - with subscriptions of feeds from Bernama. That means latest news from Bernama relating to Malaysia will be shown. Also, FusionTrader's post will also be shown there. :)
There, feed exchange. Technology is a marvel, huh?

Back

2007-04-14T21:12:00.000+08:00

Dear all,

I sincerely apologize for the long period of inactiveness in this blog. As some of you have known, I went for a minor surgery about two weeks ago. Since then, I have been recuperating. Now I m back in shape :)

Also, in the meantime, this video would depict my latest resolution as well.
And oh, this is a Linkin Park song, so this means it may not be suitable for everyone.
Teenagers presence is strongly advised for acceptance :P

Yeap breaking my smoking habit.

Cheers! Look for more continuous updates here. We re back in business.

Blisswind

2007-04-07T15:31:00.001+08:00

Ben of Wisdom Wise, has created a Google Group, which I am also a member.
All is invited to join this little community and make the best of out it.
Periodically, I would also upload some ebooks to share with everyone.
Hope everyone would do the same and hope to see you there
http://groups.google.com/group/blisswind

clipped from groups.google.com

Blisswind

Forward Test: Redtone

2007-03-30T21:33:00.000+08:00

Ben told me that Seng from Fusion Investor asked about Redtone from TA perspective.
So I decided to dedicate a whole post to it and label it Forward Testing.
Let's see if the market acts like the way I predict it or not. Remember, we make a prediction, but let the market decide. Should the market decide our prediction is wrong, as a TA practitioner, we must concede defeat and accept that the market is always right. You cannot win against 100 people pushing you down, no matter how strong you are.

Redtone
First we look at the weekly chart - overview.

We see bloodshed happenned in 2006. We see that in 2007, it tried to recover but so far to no avail. Volume remained thin throughout with the exception of 2007 where the long green candle marks the jump in price supported with volume. However, we also see a blue line drawn by me, marked as resistance. The blue line, resistance, was not successfully taken, and price falters with volume.

Next we take a closer look - still the weekly chart - zoom.

We note, EMA 50 (pink line) is still above EMA 20 (orange line). This is bearish.
We also note that the last candle rests slightly above EMA 20 weekly chart. This we note as Key support. Further assault on this support would be unthinkable.

Let's now look at Daily Chart - overview

We note that the last candles are now resting on near previous highs in November 2006, December 2006 and January 2007. Previous resistance now has become a support. This would jive with the statement above from Weekly chart that the stock is now at the Key Support. Further assault on its Key Support, would be fatal.

Let's now look at Daily Chart - zoom

This one is interesting.
First, we have long green candle with high volume.
Next candle is a shooting star with high volume.
Following is the bearish engulfing. Though volume is not as high, we must take this as a confirmation that the previous candle is a shooting star indeed.
Follows is another assault - red candle.
Following day, counter opened lower, intraday wise, reached the EMA 50(pink line) but it managed to close slightly above the previous day's closing. This is the Piercing Pattern. Piercing patterns are bullish reversal patterns.
However, the following day, while the counter opened higher, it closed lower. This cannot be regarded as a confirmation to the Piercing Pattern. While it close above the previous day's closing, the open high, close low is always a negative signal. If the bullish sentiment exist, why would a stock open higher to close lower?

This was proven true with the two red candle days. However EMA 50 held.
The following is a green candle that forms a Harami pattern.
However, the following Red Candle does not confirm it, and forms a Dark Cloud Cover.
However this is also not confirmed with the following Green Candle.
And this is followed by a Red Candle.
This is what was described in Steve Nison's books that a reversal does not necessarily happen with Harami, Dark Cloud Cover, Piercing Pattern, Bullish/Bearish Engulfing. It could merely move in sideways.

Thereafter, a sudden breakout occurred. Long Green Candle.
But proved to be a false breakout with the appearance of a Dark Cloud Cover.
The next two candle showed that the counter tried to recover but this is all in vain.

Resistance is futile. Marked with Blue Vertical Line, the Bearish Engulfing on a High Volume marks a whole new beginning to a downtrend of the stock.
Further assaults were made on EMA 20 support (Orange Line) and now the EMA 50 support (pink line).

While the assaults are with low volume, it does not mean that the downtrend is not real. From my personal observations, a rally with low volume is unsustainable. But a downtrend with low volume is very real. Volume could not be used in the same manner to analyse the uptrend and the downtrend. A counter with low volume downtrend, slowly drifts into the death of the stock. OK, I was being dramatic. It drifts and it drifts, until distribution is over.

Conclusion:
The charts look bearish. The general condition of the chart is bearish. Yes, while I use a total 14 indicators, they were all removed from the chart, save the EMAs :P. But, price volume action is the originator of all indicators.
So, general condition is bearish, Redtone is now at its key support point. Any confirmed break on this support, would confirm that we re now looking at the beginning phase of another distribution.

Standard Boring Disclaimer
The above is the personal view of the author based on Technical Analysis. The author disclaims all responsibility whatsoever on the course of action that may be taken.
Also, take note that the author is merely an accountant by profession, previously an investor and now a trader. He is not licensed to give any stock advisory services.

Rewarding the Shareholders

2007-03-28T01:20:00.000+08:00

Ever wondered what exactly it means to be a shareholder? What it means when you purchase the scripts of paper (or rather the numbers in the statement)? And why does certain counters are more preferable by many than the other?
You may think its the charisma of the CEO, or maybe the strong management team, or perhaps the strong branding of the company or maybe the stock just have chemistry with you. These are perhaps all important, but to the end, it all boils down to dollars and cents. Rewards.

There are a number of ways a company could reward its shareholders. How? Let's look at it more in depth:
1) Dividends

This is something many loved. There is even groups of people who merely invests just for the dividend. These are normally the more risk adverse investors whose strategy is to keep buying good dividend stock. With good money management, this strategy works.
Basically, the idea is like savings. Every month, instead of saving it in a bank, you purchase a dividend stock. The return per annum is higher than the bank. And you stand to gain for more if there is a capital gain. This strategy works best for working professionals who want a retirement fund.
Another shorter term strategy is to look at historical dividend declaration dates. Anticipate when the next dividend would be declared and purchase the stock. Once dividend is declared, stock price will spike up, normally. Instant gain, low risk.
The theory from textbooks is that your wealth really doesn't change. Once you purchase the stock and receive the dividend, the share price will fall - so you re back to square one. However, in practice, the norm is that the share price will appreciate back to at least where it started.

2) Capital Repayment
This normally comes as a sudden surprise. Everybody loves them.
The idea is the same as dividend play, however, the anticipation would be much more difficult.

3) Bonus Issue
Free shares for every certain number of shares held. Simply great!
One point to note is that once a bonus issue is given, the liquidity of the shares increases. There are more shares now in the market. Hence price may take some time to consolidate prior to recovering to its previous price.
Again, the idea and theory is similar to Dividend Play. Anticipation, however, are difficult.

4) Rights Issue

Frankly, this is not exactly a reward to shareholders. More like a threat, if you ask me.
The idea is this, the company needs cash. Instead of borrowings from the bank, the company declares rights issue. If you hold a certain number of shares, you are eligible to subscribe to a number of shares for a fixed price.
The theory from textbooks is simple - if you exercise your rights issue, your wealth does not change. If you don't you lose out, as share price will fall, but there is no additional shares from rights issue to compensate the drop.
Do take note of the difference between Rights Issue and Bonus Issue.

5) Share Buyback

This is interesting. How does share buyback affect the share price?
Direct impact - as a support to the share price. As the company conducts share buyback exercise, this would serve as an additional support to the share price. Confidence of retailers may also be boosted and may charge in to support alongwith the company. Hence, a falling dagger may be stopped.
Indirect impact - Imagine a pie is to be shared among 8 person. So each gets 1/8 of the pie. Now what happens, if the pie is only to be shared by 5 person? Each gets 1/5 of the pie.
The pie remains the same, but each person gets a larger slice.
Same theory applies to share buyback exercise. What share buyback also achieves, is reducing the number of shares in the company. Since there are less people to share with, there ll be more for everyone, even if the earnings remain the same.

6) By retaining all profits to expand the business

It is often very easy to jump the gun and say that if a company does not declare dividend, it has bad management. However, this may not be the case. A business needs to retain its profits in order to survive, to stay competitive and to expand. Depending on the business model, some industry require heavy reinvestment in order to stay competitive. Failure to do so, would spell disaster for the future of the company.

One notable example is Proton, who has failed to keep its technology up to date. For decades, Proton has dominated the Malaysian car market and they took this for granted. There weren't new models around to replace its old ones. Quality remained an issue after 30 years. Simply a disgrace! This would be a case of bad management. And it has nothing to do with dividend declaration or not. The idea is cash management.
How does the Company manages its cashflow tells us a lot about the company.

Also, in a fast moving industry, such as the IT industry, the company should ensure that there is sufficient cash for Research and Development. Otherwise, its competitive edge, will be lost when its rivals gain key technology which could render the Company's technology obsolete!

In addition, there may be instances where the company would be best to delay or reduce its dividend policy to finance an expansion. This is especially if the expansion would yield a key strategic importance to the company.

All in all, this is in view of the longer term of the Company.

Misuse and Abuse.

