tag:blogger.com,1999:blog-33069704699914334402024-02-19T15:00:23.758+08:00How to Buy StocksA Blog on How to Buy Stocks in Stock Markets - Creating a Trading Plan, Methods to Buy and Sell Stocks, Money Management and Trading Psychology.
Unknownnoreply@blogger.comBlogger44125tag:blogger.com,1999:blog-3306970469991433440.post-8194187102981272592014-02-09T10:10:00.003+08:002014-02-09T10:10:28.085+08:00Test: Trading System A on Indonesia Stocks (4)Some updates as of today (Sunday, 9 February 2014).<br />
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#1. My watchlist is still unchanged. The nine counters are ACES, ASRI, BSDE, MAIN, ROTI, PWON, PTPP, SMRA, WIKA.<br />
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#2. Capital is also unchanged.<br />
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#3. At the end of day of 3 Feb 2014, there was a sell signal for MAIN. Bought this at 3,435, and I need to follow my system so sold it at 3,220 on 5 Feb 2014. Please note that my strategy is to sell on the second day after sell signal appears (i.e. signal on 3 Feb, sell it on 5 Feb)<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfRbI5xshhJCf9dh0kw1CvZO8feJmQv2vrppaMhaBtDQfDohS7GYNWXxDfycCXxOcVttka5VCtVcq2-ytoJumb5S9pH1c4lnFCpaBd7xtrHfU3GgILHpZIfzzItLuS5BtTt_FGF-WejDk/s1600/main+9+feb.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="sell MAIN" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfRbI5xshhJCf9dh0kw1CvZO8feJmQv2vrppaMhaBtDQfDohS7GYNWXxDfycCXxOcVttka5VCtVcq2-ytoJumb5S9pH1c4lnFCpaBd7xtrHfU3GgILHpZIfzzItLuS5BtTt_FGF-WejDk/s1600/main+9+feb.gif" height="336" title="sell MAIN" width="640" /></a></div>
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#4. The sale of all my MAIN shares means I am left with SMRA in my basket.<br />
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<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-4013715089200800422014-01-25T10:15:00.001+08:002014-01-25T10:18:11.106+08:00Mind, Money, Method - Which One is More Important?I was looking at my blog this morning and noticed the <u>label cloud</u> at the sidebar. It was no surprise that the 3M (Mind, Money, Method) are ones of the popular labels read. What surprised me is that the cloud size of Method is bigger that Mind and Money.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEVGBpAKOSf0vpT21mP0nGxIzph__6V-SXS7pYzEgemcECRh4iC0NdWuJoDeIs8vZrvpZL8cwehgcPceEmfmGgeECO0c6s42o2QrmfljeHhWG17VtV-X5f4gi2scGIAf4H9ZWlnZ3wK5I/s1600/3m.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="3M" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEVGBpAKOSf0vpT21mP0nGxIzph__6V-SXS7pYzEgemcECRh4iC0NdWuJoDeIs8vZrvpZL8cwehgcPceEmfmGgeECO0c6s42o2QrmfljeHhWG17VtV-X5f4gi2scGIAf4H9ZWlnZ3wK5I/s1600/3m.gif" height="400" title="3M" width="240" /></a></div>
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One certain thing is that the label Method is the most popular label in the blog, but does it necessary the most important aspects of the 3M?<br />
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People may have different opinions about this. Though all three aspects are important and I have written so many articles about 3M in this blog, one aspect should be prioritized among others.<br />
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To me, the Money aspect is the easiest to take care (though the accumulating money part is not easy at all). <a href="http://bit.ly/1bccSuw">Understand the theory of positing sizing</a>, and follow the concept with discipline. Mind is the hardest really, while for new traders Method is the most exciting.<br />
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I used to spend hours in a day just to find all sort of combination of technical analysis to find the Holy Grails. I tried to find the best Method, spending most of my energy and time to Method, ignoring Mind and Money. However, as I learn from Mr Market along the way, I have done it the wrong way. The <a href="http://bit.ly/K7oQuD">80/20 rules</a> apply here.<br />