Above are all theories and concepts in an ideal world. In real world however, misuse and abuse are rampant.
As you know, most directors are major shareholders in the companies in Msia. The main reason for a large dividend payout is not to benefit shareholders per se, but to ensure their own benefit is secured. It may also be done at the expense of the future of the company, shorttermism rears its ugly head.
Furthermore, there are also companies who misuse the funds of the company to pursue a share buyback program. This is so that they could dispose their large block of shares at a higher price while the company buys them back. In the end, once the share buyback program ends, share price would be unsustainable and fall. The unscrupulous director who was the one that initiated the share buyback program, sold his shares, can now buy back his own shares at a much lower cost.

So let us all be aware of all the aspects that there is. Cheers!

Magic of Doji

2007-03-27T18:07:00.000+08:00

Very often we hear the scream of "Doji, doji, doji!" as if it is the end of the world. Or it could be the beginning of sunshine. Depends on the prior trend. But how valid is this excitement?
Let us dwell deeper into this mysterious Doji.

Doji is often touted as the reversal signal. If the prior trend is an uptrend, an appearance of doji to many, signals reversals. Correction is about to ensue.

I would define doji in another fashion. A doji to me merely means neither bulls nor bears are in control. You may view it as uncertainty. If there was a prior trend, it indicates that the trend has hit a pause. It may turn into a reversal or a resumption of uptrend. By looking at only the Doji, we will not know what will happen next. Types of Doji, such as, long-legged Doji, Gravestone Doji, Morning Star Doji, may give an additional strength to the Doji but not conclusive.

There are several categories of Doji. Classification is not mainstream but the idea is. Simply said, the idea is not new and have always been there. I merely simply give these doji names :P

1. Useless Doji

Refer to the chart above. There are so many of them. Is there a meaning to these doji?
Yes, the meaning is these are Useless Doji.

2. Pausing Doji (or commonly known as Failed Doji)
Refer to the chart below. The doji merely create a pause. It does not reverse the previous trend. See how dangerous it is to conclude it is a reversal just based on Doji?
Commonly known also as failed Doji, but personally I dislike the name. It gives a false impression as if a Doji is equivalent to an advance warning of a sure reversal.

3. Reversal Doji
Refer to the chart above. This doji became a reversal. The end of the era of uptrend.

So, how do we differentiate these doji? How do we know which is which? Useless doji are clear cut. But how are we to differentiate the Pausing Doji or the Reversal Doji?

In candlestick study, we always stress on the importance of confirmation. If it is not confirmed, then it is very risky. A Doji could either be a Reversal Doji or a Pausing Doji.

Another method is to gauge the likelihood of whether the Doji is a Reversal Doji. This can be done via the analysis of the position of the Doji. The idea behind this is to combine Doji with Key Resistance/Support.
Say a stock has been on a downtrend for sometime. A Doji appeared at the Key Support area. This is not conclusive, but it greatly enhances the probability that a reversal may be on the way.

There is also another way of interpreting the Doji, and that is via a combination of other methods. Suggested method is via Indicators. We'll cover more on indicators later.

Till then, I hope that Doji alone would be seen as a mere pause that neither bulls nor bears are in control. Nothing more, nothing less. Unless there are other information.

Why I love the news

2007-03-26T21:48:00.000+08:00

Never thought I am such a fan of news, heh?
Read on, let me illustrate with the following news from reputable publishing houses.
Its an observation made which has never cease to amuse me. :)

Dow Average, S&P 500 Advance as Higher Oil Lifts Energy Shares
March 22 (Bloomberg) -- The Dow Jones Industrial Average and Standard & Poor's 500 Index advanced for a fourth day as a surge in oil prices lifted energy companies.

I see, as oil prices go up, stocks will go up. OK. Got it.

Dow: 5-Day Rally, Back In Black
NEW YORK (CNNMoney.com) -- Stocks inched higher Friday, gaining after unexpected strength in home sales, but worries about rising oil prices limited gains.

OK, if there was no worries that oil prices may go up, stocks would have gained more. OK. Got it.
WAIT a minute... I thought, when oil prices go up, stocks will gain? But how come now oil prices' potential to go up, and stocks are limited from rising? Hey, something's not quite right here...

Well, hold on your horses. There's more :)

U.S. Stocks Rise on Employment, Wage Growth Data; GM Advances
Sept. 1 (Bloomberg) -- U.S. stocks rallied to four-month highs after the government said employers added more jobs and wage increases slowed last month, easing concern that higher interest rates would lead to an economic slump.
Ah, this rationale is simple - more jobs, means economy is good. And economy good, I suppose it means stocks will go up. OK. Got it.

U.S. Stocks Advance, Sending Dow Average to Third-Highest Close
May 5 (Bloomberg) -- U.S. stocks surged, sending the Dow Jones Industrial Average to its third-highest close ever as a smaller-than-forecast increase in the number of jobs last month eased inflation concerns
Ah, logical indeed. Lesser jobs, means economy not so good. Economy not so good, Federal Reserve (US' equivalent of Bank Negara) would not raise interest rate. And that means borrowing costs will not increase. So, stocks go up. OK. Got it.

WAIT a minute! Which is which now? So I know more jobs during good economy and less when bad economy. But good economy = stocks up right? Or bad economy = stocks up? Hmm, or did I even get the jobs as an indicator of the economy correct? :P

The human mind constantly look for reasons as to why things happen the way they do. It is our nature to find the reason. The journalists merely provided the justifications we so seek. Often with much logic in it that we cannot distinguish between what is real and what is not. It is said, "If you re looking for a bull, everything looks like a bull. If you re looking for a bear, everything looks like a bear." The human mind merely recognises the pattern which we so want to seek.

Stay objective. Don't believe everything you've read or heard. Stay objective.

Its not a race...

2007-03-26T18:15:00.000+08:00

We often heard of how much one make. Or we often wonder how much does one make? Whether its trading, investment or a job, it makes no difference. Our KPC (keh poh chee) nature wants to know. And after knowing, we re not satisfied. And of all the things we learn from our neighbour, we learn kiasu-ism. Haha, my apologies to Singaporeans but you know its true :P.
We become impatient. We become uncontented. We become competitive. We commit another trading sin.

Trading or investment is not a race. There is no finish line. There is no competition between one individual and another. To me, it does not matter how much one make. Well done, congratulations, I d say. But the money remains the other person's. It would not be mine.
And what if I make less than the other person? Well, what does it matter to the other person? Its my gain, not his. Its my risk, not his.

In the book The Intelligent Investor by Benjamin Graham, the commentator, Jason Zweig said,
"To be an intelligent investor, you must also refuse to judge your financial success by how a bunch of total strangers are doing. You're not one penny poorer if someone in Dubuque or Dallas or Denver beats the S&P500 and you don't. No one's gravestone reads, "HE BEAT THE MARKET"
Good one. I could not refrain from chuckling no matter how many times I ve read this. And no, I don't have a clue where is Dubuque.

Also, it went on to say,
I once interviewed a group of retirees in Boca Raton, one of Florida's wealthiest retirement communities. I asked these people - mostly in their seventies - if they had beaten the market over their investing lives. Some said yes. Some said no; most weren't sure. Then one man said, "Who cares? All I know is, my investment earned enough for me to end up in Boca."

Could there be a more perfect answer? After all, the whole point of investing (or in our case, trading) is not to earn more money than average, but to earn enough to meet your own needs.
The best way to measure your investing success is not by whether you're beating the market but by whether you've put in place a financial plan and behavioural discipline that are likely to get you where you want to go. In the end, what matters isn't crossing the finish line before anybody else but just making sure that you do cross it.

And to be frank, I ve seen people who could make a million in 3 months. And I ve also seen the same person go bust in the next following 3 months. Its a mere risk and reward game. If you re willing to gamble, you could always plunge with all you have plus borrowed money, should you choose to. Few gains in a row, voila, a millionaire is made. Is that simple. But is that your style? You could lose everything and declare bankruptcy the next moment. Is that what you want?

So my friends, let us all take our own pace. Truly, the market is not a race.

Please give a WARM WELCOME to Vola!!!

2007-03-25T20:50:00.000+08:00

Dear readers,
This is an exciting moment for Fusion Trader's Blog.
Please give a warm welcome to Vola - the Fundamentalist Expert :)

As a matter of fact, do take note that the latest article - It's the Yen Carry Trade is written by Vola, not me. I could only take credit for the pictures added :P

Vola comes with a massive understanding of Fundamentals Analysis.
We spoke on MSN previously and decided its best that we join forces to make this blog a truly "Fusionised". Actually, we didn't really agreed on that. I have a confession to make, I pestered Vola into agreeing. Haha! Either case, we both felt that we were in a position to teach other and a blog would keep track of the things we shared.

Let's take this as the first step towards a beautiful partnership and a fruitful learning journey.

Let us all, give a WARM WELCOME to Vola. :)

It's The Yen Carry Trade

2007-03-25T17:33:00.000+08:00

Forbes has recently hailed “This is the richest year in human history”, as we experience a broad-based increase in all asset classes since the dot-com mania in 2000, and, of course, on the back of a remarkable expansion in the global economy of above 4% growth in the past four years. The boom in assets looked as if going to go on forever not until the news broke out on China shares plunged 8.8% on 27 February and every market in the world went into a tailspin, including the commodities. Well, it wasn’t the China factor that came into play, it was undeniably a catalyst, there were increased risks in the US housing market that prompted a sharp unwinding of yen carry trades, bubbly emerging markets (China, India and Viet Nam, in particular) and growing risk aversion. Things are back to normal now, Dow and Nikkei have rebounded from their lows during the global stocks rout and Asian stocks rallied this week. But it’s good to pay attention to the yen carry trade. We are living at a very interesting and challenging juncture of the time where fundamentals don’t seem to explain everything that goes around in this world.

In fact, the yen carry trade is nothing new for us. It has been with us long enough that it is sort of a part of the financial system promoting cheap credit and revolutionising the entire financial environment which continues to allow more risk taking activities. It was made available by Japan’s ultra-loose monetary policy of 0% interest rate for half a decade which ended last year. Although the period of super-loose financing ended, the Japanese, the hedge funds and the institutional investors continue to take in yen-currency borrowings. The yen has remained the ultimate source of cheap credit fuelling investments in Aussie and Kiwi dollars, US bonds, emerging markets’ stocks and debt, etc; causing the global liquidity glut and inflating asset-price bubble across the world.

The term “yen carry trade” basically refers to the borrowing in yen at very low interest rates to invest in higher-yielding assets that comes at virtually no cost for as long as the Japanese interest rates and currency remain relatively cheap to the targeted carry trade partners. If one of the above rises, the repayment cost of yen-borrowing could increase and yen carry traders would unwind their trades before their return on high-yielding assets being wiped out or their leverage story go bust. No one knows how big is the size of yen carry trade, it is estimated to range from USD20 billion to USD1 trillion. But more worryingly, the unwinding of yen carry trades could or would be self-fulfilling because the expectations of continued weak yen are widely followed by other traders and speculators that adopt “momentum” trading strategy. These “momentum” traders or speculators would just jump on the bandwagon to cover their short positions, tracking closely the behaviour of yen carry traders. Chicago Mercantile Exchange data estimates short positions in yen futures total approximately USD1 trillion. All of this could cause a sharp drop in the yen-funding assets as well as a ripple effect through the global financial system that is more inter-connected than before.

Malaysia should not be spared from this as well. Time after time, we have proven to be very sensitive to any change in the mood of financial optimism among investors. More importantly, the current rally on Bursa has been fuelled by the influx of liquidity from foreign funds. Bursa scored badly in the previous sell-off in global markets. It was the second-hardest hit after China.

As explained earlier, carry trades make sense only if the investor assumes that the yen will remain weak and the central bank of Japan does not raise its rates as much and as fast as the US, the Euro area, UK and other targeted nations like Australia, New Zealand, which are on a tightening bias. But, there were some good news recently i.e. Japan left its key interest rate unchanged at 0.5% this week, the lowest among developed economies, and US ended its tightening bias. Are those strong enough to be a case for defending a weak yen?

As you may be aware, the yen is the most undervalued currency among the developed economies and more undervalued than the Chinese Renmimbi by some measures. As at end of January, the Economist’s Big Mac Index showed that yen was undervalued by 20% against the USD. Surprisingly, little attention has been paid to it as the world’s largest debtor, the US, is quite comfortable with the easy financing from Japan that has been believed to have, in part, financed the current account deficits in the US, UK and Australia. Economic theory suggests, countries with weak currencies have to offer higher interest rates (risk premium) to attract more money flowing into their countries while countries with strong currencies should only offer lower interest rates as the attractiveness in their currencies are expected to be more than offset the lower rates offered. In the case of the yen, there is not a valid reason for it to continue remain as it is now. The Japanese economy has pulled itself out of the lost decade, back to healthy growth, its consumers are starting to spend more, capital investments are back after a long period of excess capacity overhang, interest rates are on the rise and stock markets are doing well too; a lot of investors are starting to look at Japan. Things are doing well in Japan while the US is facing a slowdown in its consumer spending which has been driven mainly by borrowing against rising home prices, with a possible recession forthcoming if the US housing market deteriorates further. The end of tightening bias reinforces Greenspan’s call for a recession in the latter half of 2007. Historically, real estate slump could pose a more long-lasting effect than the financial markets. In Japan, the real estate slump dragged down its equities market as well, and both lasted for more than a decade. This is not expected to be evidenced in the US unless investors continue to pile up their money in the US aggressively, denying the housing market woes and the rising burden of debt among the consumers.

Another big concern is that the volatility in currencies has increased. The yen does not really have to look at the Japan and other economies to determine its future direction. In turbulent markets, as what we are in currently, the uncertainty in the current environment introduces a lot of volatility to the currencies. Few weeks ago, just a piece of news on the near collapse of the second largest US subprime lender caused our market to plunge by 100 points at the opening, because it induced the unwinding of yen carry trades. It showed that we are very much integrated to the world economy and financial markets. Markets could collapse just because some uncertainty coming out from any major or increasingly influential financial markets in this world, say, China, India, US, UK, HK and Russia. It is not entirely surprising. To gain more perspective, in 1998, the Long Term Capital Management (LTCM), an over-leveraged US hedge fund run by two nobel-prize economists, ran into trouble when its bets turned sour, returns fell by 7% and 10% respectively in May and June that year. Solomon Brothers pulled its fund out of LTCM, and it was not long until the Russian government defaulted on their bonds in August. Panicked investors sold off their Japanese and European bonds hoping to seek shelter in US bonds that have safe-haven appeal. Major players started to get margin call, had to dump their assets to cover their margin calls and the yen carry trade shorts. They all massively tried to cover their shorts exacerbating the yen appreciation. Other macro hedge funds were also affected as the value of these bonds dropped sharply and the global financial markets entered into a turbulent period. The US Federal Reserves then stepped in to bail out the liquidity squeeze in US capital markets. Greenspan then declared the world was facing a global credit crunch and worries about a world recession mounted. The fear is centred more on the ripple effects a disorder financial market could have as the collapse of one company/fund could reverberate to other companies/funds in the markets, sending the debt servicing costs sky-high with debt ratings fall dramatically, in which, very likely would lead to forced liquidation in other companies/funds.

Keep an eye on the yen carry trade.

How to get the MOST out of this site

2007-03-25T12:23:00.000+08:00

This site was created for you and me. While I remain the owner of the blog (until Blogger decides otherwise), it is really our site.

What is a forest without the trees,
What is a lake without water,
What is sex without love,
What is a blog without the readers? :)

Here what I could do is to share with you what I have learned.
I hope you would share what you have learned too.
I sincerely believe that we are in the position to teach each other how to become a better trader.
Hence, participation is important.

I will do my best to update everyday. So I do hope that you could visit the site at least once a day too. Its also best that way to avoid too many catching ups to do.
Too much information may not be good. Understanding and comprehension is more important.
Hence, if you visit at least once a day, I think the information would be just nice. :)

Ben from Wisdom Wise Blog also holds a regular chatting session.
Normally I am there :)
Do join in and learn from the master who has been there, done that and got the free t-shirts too. The site address - http://blisswise.blogspot.com
However, the chatbox at Wisdom Wise has a limit of 60 posts per hour.
So, if the limit is up, come back over here.
The chatbox here is sort of like a backup.
But remember, while there is no limit in the chatbox here, it is a manual refresh.

I hope we could make the most of this site for you and me! :)

POLL: Do you wish for tips?

2007-03-24T20:16:00.000+08:00

I don't have a million ringgit. I have yet to trade to a million.
However, there have been requests for tips.
And since, I am a service orientated fellow, I shall conduct a poll.
Whoever you are, whether you have posted before or not, please vote.
Please post YES or NO. A simple YES or NO, would suffice.

Do you want tips from me?
Every vote counts.
Let your voice be heard.
Let the voting begin!

P/S: I'll be checking IPs. Only one vote per person. Thank you.

Where is the Value of Intrinsic Value?

2007-03-24T01:43:00.000+08:00

This write-up is credited to Blue who requested for it. :)

Before I begin, allow me to do a little background.
There are 3 major schools of investing:
1) Fundamental Analysis
2) Technical Analysis
3) Efficient Market Theory

Fundamentalist has long advocate that any purchase of securities (stock) should be based on its intrinsic value, or the true value of the company.

According to Investopedia, intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.

Note the following:
1) Investopedia says, may or may not be the same as current market value, i.e. share price. Fusion Trader says, it will NOT be the market value. Market moves in accordance to the Supply and Demand. Not based on true value perception.

2) Investopedia says, it is based on the perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.
Fusion Trader says, "Great definition. How are we to value these intangibles?"
Terminology: Tangibles are those with physical form. This would include assets such as Machinery, etc. Intangibles are those with no physical form. This would include assets such as Brandname, etc.
3) Investopedia says, value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.
Fusion Trader says, "Would like to highlight the words - estimate and hopes."

Let's proceed to the many valuation models which could be used to estimate the intrinsic value. The list is not exhaustive.