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MIND comes first. METHOD last.<br />
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What is your sequence?Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-37754158469364627322014-01-23T23:51:00.000+08:002014-01-23T23:51:17.504+08:00Applying Inversion Principle to Avoid Mistakes in Stock TradingThere are always things we can learn from the greats in stock trading and investing. One of the inspiring principles is the one from Charlie Munger - <b>Inversion Principle</b>. Warren Buffet and Charlie Munger have amassed one of the greatest long-term investment records in the history of civilization, having grown the book value of Berkshire Hathaway over the last forty-five years at about 20% per year.<br />
<blockquote class="tr_bq">
<b>"Invert, always invert"</b></blockquote>
The inversion principle started when the great Prussian mathematician, Jacobi, who urged his students, "Invert, always invert.". He found that the best way to solve a difficult question mathematics problem was by solving it in reverse.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-bbrHN1aCQjows45ntjLiH8BB0ZC9gtEI3mIg5aSP60r1PMUO_KWQvlmGIaxh0Y5Q-xe07F9Zlt8YT6GqL5P1Y8jiaPrh-EYH1B2UjQiqjIxYAyHFgrFyMT3sT9ine56cKMs5xe-bQ5w/s1600/Backwards,-ever-backwards.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Invert, always invert" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh-bbrHN1aCQjows45ntjLiH8BB0ZC9gtEI3mIg5aSP60r1PMUO_KWQvlmGIaxh0Y5Q-xe07F9Zlt8YT6GqL5P1Y8jiaPrh-EYH1B2UjQiqjIxYAyHFgrFyMT3sT9ine56cKMs5xe-bQ5w/s1600/Backwards,-ever-backwards.jpeg" height="128" title="Invert, always invert" width="320" /></a></div>
Charlie Munger then applied this principle to his own life by often saying, "All I want to know is where I'm going to die, so I'll never go there."<br />
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In our stock trading journey, we can always apply this theory. This concept will help us to see the right course of actions because we identify the trading mistakes that we need to avoid.<br />
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The question that I often ask myself, <b>"What would I have to do to guarantee my stock trading failure?"</b> The following is what I have on my list...<br />
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1. Spending more than I earn, failing to accumulate my wealth for trading<br />
2. Trading with no long term goal<br />
3. Not understanding how stock market works<br />
4. Not having a system to trade<br />
5. Never check my emotion (fear and greed) while trading<br />
6. Never learn from my trading mistakes<br />
7. Listen to rumors<br />
8. Let losses run, cut profits short<br />
9. Not disciplined enough following my trading system<br />
10. Failing to do proper position sizing<br />
11. Overconfident in beating the market<br />
12. ...<br />
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The question I ask you, <b>"What would you have to do to guarantee your stock trading failure?"</b><br />
Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-3306970469991433440.post-3339590402887968212014-01-22T22:36:00.000+08:002014-01-22T22:36:06.401+08:00More on Greed and FearI have just finish reading my first book of 2014 (29 more to go)! - <a href="http://www.amazon.com/The-7-Secrets-Extraordinary-Investors/dp/1614481849" rel="nofollow">The 7 Secrets of Extraordinary Investors</a><br />
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One of the essential lessons I get from the book is the emphasis (almost in all investing books I read) on the need to control the two emotions in trading - Greed and Fear. The book went on to quote some examples which I find very inspiring and worth sharing in this post.<br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzkj4-BEevSobiLnqtXw-zXIGatvao6MtbEpimgOkhzblnZIePcm2IJaYlDqzc0QPZiIaqXu8D5hUXVGCWRh8z1853jwaU9CsKA2N35H-5djg20w0XGaJorljO17IMKKYgp72pDRe08Dw/s1600/2451725994_9593e4a0d2_o.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Fear and Greed" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzkj4-BEevSobiLnqtXw-zXIGatvao6MtbEpimgOkhzblnZIePcm2IJaYlDqzc0QPZiIaqXu8D5hUXVGCWRh8z1853jwaU9CsKA2N35H-5djg20w0XGaJorljO17IMKKYgp72pDRe08Dw/s1600/2451725994_9593e4a0d2_o.png" height="272" title="Fear and Greed" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="background-color: white; color: #656565; font-family: Calibri; font-size: 14px; line-height: 19px;">CC Image cour</span><span style="background-color: white; color: #656565; font-family: Calibri; font-size: 14px; line-height: 19px;">tesy of <a href="http://www.flickr.com/photos/24755321@N08/" rel="nofollow">Daddy Hardhead</a></span><span style="background-color: white; color: #656565; font-family: Calibri; font-size: 14px; line-height: 19px;"> on Flickr</span></td></tr>
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<b><i>"Greed causes investors to put too much money into one investment, to overstay a winning investment or to use leverage to enhance the returns of a sure thing."</i></b><br />
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<b><i>"Greed makes us believe that the investment of the moment is a buy at any price because the future is so certain and the price has been going up like crazy.</i></b><b><i>"</i></b><br />
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<b><i>"</i></b><b><i>Greed leads investors to do wild, reckless things that can often lead to permanent losses of capital, which are BRUTALLY difficult to recover from.</i></b><b><i>"</i></b><br />
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<blockquote class="tr_bq">
<b>Be fearful when others are greedy, and be greedy when others are fearful - Warren Buffet</b></blockquote>
<b><i><br /></i></b>
<b><i>"</i></b><b><i>Fear overlooks returns because of the current perceived risks in the market or economy.</i></b><b><i>"</i></b><br />
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<b><i>"</i></b><b><i>Fear makes us forget the moments of maximum uncertainty are often when the risk is lowest because so much bad news is priced into the investment.</i></b><b><i>"</i></b><br />
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<b><i>"</i></b><b><i>Fear makes us believe at any price because everything has been going down and the future is so uncertain.</i></b><b><i>"</i></b><br />
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So, the question is - are you in control of your greed and fear?Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-92189058918542637182014-01-13T22:52:00.001+08:002014-01-13T22:54:03.254+08:00Test: Trading System A on Indonesia Stocks (3)Some updates as of today (Monday 13 Jan 2014).<br />
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#1. My watchlist is still <b>unchanged</b>. There are nine stocks with good fundamental base.<br />
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#2. I have added IDR 6,000,000 to my capital, and hence now it is <b>IDR 44 millions</b>.<br />
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#3. On 9 Jan 2014, there was the first buy signal of the year! <b>MAIN.JK</b> gave a buy signal. The following day, managed to get the price at the open (order was put on the night before). On position sizing, the allowable number of shares I can buy is (44000000*1)/(10*3425)= 1284 shares. Indonesia stock market has a new regulation now where the lot size has changed to 1<span style="text-align: center;">00 from 500. So I bought 12 lots at IDR 3425.</span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQRRgFFP7y_oII6XoxJQw5mz3qzq22KAMA4IDzXMb68xViejXxK1c4wxpjzujSCkwrnAE5NjDp_DR1KE9LoQ-tYSaejBKzIazJfI3dgTAgLdV76xoeKbwpHle3jq7FnmKyxQJvZpGQoE4/s1600/MAIN+-+2014+01+09.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="Buy signal on MAIN.JK" border="0" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQRRgFFP7y_oII6XoxJQw5mz3qzq22KAMA4IDzXMb68xViejXxK1c4wxpjzujSCkwrnAE5NjDp_DR1KE9LoQ-tYSaejBKzIazJfI3dgTAgLdV76xoeKbwpHle3jq7FnmKyxQJvZpGQoE4/s640/MAIN+-+2014+01+09.gif" title="Buy signal on MAIN.JK" width="640" /></a><br />