1) NTA plus
NTA or Net Tangible Assets measures the balance tangible value of the company. Its main use is for safety reasons. It does not measure Intangibles, hence does not fully measure the intrinsic value. The idea is this:
Say, Company A is trading at 2.00 per share.
NTA is 2.50.
Undervalued. Buy.
Logic: Company's NTA is 2.50. And that is without the intangibles! Surely, if the intangibles are accounted for, it would be worth more than 2.50!!! What's more, the share price is only at 2.00!!! What a superb bargain!!!
Problem with Logic: Market is not based on Logic. It is based on Supply and Demand.
Problem with Approach: A self fulfilling prophecy. If all the market players uses this approach to invest in the stock market, it will work. If none uses this approach, it will stay as a "hidden gem" forever.

On another note. Some may think that should this company decides to close its operation, would it be an instant 0.50 profit? You bought it at 2.00 while the the NTA is 2.50.
Logically, the NTA means after liquidating all the assets and repaying all the liabilities, there should be a 2.50 per share sitting around to be distributed to its shareholders. So, if you bought it at 2.00, it wouldn't it be an instant 0.50 profit?

Sadly, I would have to burst your bubble. NTA is not NRV. NRV is the Net Realisable Value.
NTA is based on historical cost. Simply said, it means the cost of which it was acquired.
NRV is based on realisable value. Simply said, it means what you could sell it for.
Notice the difference?

2) Capital Asset Pricing Model (CAPM)
Investopedia says, it is model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
Its formula:

OK, you lost me :P.

3) Modigliani & Miller (M&M)
Investopedia says, it is a financial theory stating that the market value of a firm is determined by its earning power and the risk of its underlying assets, and is independent of the way it chooses to finance its investments or distribute dividends. Remember, a firm can choose between three methods of financing: issuing shares, borrowing or spending profits (as opposed to dispersing them to shareholders in dividends). The theorem gets much more complicated, but the basic idea is that, under certain assumptions, it makes no difference whether a firm finances itself with debt or equity.
Fusion Trader says, "Can't wait for it to get more complicated" :P

4) Black Scholes Model
For options, many experts, e.g. Alan Voon, the Malaysian Warrants Specialist, uses this model.

Investopedia says, it is a model of price variation over time of financial instruments such as stocks that can, among other things, be used to determine the price of a European call option. The model assumes that the price of heavily traded assets follow a geometric Brownian motion with constant drift and volatility. When applied to a stock option, the model incorporates the constant price variation of the stock, the time value of money, the option's strike price and the time to the option's expiry.
Also known as the Black-Scholes-Merton Model.
Fusion Trader says, I have the formula in my ACCA textbooks, but I seriously doubt anyone would be interested into it. The basic idea is good. However, too many subjectivity is involved.
For those who are interested, you can always refer to Mr Alan Voon. I think he wrote an article about this in his site - http://www.warrants.com.my/

If you don't understand what has been transpired so far, I congratulate you.
This is my whole point. I do not see the value of intrinsic value.
While many advocate looking for "hidden gems", I do not advise so.
I understand that my believe in this is radical to many traditional investing views.
It would be a direct contradiction to Benjamin Graham, the father of Fundamental Analysis.

However, let me ask you a question,
"Was Warren Buffett, the World's Greatest Investor, the student of Benjamin Graham?"
"Who was more successful, Benjamin Graham or Warren Buffett?"
"Are their approach 100% the same?"

I am neither advising against using Fundamental Analysis, nor am I discrediting it.
To me, Fundamental Analysis is merely an additional tool. It tells us WHY should we buy.
I would rather use another approach - Technical Analysis to tell me WHEN to buy.

PS: Fusion Trader is an accountant, an investor and a trader. His views are formed based on his accounting knowledge, market knowledge and personal experience. His views may or may not be accurate. However, he speaks freely and candidly on his opinions. Feedbacks are always welcomed, irrespective of whether it is positive or negative in nature. Thank you.

Support and Resistance

2007-03-23T22:06:00.000+08:00

Definition according to Investopedia
Support is the price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock.
Resistance is the price at which a stock or market can trade, but which it cannot exceed, for a certain period of time.
Breakout is a price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support.
Breakdown is price movement through an identified level of support, which is usually followed by heavy volume and sharp declines. Technical traders will short sell the underlying asset when the price of the security breaks below a support level because it is a clear indication that the bears are in control and that additional selling pressure is likely to follow.

Confusing. Hmm, for once, Investopedia's definition actually is confusing.
Let's see if this critic can do a better job :P

Let's go back to the the definition of Technical Analysis post where I said that market is ultimately about Supply and Demand. What drives this - Supply and Demand? Perception.
The perception that the current price is cheap in relative to its future price - hence a buy.
The perception that the current price is expensive in relative to its future price - hence a sell.

So, based on psychology, my definition would be
Support is where market players think the price is cheap in relative to future price
Resistance is where market players think the price is expensive in relative to future price
Breakout is where previous Resistance level is broken as market players think that price will be higher in the future
Breakdown is where previous Support level is broken as market players think that price will be lower in the future

There are several ways to identify support or resistance.

1) Gaps
Western Technicals uses gap. The Japanese equivalent would be the Rising Window and Falling Window of the candlestick pattern. Hence, it is more of a zonal support and resistance rather than a specific point. Confirmation of breakout required – to test the staying power.

2) Consolidation point
This is where a period of consolidation is used as a zonal support and resistance.
Say a stock went from a downtrend 3.00 and stayed in consolidation in 2.50. After a while it resumed the downtrend to 2.00 before rebounding. The 2.50 zone will be a primary resistance point. The idea is that people who were holding the stock at 2.50 may not have cleared its position. The longer the consolidation period, the higher the strength of support and resistance.

3) Highest/Lowest point
Using the most recent highs or lows as support and resistance. The idea behind this is that when it reaches the recent highs or lows, the general perception is that the stock is expensive or cheap. Hence a good time to sell or buy.

4) Fibonacci levels
The technique of using 23.6%, 31.8%, 50% and 61.8% as a measure of overreactions in price actions. This would be covered under a separate post.

5) Pattern’s Technical Target
The idea is that when a pattern breakout occurs, there is a technical target. Assuming there is a number of pattern technical analysts, then the selling or buying point has been reached. Not a good indicator of support and resistance due to the self-fulfilling nature of Patterns Method.

6) Previous Support becomes a Resistance. Previous Resistance becomes a Support. The idea is simple. Previous support, a lot of buyers went in.
However, a breakdown occurred. Some cut loss. Some have not.
Those who have not, would be content to get out at small gain/loss or breakeven.
Hence the Resistance is formed.

Hereby offer you all in one chart for your reference.
Sample: Proton

You Learn

2007-03-23T21:59:00.000+08:00

After A While You Learn....
the subtle difference between holding a hand,
and chaining a soul.
And You Learn...
that love doesn't mean leaning
and company doesn't mean security.
And You Begin To Learn...
that kisses aren't contracts
and presents aren't promises.
And you begin to accept your defeats
with your head up and your eyes ahead,
with the grace of a woman,
not the grief of a child.
And you learn to build all your roads on today
because tomorrow's ground is too uncertain for plans
and futures have a way of falling down
in mid-flight.
After A While You Learn...
That even sunshine burns if you ask too much.
So you plant your own garden and decorate your own soul,
instead of waiting for someone to bring you flowers.
And You Learn...
that you really can endure
that you really are strong
and you really do have worth.
And You Learn...
And You Learn...
With every goodbye, you learn.

...Author Unknown

If I had 5 hours to chop a tree...

2007-03-23T17:16:00.000+08:00

Long, long time ago, in a small town in China, hahaha, I am such a drama king. :P
Anyway, there was this young man, looking for a job. Jobs were scarce at that time, so he walked in to many places and none would hire. Finally he came about to a logging shed.

He went in and pleaded with the boss of the logging shed, an old man, "Please sir, I need a job. And I promise you that I will not disappoint you. I am hardworking, I assure you."

The old man thought about it and asked, "Can you chop 20 trees in a day?"

The young man was confident and he was hired.

At the end of the day, he managed 25 trees. He was happy. The old man did not say anything but gave him his earned daily wages.

The next morning, the young man reported to work and started chopping trees. At the end of the day, he only managed 22 trees. The following day he only managed 20 trees.

"20 trees? Gosh, I just barely made the minimum. I must increase my efforts," the young man thought to himself.

So the next day, he reported one hour earlier to work and goes back an hour later. He managed 20 trees only.

The young man was flabbergasted. He had put in extra two hours of effort but had not reaped the rewards. He contended that he must increase his efforts further. So again, he reported to work earlier and goes back later.

Days went by, and each day the young man tried to be as early as possible and goes back as late as possible. He was even the first to arrive at the logging area and the last to leave. But the trees count of minimum 20 trees could not be maintained. Each day, the number of trees he chopped became lesser and lesser. The old man, the owner of the logging shed, did not say a word about the dwindling performance of the young man.

However, by end of the week, the young man was disappointed and devastated. He went to see the old man and told him, "Sir, I don't know what is wrong with me. I kept coming early and going back later but somehow, I could not chop the minimum number of trees you required. I am so sorry. I am sorry I disappoint you. I am sorry that despite your confidence and good natured that hired me, I have failed you."

The old man rose from his seat and tap on the shoulder of the young man. He said, "Young man, I know you've been a very hardworking worker. But have you taken time to sharpen your axe?"

That is also why Abraham Lincoln was once quoted,

If I had 5 hours to chop a tree,
I would use 4 hours to sharpen the axe.