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#5. On 10 Jan 2014, there was the second buy signal of the year! <b>SMRA.JK</b> gave a buy signal. Today, I managed to get the price at the open too (order put over the weekend). On position sizing, the allowable number of shares I can buy is (44000000*1)/(10*900)= 4888 shares = 48 lots. So I bought 48 lots at IDR 900.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEih-LcJ1Lr5keqD8cczEdkERJTrXxVdKe3bqYzRtV22wL-Z6oo5V4JkDk-mDwArJMDkACfFUbQXE1ThyV8P4q9wAXjizl9c_cJHD_e62pAUsR9-wTr5Q9izZb8aiegIkgtGdaOtdhUz_jo/s1600/SMRA+-+2014+01+10.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="Buy signal on SMRA.JK" border="0" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEih-LcJ1Lr5keqD8cczEdkERJTrXxVdKe3bqYzRtV22wL-Z6oo5V4JkDk-mDwArJMDkACfFUbQXE1ThyV8P4q9wAXjizl9c_cJHD_e62pAUsR9-wTr5Q9izZb8aiegIkgtGdaOtdhUz_jo/s640/SMRA+-+2014+01+10.gif" title="Buy signal on SMRA.JK" width="640" /></a><br />
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#6. The following is the spreadsheet to track.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfhJEFSvyMhkwt0vsqgy8NrmpOgQi5r1J-VpDPel_jCjFJLHuzsiycy4NOwjuSuHvLZL8_4BIh9ppMxChrFOmdPwLxk26sH4Gp6gyAIEE7I60z8lOEq3QC50Ev9Zl5xP6zhlnNRBgiP3A/s1600/portfolio+1.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="Portfolio 1" border="0" height="105" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfhJEFSvyMhkwt0vsqgy8NrmpOgQi5r1J-VpDPel_jCjFJLHuzsiycy4NOwjuSuHvLZL8_4BIh9ppMxChrFOmdPwLxk26sH4Gp6gyAIEE7I60z8lOEq3QC50Ev9Zl5xP6zhlnNRBgiP3A/s400/portfolio+1.gif" title="Portfolio 1" width="400" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW07clBMcUvLRNBTXPVLUePRbDzgo3MFI7_iX4tkM78kHSblYjWQj6liNnB40I9zs6L2cg0JFWsrwUvze8Tjp6BESSw3qC7Kdx6F3HuQSfQxFi3zq5GypqiYUXjnyHFAddp3YLf0SzPOs/s1600/portfolio+2.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Portfolio 2" border="0" height="101" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW07clBMcUvLRNBTXPVLUePRbDzgo3MFI7_iX4tkM78kHSblYjWQj6liNnB40I9zs6L2cg0JFWsrwUvze8Tjp6BESSw3qC7Kdx6F3HuQSfQxFi3zq5GypqiYUXjnyHFAddp3YLf0SzPOs/s400/portfolio+2.gif" title="Portfolio 2" width="400" /></a></div>
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Wish me luck! :)</div>
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-2977745895111100612014-01-12T12:58:00.004+08:002014-01-12T13:04:05.403+08:00Trading Psychology Is Important!From my early days in trading stocks, I am a strong believer that the three important components of stock trading are the 3M - Mind, Money, Method.<br />
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Understanding money management is not that difficult if you understand the concept of position sizing and act on it. To come up with a solid method (or some say Holy Grail) is rather difficult and more time consuming. But the most difficult is actually to understand (and act upon it) the trading psychology - MIND.</div>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzLARRUR6PbUOQHblU4345S6OvlttLio2Y8AA_hrCE0ih5ISCUcby9hr3_UyXWeZXJg-Tl16G980oS7pS6kWvejE35oO9VhUGW4GDLp9-yYL7pRHmHBuFkMoVIBwyE-7ew1eIcrxblxw8/s1600/mind+the+gap.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Mind - Trading Psychology" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhzLARRUR6PbUOQHblU4345S6OvlttLio2Y8AA_hrCE0ih5ISCUcby9hr3_UyXWeZXJg-Tl16G980oS7pS6kWvejE35oO9VhUGW4GDLp9-yYL7pRHmHBuFkMoVIBwyE-7ew1eIcrxblxw8/s1600/mind+the+gap.jpg" height="246" title="Mind - Trading Psychology" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;"><span style="background-color: white; font-size: 14px; line-height: 19px;"><span style="color: #656565; font-family: Calibri;">CC Image cour</span></span><span style="background-color: white; color: #656565; font-family: Calibri; font-size: 14px; line-height: 19px;">tesy of <a href="http://www.flickr.com/photos/66206547@N00/">lisainglasses</a></span><span style="background-color: white; color: #656565; font-family: Calibri; font-size: 14px; line-height: 19px;"> on Flickr</span></td></tr>