Of course, during my early days of working, my Group Accountant logged into my PC when I was on leave and saw the automatic pop up with the Abe Lincoln's message.
He added,

I would just use the electric chainsaw and finish cutting the tree in 15 minutes...

The logging shed story was once conveyed to me by a General Manager of a SBU division. I take this opportunity to thank him for his guidance throughout the years I have been working with him. It was an enjoyable and fruitful learning experience to me.

Main Board Transfer: Tanjung Offshore

2007-03-23T00:23:00.000+08:00

This is my first Case Study post.
I love to make comparisons of similar cases with different stocks to ensure that a "pattern" exists. How accurate is this? Really, I have no idea. I could only tell you that it works for me.

OK, today's case, what happens to share price when a company listed in a 2nd Board trensfers to the prestigious Main Board?

Case Sample: Tanjung Offshore Berhad
Main Board Listing Transfer Date: 8 Sep 2006 Label 6
Bonus Issue transfer Date: 29 Aug 2006 Label 5
Ex Date Bonus Issue Date: 17 Aug 2006 Label 4
Bonus Issue Announcement: 2 Aug 2006 Label 3
Bonus Issue Proposal: 24 Jul 2006 Label 2
Proposed Transfer & Bonus Issue: 27 Apr 2006 Label 1

Let's mark the dates on the chart.
Attached the chart with dates marked with horizontal blue line.
Chart is bonus issue adjusted.

Observations:
Label 1
Price movements upwards. This is most likely due to insider pushing up the stock and the public chasing after the stock when announcement was made.
Thereafter, share price weakens due to punters selling on news.
However, notice that there is a support on this stock.
This is probably due to longer term investors seeking bargains or punters seeking reentry levels.

Label 2
Bonus Issue is proposed.
Everyone jumps on the bandwagon now.

Label 3
Now we even have ex-date etc.
Price movements paused. Most likely reason is that there will be some who would rather not wait for such a long period and decides to cash in.
About 20% ROI in about 3 months? Not exciting but sufficient :)

Label 4
Ex Date. Perfect scenario for punters ;)
Why? Bonus issue have yet to be credited. Liquidity is low.
Assumption is that syndicates or any large beneficiaries of the bonus issue would want to distribute at a higher price when the bonus issue is credited.

Label 5
Bonus issue credited.
Would you have expected the share price movement to move otherwise? :P
Short term investors are all rushing to the exits now.
Not a bad return if you ask me. About 40% ROI in 4 months? :)

Label 6
Transfer completed.
Previous distribution took another 2 days to complete before fundamentalists bargain hunted. A stock in Main Board, generally, gets into the radar of institutionals and performs better than their 2nd Board counterparts.
If you managed to catch the near top thereafter, you would have obtain an ROI of about 70% in 5 months, assuming you have entered during the Label 1 period.

Now, do you believe that ROI 20% per annum is no big deal? :)

The Road Less Travelled

2007-03-22T01:14:00.000+08:00

Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveller, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;

Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,

And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I,
I took the one less traveled by,
And that has made all the difference

...Robert Frost

Stay hungry, stay foolish

2007-03-22T00:42:00.000+08:00

This is the text of the Commencement address by Steve Jobs, CEO of Apple Computer and of Pixar Animation Studios, delivered on June 12, 2005.

Stay hungry, stay foolish

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I've ever gotten to a college graduation. Today I want to tell you three stories from my life. That's it. No big deal.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: "We have an unexpected baby boy; do you want him?" They said: "Of course." My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn't interest me, and begin dropping in on the ones that looked interesting.

It wasn't all romantic. I didn't have a dorm room, so I slept on the floor in friends' rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on.

Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky – I found what I loved to do early in life. Woz and I started Apple in my parents’ garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation - the Macintosh - a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn't know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me – I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I retuned to Apple, and the technology we developed at NeXT is at the heart of Apple's current renaissance. And Laurene and I have a wonderful family together.

I'm pretty sure none of this would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.

My third story is about death.

When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything – all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope its the closest I get for a few more decades.

Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept: No one wants to die.

Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Ditching Two Methods

2007-03-21T17:25:00.000+08:00

Like in school when we were made to study various subjects which probably would have no bearings in our lives.
I was from the Science Stream and now, all the Physics, Biology, Chemistry are poured down the drain.
Instead of pursuing a science driven career, I went ahead with Accounting.

In the course of my journey in Trading, as I've mentioned previously in My Journey of Learning, I have learned various methods - Candlestick, Indicators, Patterns and Elliott Wave.
Today, I am resolve to ditch two methods:

1. Patterns
I have deep affinity for this method. This patterns was one of my favorite.
It basically revolves around a breakout system with a target price.
It may also suggest additional top up entries

However, the drawbacks are as follows:
1) if you have to cringe you eyes to see the pattern, its not there.
2) If you are the only one to see the pattern, its going to fail.
3) If you are the last one to see the pattern, its going to fail.
4) Price pattern is a self fulfilling prophecy. You need a lot of other trader think alike to make it work.
5) Different trader may act differently to make the price pattern fail.
6) Price pattern will not give you an "edge" because it is observable by anyone.

What it means by "self-fulfilling prophecy" is that the more people use this method, the more this method will work. And if no one uses this method, it will fail.
One of the famous quote which was used and reused, basically overused, is Mao Zedong's "It doesn't matter whether a cat is black or white, so long as it catches mice."

For me to advance another level in TA, I must disagree.
I must not leave my fate to mere chance.
Hence, I must use only the right way. And sad but I must, ditch this method.

2. Elliott Wave

I am also ditching this method.
Some of you who knows me, probably know I am a defender of Elliott Wave Theory. My method of usage is slightly different. However, while this method does work, there are many areas of subjectivity.

Also, the major problem I have with this method is myself.
I find myself too prone to predicting the market and trying to time the market even though, I keep stressing that one must not do so.

This is a trading sin which I am guilty of and of which everyone should be aware and avoid.

So what does it mean?
Well, it basically means, I am consolidating my methods.
Henceforth, I shall rely mainly on candlestick - which shows the price movement; and indicators - which assist me to decipher the price volume movement.

I am getting closer to nature, I think.

Will I be handicapped if I ditch this two methods?
Let's see - a pattern is based on breakouts.
Breakouts are based on trendlines.
Pattern targets - well, I ll missed them, but I ll substitute with Resistance Concept.

Elliott Wave, Well, I ll miss this tool too, frankly speaking.
But wave identification is also based on breakouts.
Breakouts of which is based on trendline & resistance.
Targets? I ll substitute with the same - Resistance Concept.

However, every now and then, I may decide to publish some of the abandoned methods just for educational and entertainment purposes. You may get some ideas from the two methods mentioned above and used it on your own trading strategies/style.

One shoe size fits all

2007-03-21T07:28:00.000+08:00

I am a lazy fellow. So here is one general concept that could fit with most indicators. However, do be aware that since I am generalising here, there are some that may work on certain indicators, and some don't.

Ok, let's get technical :)
Sample chart here is KLCI.
Sample indicator here is RSI.

There are few methods to do it.
1. Fixed Numbers
For different indicators, it would be different numbers but the concept is the same.
For RSI, the recommended is 30 oversold and 70 for overbought
The idea is of contrarion. Buy when market is selling. Sell when market is buying.

So, Buy signal when oversold condition seen.

Sell when overbought condition seen.

2. Trendline
For price action, many draw trendlines. For Indicators, we could also do the same.
The whole idea is the same:

When resistance is broken, buy.

When support is broken, sell.

3. Midline
For some indicators, the midline is zero.
For RSI, the midline is 50.
The idea about this is continuation and also the concept of support and resistance.
50 is the middle ground. So it should be the contention of the bulls and the bears.

When crossover upwards, its a buy signal.

When crossover downwards, its a sell signal.

4. Divergences
Basically the idea of divergences is that when the indicator does not move in line with the price. The idea is that accumulation or distribution may be at work and the price does not show it. Hence, the hidden power of indicators.

Buy when positive divergence is seen.
Positive divergence means that Price goes down or neutral but the indicator shows uptrend.

Sell when negative divergence is seen.
Negative divergence means that Price goes up or neutral but the indicator shows downtrend.

5. Crossover
Basically here we will be using Moving Averages as our sample indicator.
Lets use the popular Exponential Moving Average (EMA) 50 days and 20 days
Basically the idea is simple. When the EMA of shorter period crosses the EMA longer period its a signal.

Buy when crosses up. This is also known as the Golden Cross.

Sell when crosses down. This is also known as the Dead Cross.

Legends:
EMA 50 - Purple Line
EMA 20 - Orange Line

Disclaimer: While the charts may look wonderful, as if all the signals work, in reality it does not. It look fantastic because I made it look so. I only show you the ones that work, too lazy to upload more charts that show how it does not work. Parameters/settings of the indicator also come into play. As I do not use RSI, I could not advise you the settings :P. Self analysis is strongly advised. Best to fit to own trading strategy/trading style.

Joker Tag

2007-03-20T17:43:00.001+08:00

I won first prize, not lottery, not 4D, but tag by Zewt
So basically this is what I needed to do:

Tell 5 jokes
Read this joke 5 times: :P

How Market Works.
How do you know the market will be bullish or bearish or even sideways? Have you make your own analysis or you are relying with other people research especially newsletter, investment analyst report and also newspaper which are read by thousands?

It was autumn. The Red Indians on the remote reservation asked their new Chief if the winter was going to be severe or mild.

Since he was a Red Indian Chief in a modern society, he had never been taught old secrets; when he looked at the sky, he couldn’t tell how the weather was going to be. Nevertheless, to be safe, he told his tribe that the winter was indeed going to be bad and that the everybody should collect wood and be prepared.

Being a practical leader, he had an idea after a few days. He went to the phone booth, called the National Weather Service and asked “Is the coming winter going to be bad?” “It looks like this winter is going to be terrible,” the meteorologist at the weather service responded.

So the Chief went back to his people and told them to collect even more wood in order to be prepared. A week later, he called the National Weather Service again. “Is it going to be a cold winter?” “Yes,” the man at National Weather Service again replied, “It definitely will be very severe.”

The Chief again went back to his people and ordered them to collect every scrap of wood they could find. Two weeks later, he called the National Weather Service again. “Are you absolutely sure that the winter is going to be very cold?” “Absolutely,” the man replied. “It’s going to be one of the coldest winters ever.”

“How can you be so sure?” the Chief asked.

The weatherman replied, “The Red Indians are collecting wood like crazy”

Four Fellas I admire in Investment/Trading World (yeah I changed it :P)
1. Jesse Livermore, World's Greatest Trader
2. Warren Buffett, World's Greatest Investor
3. Steve Nison, who made Candlestick popular
4. Dr Alexander Elder, who teaches good foundation to trading.

Three Animals that resembles me
1. Bull, sometimes, I ride it.
2. Bear, sometimes, I raid with it.
3. Dragon, sometimes, I trade with Dragon Formation.

A-Z Tag
Supposed to be what A-Z means to me or something.

A revisit to the Kindergarten, I guess :P. Anyway, here goes:
A is for Accumulation
B is for Bollinger Bands
C is for Chaikin Money Flow
D is for Distribution
E is for Equilibirium
F is for Force Index
G is for Guppy Moving Average
H is for Hedging
I is for Ichimoku Kinko Hyo
J is for Jesse Livermore
K is for KLSE
L is for Linear Regression
M is for Money Flow Index
N is for Net Realisable Asset Value
O is for On Balance Volume
P is for Parabolic SAR
Q is for Quantum
R is for Relative Strength Index
S is for Stochastics
T is for Trend
U is for Ultimate Oscillator
V is for Volatility
W is for Warren Buffett
X is for X - unknown factor :P
Y is for Yield
Z is for Zero Based Budgeting

Now tag is passed on to - whoever that reads this and has a blog. Go!

Site News

2007-03-19T23:15:00.000+08:00

According to my statcounter, there are a number of visitors with dial-up services.
Hence, to provide better loading time, I have decided to switch the settings to show only latest 5 posts.
Feel free to navigate around the site - especially with the help of LABELS on the right hand toolbar. The Labels will sort the articles according to specified sorting.

Thank you for your support and enjoy your stay here :)

Gambling; Buy, Pray and Hold, Investing and Trading

2007-03-19T11:15:00.000+08:00

Been reading PhotoReading. Still in the beginning chapters where the author seemed to be exalting PhotoReading. Then it occurred to me, perhaps the author was not really exalting the method. Perhaps the author wants to set the right mentality and attitude prior to getting into technicals. But then, I could be wrong, maybe the author just want to increase the number of pages of the book :P

So anyway, a positive thinker I am, I am taking cue from the author.
Before getting into more technicals, lets get our mentality and attitude right.
As mentioned earlier in my post about the Journey of Learning http://fusiontrader.blogspot.com/2007/03/journey-of-learning.html, I started off with a form of gambling relying on tips. The results were horrifying. 80% capital were burnt in 2 weeks.
While there are some who benefited from tips and rumors, I would say its pure luck. One wrong tip coupled with one slow move to stop loss, and your entire winnings will be wiped out.

Then there is another common method being used. Buy, pray and hold. This is where one just buy to keep the stock without doing any homework. Then keep praying that prices will appreciate.

Seriously, there is no easy money in the stock market. If it is so easy, everyone would be millionaires by now. Emphasis: No easy money. Also, there is a saying, There is NO free lunch. I seriously disbelieve in tips and rumors after my personal experience. Why would one distribute free tips and rumors if there is no hidden agenda behind? Perhaps the tipster meant well to you, but the originator of the tips may have a hidden agenda - normally to distribute the stocks at a higher price.

Then there is Mr Buy, Pray and Hold. Seriously, it isn't as simple as that. While the general trend of a stock market is always upwards, it is actually mainly due to inflation. Yes, inflation. Today's RM1.00 is worth less than RM1.00 in say, 10 years later. So logically, the stock market, assuming valuation remained the same, should be worth more than what it is now. Catch my drift?

Another thing, imagine this, you re looking to buy a computer. What do you do? I don't know what you'd do, but this is what I would do. I would check out the models available in the market, compare prices, check my budget, consider warranty support, software compatibility, etc etc. And that is a mere investment of less than RM5,000.00.

When investing or trading in stocks, how could one adopt the gambling by the tips and rumor; and/or Mr Buy, Pray and Hold succeed? How could that be possible when it involves even more money, but less homework done? If it is possible, I would cry foul. It would be most unfair to those who toil and work hard while learning TA and FA, while analysing TA and FA, while considering the purchase with basis of TA and FA. It is only fair, with all due respect, that these people who gamble with rumors and tips fail. It is only fair, that Mr Buy, Pray and Hold loses the investment. And in this respect, the market is fair.

Now, if you have been guilty of gambling with tips and rumor or being a Mr Buy, Pray and Hold but feel that there is no way out, fear not. Imagine this instead. Imagine that you put in the effort to learn, imagine the blood and sweat you poured into learning TA and FA. Imagine the countless midnight oil you burnt. And imagine that one day, you realise that you know EXACTLY, EXACTLY how to achieve your investment/trading goal.

Imagine if you re an investor, with TA and FA, you managed to pick close to bottom and sell close to tops. Imagine that. As with my earlier post - Why I say ROI 20% per annum is no big deal http://fusiontrader.blogspot.com/2007/03/why-i-say-roi-20-per-annum-is-no-big.html, it is really possible and its not so big a deal. At least while you remain a retailer, its no big deal. For funds, its difficult and its a big deal, as any worthwhile positions they make, would unduly influence the market. We do not have such influence, hence we have this distinct advantage over the funds. Anyway, imagine what could you have done with ROI 20% per annum? Your retirement plan is secured :)

Now imagine you re a trader, and with TA mainly, you managed to capture and ride with the major trends. ROI is calculated per month basis, not per year :). Imagine the unforetold riches by simply riding on a trend!

I can only tell you it is possible. I could only tell you that effort is required. I can tell you it would not be easy. I could tell you that once achieved, the rewards are great.
It is entirely up to you now - the ball is in your court.
Are you willing to put in the effort?

Fast Easy Money

2007-03-18T13:28:00.000+08:00

Money, money, money.
Lets listen and watch the video clip of one of my favorite songs about money :)

You know, it never stop puzzling me, why people think the stock market is a place for fast easy money.
If it was so, then why are there poor people in Malaysia?
We have a stock market, we have all the basic necessities, I haven't heard of anyone dying of hunger in Malaysia, there are no real natural disaster in Malaysia (exceptions apply :P)

If you had read Livermore, the guy's puzzled too.
Let me quote an excerpt from Richard Smitten's How to Trade Like Jesse Livermore

Livermore believed that the game of speculation is the most uniformly fascinating
game in the world. But it is not a game for the stupid, the mentally lazy, or the person of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.

Over a long period of years, he rarely attended a dinner party including strangers when someone did not sit down beside him and inquire after the usual pleasantries:
“How can I make some money in the market?”
In his younger days, he went to considerable pains to explain all the difficulties faced by the trader who simply wishes to take quick and easy money out of the market; or through courteous evasiveness, he would work his way out of the snare.
In later years, his answer became a blunt “I don’t know.”
It was difficult for him to exercise patience with such people. In the first place, the inquiry is not a compliment to a man like Jesse Livermore who has made a scientific study of investment and trading.

It would be similar for the layman to ask an attorney or a surgeon:
“How can I make some quick money in law or surgery?”
It is simply hard work, constant study, discipline, and unyielding perseverance that leads the way to success in the stock market, as it does in any profession. But before we go further, let me warn you that the fruits of your success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions.

You cannot read a book on how to keep fit and leave the physical exercises to someone else. Nor can you delegate to another the task of keeping your records. You must understand and follow faithfully Livermore’s stock trading system, and understand and combine all the aspects of Timing, Money Management, and Emotional Control, as set forth in these pages. Livermore could only lead the way, and he would be a happy man if through his guidance, a trader would be able to take more money out of the stock market than he put in.
This information is for that portion of the public that at times may be speculatively inclined. Some points and ideas are presented here that come directly from Livermore’s many years as an investor and speculator.
Anyone who is inclined to speculate should look at speculation as a business and treat it as such, and not regard it as a pure gamble, as so many people are apt to do.
If the premise that speculation is a business in itself, those engaging in that business should determine to learn and understand it to the best of their ability, using all the data available. In the forty years that he devoted to making speculation a successful business venture, Livermore was still discovering new rules to apply to that business. The stock market is a journey with no end.

On many occasions, Livermore went to bed wondering why he had not been able to foresee a certain imminent move, and awakened in the early hours of the ensuing morning with a new idea formulated, actually impatient for the morning to arrive in order to start checking over his records of past movements to determine whether the new idea had merit. In most cases, it was far from being 100 percent right, but what good there was in it was stored in his subconscious mind. Perhaps, later, another idea would take form, and he would immediately set to work checking it over.
In time, these various ideas began to crystallize, and he was able to develop a concrete method of keeping records in such a form that he could use them as a guide.
His conclusion was that nothing new ever occurs in the business of trading or investing in securities or commodities. There are times when one should speculate, and just as surely there are times when one should not speculate.

There is a very true adage that Livermore loved: “You can beat a horse race, but you can’t beat the races.”
So it is with market operations. There are times when money can be made investing and speculating in stocks, but money cannot consistently be made by trading every day or every week during the year. Only the foolhardy will try it.

So, there you go. Lesson from the Grandmaster himself.
But before I get into trouble for publishing the excerpt, may I recommend that you buy the book. Its an investment :)

Why I say ROI 20% per annum is no big deal

2007-03-18T11:47:00.000+08:00

For those who know me, you must have seen my postings about ROI 20% pa is not a problem.
Some may think I am crazy. Some may think I am boastful.
But since I have launched this blog, allow me to share my observation and experience in KLSE.

Consider this: Stock market in general moves in cycles.
We have many theories revolving around this concept.
Buddhism believes in recarnation, that's a cycle.
The Economic Cycle theory states that the economy moves in a cycle.
The Dow Theory (one of the oldest theory still applicable) states that the market has three phases - accummulation phase, public participation phase and distribution phase. Sounds like a cycle to me.
The Elliott Wave revolves around cycles.
Everything is a cycle.

OK, let's look at charts. Enough theory for now :). Below is the KLCI chart from 1990 to 2007 (Friday). Chart data courtesy of Mr Lim of www.bizfun.cc

From the charts, what can we observe?
Now if you have said, Cycles, no prize for guessing it right :P

Now, let's zoom in to the more recent developments.

What do you see again?
Yeap, cycles.

Perhaps, the zoom is insufficient, indulge me, look at another zoom.

What do you see?
One complete small cycle.

Question: So from our observation, we concluded that stock market indeed move in cycles. So how to we profit from it?
Question: Why is this post titled: Why I say ROI 20% per annum is no big deal.
Question: Why does every Tom, Dick and Harry say, Buy Low, Sell High
(Or, in Ben's terms, Buy Sheep, Sell Deer, hahaha)

Hmm, so you must be thinking, "Ok, so your point is that stock market moves in cycle and if we want ROI 20% pa, we should buy low sell high. Big deal. How the heck are you going to do it? Can you actually catch the bottom and the peak?"

If so, then allow me to answer you, I cannot pick the exact bottom nor the exact high.
However, let me ask you another question, (you know what they say, one question leads to another :) ), Do you seriously need to pick the exact bottom or the exact high to achieve ROI 20% per annum? Note 20% pa. Not 30% pa. Not 50% pa. Not 100% pa.

To traders, this is insufficient. We ll cover some trader's techniques in the future.
To investors, 20% ROI is a heaven sent gift! The banks are not going to give you an FD rate of 20% pa. Neither does any stock issuing a Dividend Yield of 20%.

Of course, now that I have your attention, and possibly your belief that ROI 20% is possible, and its no big deal, you must be thinking, So how do you identify the cycle?

Well, this is the fun part. Now that the curiousity has been aroused, I m going to leave you with that thought. Hahaha. Curiousity may have killed the cat. But as Ben say, Satisfaction will bring it back. So, imagine if you solve the riddle all by yourself. Imagine the satisfaction :)
Otherwise, worry not, stay with us at Fusion Trader.
One day, you know what I mean :)

Tools of Trade

2007-03-18T02:01:00.000+08:00

I love to cook - whenever I find the time that is.

So prior to cooking, I always have the ingredients out and ready.

Trading is the same.

We need the ingredients ready before we could start.

First, we need Metastock.

You can obtain it from http://www.equis.com

No need to mention my name. They have no idea who the heck am I.

Then for End of Day (EOD) data, you ll need to obtain from http://www.bizfun.cc

You can tell Mr Lim you were referred to by Max, but I doubt you ll get any discount.

His data is practically free already. Only one-time payment of RM80 for historical data.

Monthly data and daily data is free of charge.

Where to find such kind hearted person?

So, don't ask for discount. In fact, recommend all your friends to buy from him.

This is a call to support the nice guys movement.

However, in office, I do not have Metastock, so I needed an alternative.

Tradesignum comes into mind - www.tradesignum.com

Marcus and Daryl are also nice guys.

Free data. Free software.

Where to find?
Support them. :)

Or for Hardcore Traders, you ll need additional tools.

This is where Telequote and Nextview comes into mind.

Realtime data with indicators for a fee.

You can request for trial period.

Personally, I find Telequote is much better.

They sent their salesman over.

Nextview didn't bother about retailers like me :(, or maybe I m just not charming enough.

But you decide.

Telequote - www.tq.net

Nextview - http://www.thenextview.com/

Oh yeah, no need to mention Max. They don't know who is Max :P

So there. Ingredients, oops I mean, the tools of trade.

Happy cooking, oops I mean, Happy Trading :P

Technical Analysis

2007-03-17T14:27:00.000+08:00

We have often heard about Technical Analysis or simply TA.
What is it actually?

According to Investopedia at http://www.investopedia.com, it is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

Furthermore, Investopedia says, Technical analysts believe that the historical performance of stocks and markets are indications of future performance. In a shopping mall, a fundamental analyst would go to each store, study the product that was being sold, and then decide whether to buy it or not. By contrast, a technical analyst would sit on a bench in the mall and watch people go into the stores. Disregarding the intrinsic value of the products in the store, his or her decision would be based on the patterns or activity of people going into each store.

Well said. Basically the main key points are:
1. Stock market is ultimately about supply and demand. Technical Analysis (TA) is used to measure this supply and demand theory.
2. Tech analysis (TA) is a method to MEASURE the PYSCHOLOGY of the market. Purely from SUPPLY and DEMAND point of view.
3. Its main assumption is that HISTORY REPEATS ITSELF

In my Learning Journey article, I mentioned the key contents which I identified as branches of TA. They are:
1) Candlesticks
2) Patterns
3) Indicators
4) Market Timing

Candlesticks.
The popular hot dog chart originated from Japan has now become a key element in charting. However, the basic candlestick has now evolved to many versions. For example, the Heiken-Ashi Candles, The Renko Chart and etc.
Candlesticks have the ability to foretell a reversal of trend.

Patterns
I believe this is originated from the West. But then I could be wrong.
For example, the Head and Shoulders pattern are also known as the Buddha pattern.
Patterns is a breakout system with the ability to give the practitioner the technical targets of the breakout.

Indicators
This I am pretty sure came from the West with the exception of later developments or discoveries. The Japanese were however, I think, the first to use Moving Averages and its crossovers.
Very often, many people think TA refers to Indicators alone.
I beg to differ. In my opinion, Indicators are a part of TA but not the whole of TA.
Indicators have the ability of indicating whether the particular counter would likely move to the breakout and the possibilities of a retracement.

Market Timing
Originated from the Dow Theory, Elliott Wave and Gann Analysis come into the picture. This is not a simple analysis which one could do. There are many pitfalls to avoid. For beginners, its best to avoid this complex theory.
If used correctly, this is the ultimate tool which could time the market - capturing all fluctuations.

At Fusion Trader, we aim to combine all these four methods for our learning process.

Have a Write-up Request?

2007-03-17T13:58:00.000+08:00

Something that you'd like to know more?
Been surfing the net for hours without concrete answers?

Been to forums and get conflicting answers?

Search the books but only hit jargons, one after the other?

Leave a comment here and we will try to do a write up with the answers. :)

WANTED

2007-03-17T13:50:00.000+08:00

Except that there is no reward :P

Team members to maintain blog wanted for the following positions:

Chief Designer - with strong HTML/web design/flash/java knowledge
Editor - with impeccable English grammar
Technician - with strong Technical Analysis knowledge
Fundamentalist - with strong understanding of Fundamentals Analysis.

Got what it takes? Apply now to theforce2006@hotmail.com

Mechanical System vs Trader's Judgement

2007-03-17T11:31:00.000+08:00

Yet another thread which I originally posted in Bizfun.

Traders have long identified that emotions/psychology is the major factor in trading.

In fact, many advocate following a mechanical system to avert this emotion factor. The whole idea of this mechanical system is the Law of Averages.

First find a system that works most of the time. The key here is most of the time. Why? Simply because we know that there is no holy grail. There is no system that work all of the time. That is also why we have stop loss in a system to protect ourselves against the inevitable.

So if you have a system that works most of the time, theoritically you should make money in the long run. E.g. A Trading System with 80% accuracy. Out of 10 trades made, 8 are correct. 2 resulted a stop loss trigger. Assuming that the profit or loss are equal (which in practice this is not practical, stop losses are normally lesser.

However, our calculation is such that it would be more prudent to calculate a larger loss and a smaller profit as to avoid rosy forecast of profits/hyping our own trading system over nothing) then 6 out of 10 trades makes the net profit. Not bad huh?

However, as we all suspect there is a problem. The problem of mechanical trading system is that it is mechanical. Yeap, the advantages of a certain system is often the weakness of the system. A mechanical system cannot distinguish the underlying market condition. It cannot say differentiate between the bull market and the bear market.

The trading buy may make sense in a bull market but may not make sense at all in a bear market. Allow me to illustrate.E.g. In a bull market, breakouts are normally (key here is normally) genuine. In a bear market, breakouts are often false with no follow throughs.

So what happens to the system? It cannot distinguish the underlying market condition - hence a higher number of stop losses occur with the same system in a different underlying market condition!!!

So therefore, some advocate an adjustment to the trading strategy.
In a bull market, use Trading System A.
In a bear market, use Trading SYstem B.
Some even advocate, for Stocks - follow the System A and B approach.
For Futures/Derivatives, use System C and D respectively.

Sounds good heh?
We started off with a mechnical system and then moved on to improve the problem of the system. Still no emotions involved. Problem is, hahaha there s always a problem when you ask a perfectionist. (Of course the problem with the perfectionist is that he is searching for non existent perfection).

Okay, problem is that the market dynamicism and volatility.
Problem is also the Law of Averages.

The market is ALIVE.
The market is ever changing everyday.
While today the bulls may be in force, tomorrow, the bears may be decided the victor.
Are we to switch the system in the span of one day?

Another question - The Law of Averages. It states that in the long run, you should make money with this certain system.
Could you withstand a 100 losses with that system?
What happens if the 100 losses are your first 100 trades with the system?
The Law of Averages rings true only, and only, if your sample size is large enough. If your total trades of a certain system is 1,000,000 trades, sure enough, it would tell you whether the system works or not.

Imagine this, I flip a coin.
Guess if its heads or tails?
Theoritically we know that there is a 50% chance its head and there is 50% chance its tail. Now would it be possible if I flip 10 times in a row and its head? But would it be possible to flip head in 1,000,000 times? Chances are there will be about 500K heads and 500K tails or close....

Hence the problem with Law of Averages.
So, what do I advocate? Judgement.
The subjectivity of our own judgement.
Best supported with other mechanical techniques either TA or FA.

But to the end, we must make a subjective judgement if the system will work with this particular stock or not.

Alas, I began to see that Trading indeed is an art.
Good Luck and Happy Trading!

Of Trader and Gambler

2007-03-17T11:19:00.000+08:00

This was my first article in Bizfun Forum. Originally written as a reminder for myself. Hence the grammar is not properly structured. Ideas may not have been fully expanded. Comments and feedbacks welcomed.

Of Trader and Gambler

VS

I sincerely believe that trading should not be seen as gambling. I m not a real gambler myself but I ll take a shot at differentiating it anyway.

Gambling is a form of entertainment, risking a certain sum of money which you re prepared to lose, whose outcome is in entirety or largely depend on factors not controllable by the gambler.
Trading is a form of capital investment method, to increase your capital gains while minimising any downside risk by actively managing the portfolio and paying heeds to various warning signals.

A trader that has experienced a bankruptcy or loss of total capital/savings may have gone through valuable lessons. A trader that has a repeat of that blasphemous record is tainted and it is doubt that any rehabilitation could have any impact. The trader has succumbed to the degenerated gambler's syndrome.

Never risk more than 20% of your capital in one trade - Jesse Livermore
Always have reserves (to battle) - Ancient Chinese Art of Business
Make or die - and you ll be a degenerated gambler - you ll never succeed in the long run - Maxforce

When faced with a major losses (which differentiates what constitutes as major), it is probable that a major change is taking place in the market condition. While the trend is a friend, the reversal is likened to a betrayal by a friend, which can be sudden, unexpected and very hurtful. Faced with this kind of situation, a trader is best left to stop trading for the moment. This is irrespective of any potential gains or any cannot-be-missed opportunity. Reason being, the trader needs to calm his emotions, gain the calmness in his heart and mind to make sound, informed judgement of the new market condition.

Trading strategies may need to be readapted to suit the new market condition. Plunging from a major loss to another trade may result the trader being succumbed to the "Degenerated Gambler" syndrome. Once infected, it is difficult to cure. And each infection only lowers the immunity of the trader. Eventually, the trader could not differentiate trading and gambling.

This is the mark of the downfall of a trader irrespective of whether the gamble turned out to be a win or a loss, the trader has lost himself.

Trading is therefore likened to a business. And we must agree that business is NOT gambling. A business has elements which are within our control and elements of uncertainty which is not within our control. The elements not within our control can however, also be exploited.

A basic business has basically a few elements – Sales, Marketing, Accounting, Finance, Customer Service, Purchasing and Logistics.

In trading, these elements exists too.
Purchase and Sales – as in entering and exiting trades.
Logistics – as in the mechanism we are using for the entry and exit of trades – our brokerage.
Accounting – our calculation of our monthly profit or loss.
Finance – our means for our trading capital.
Marketing and Customer Service – this is more relevant for institutional investors who markets and publicizes the bullishness or bearishness of the market. Likened to small businesses whereby not much time or money is spent into marketing and customer service, we small retailers don’t do much of this too.

Hence trading is a business. Businesses buy stocks.
Trading buys stocks of a certain instrument, be it a security or a derivative.
Sometimes, businesses tend to get stuck with obsolete stocks. So do trading.
Sometimes, traders get stuck with stocks of declining value. This is where stop loss comes in. In business, we may decide to have a clearance sale – to get rid of the stock at a discounted or a cheaper than cost price.
A trader should have a good emotional intelligence. And it is also said that if a person cannot smile, he should not open a shop. What resemblance this is – trading and business.

It is my sincere belief that if a trader thinks of himself as a businessman rather than a gambler, his rate of success would be higher and more consistent.

The Journey of Learning

2007-03-17T11:11:00.000+08:00

This was initially posted in Bizfun - written by myself. But I figured to immortalize it here :)

I am a wanderer. A wanderer hungry for knowledge.
At times, I stop by and share what I have learned.

I began play the stock market like most others - gamble via tips and news. Things didn't work out too well there. Burnt.

I began to invest then via Fundamental Analysis. Being an accountant, I have an advantage in FA - the ability to decipher numbers. I also immensed myself into the books and wisdom of the likes of Al Reis. Operations, logistics, and other parts of the organisation, I did not forget. I began to see how an organisation would succeed and fail. But things were not rosy. I began to feel dissatisfied with the long wait.

I started to learn TA. The first site I went was www.stockcharts.com. Read a few articles and have a go at Indicators. Played around with Metastock and test the indicators. Found that each counter has its own personality. Certain counters fit certain indicators well. Results were not satisfying - with stringent rules - signals were rarely generated. As each stock uses different indicator to signal, I resort to manually analyse 50-100 charts a day. I began to lose sleep and energy.

Then I began to assimilate the indicators into a single set of indicators - a template to be used for all charts. I also began to test exploration.Results were encouraging but something was missing.

I learned Patterns. Results were also encouraging but this was not the answer I was looking for. I, then, look to Elliott Wave to show me the light. Even in an uptrend, I could still make money from shorting the FKLI. I was pleased. Later, there was a fierce discussion with Mr Theng. He argues that EW may not be necessary to achieve the same result.

I look to the Candles for an answer. I ve always known the Candles but never placed it at such high importance. A thorough study was undertaken and I began to appreciate the value of the Candles. Results were never better before. Yet something was missing.

This baffled me for a long time without an answer. I know Candles, Patterns, Indicators, Elliott Wave. So what could be missing?

The categorisation was wrong. They were tools.
As Mr Theng said, All things come back to nature.
And the same time, Mr Ben of http://blisswise.blogspot.com commented that I look at indicators too much that I have forgotten the real action.
I pondered and pondered on these comments.

Price and volume - Mr Ben said.
Everything comes back to nature - Mr Theng said.
Then I thought they meant - Every method comes back to the same result.

Then I realised what they were trying to tell me is not new.
My problem was - Every indicator comes from Price and Volume.
Every method comes from Price and Volume.

I look to Richard Arms but couldn't find him.
Thanks to Mr Csong, I found Richard Arms.
Spending time with charts till 3 am the previous night convince me that there will be a correction.
Correction did happenned.Despite me not able to capitalise it this time, I am happy that I have learned.(If anyone was wondering, I was in a meeting.)
And thanks to chan9 for translating Mr Theng's message.
I finally got it.

Everything comes back to Nature.

Ren fa di, di fa tien, tien fa zhi ran

Introduction

2007-03-17T10:58:00.000+08:00

Thank you for visiting this site.
I m Max from Klang, Selangor.

The purpose of this site is threefold:
1) To organize what I have learned thus far as to regards of trading.
2) To share what I have learned.
3) To learn what you share.

I am an investor turned trader.
I used to use more FA but today, I am very close to using only TA.
I trade Futures mainly, with a little mixture of stocks and derivatives.

I have scoured around many forums, blogs and books in the quest to upgrade my knowledge.
I hope you would find your visit here worthwhile and an enjoyable one.
I look forward to learning from you too :)