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Let's first introduce trading psychology and why it is very important to every trader. Let me quote Brett Steenbarger that wrote neatly and precisely many articles on trading psychology. The relevance of psychology for trading is based upon two important realities:</div>
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<blockquote class="tr_bq">
#1. <b>Trading is a performance activity</b>, much like athletics or performing arts. <b>Psychological variables influence both the acquisition of skills in any performance field and the application of those skills</b>. While there is much more to performance than mindset alone--talents, skills, and interests must align--the wrong mindset can greatly hamper performance. </blockquote>
<blockquote class="tr_bq">
#2. <b>The human mind does not process information efficiently or effectively under conditions of risk and uncertainty</b>. To simply "trade what you see" is a recipe for falling prey to a variety of cognitive and emotional biases. The trader's psychological development is crucial to learning how to properly gauge risk and reward when performance pressures mount.</blockquote>
These points are relatively true in most things what we do - as far as trading is concerned. In trading, the four main emotions - fear, greed, hope, despair - are our enemies, if we do not control them properly (of course a little bit of fear and greed is good). Hence understanding the NEEDS of trading psychology is a good start for all traders - novice or experienced.<br />
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When trading psychology is not properly handled, we see many examples of disaster in trading: making impulsive decisions, allowing fear to overtake opportunity, over-trading, allowing losing trades to run and capping winners, and the like. If you can make those mistakes - and learn from them - long before you put the lion's share of your capital at risk, you will have an opportunity to grow into the trader you're capable of becoming.<br />
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Breet mentions in one of his articles that the best therapy for improving trading psychology is to get into the therapy yourself. To go to stock markets with poor psychological aspect in your trading skills is very expensive. Psychological development needs to precede trading development: resolving those issues is the best way to approach markets with a clear and open mind.<br />
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When you have improved your trading psychology, you will notice that you will recognize when others are making the mistakes you used to make. You will see markets acting on fear and greed and you'll be able to take the other side of those reactive trades. You'll observe when market sentiment is tilted one way and price can no longer sustain its trend.<br />
<blockquote class="tr_bq">
<b>"Developing yourself psychologically doesn't mean that you'll be free of emotion. It means that you will become increasingly competent at using your feelings as useful trading information."</b></blockquote>
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-51412498659572380832014-01-10T23:50:00.000+08:002014-01-10T23:50:48.031+08:00What is Your Trading Edge?I am not a seasoned trader or investor. What I have is a solid dream and action plans to be one.<br />
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This article is about understanding the basic concept of trading, especially for those mechanical traders. Trading EDGE is often said and mentioned by people who are actively trading in stock markets. Understanding the concept of trading edge was actually what got me going in trading stocks a few years back.<br />
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Definition..<br />
<blockquote class="tr_bq">
"A trading edge in the financial markets can be described as a set of conditions that when present, give a higher probability of a trade working than not working."</blockquote>
I love this quote from Mark Douglas..<br />
<blockquote class="tr_bq">
"Wins and losses are RANDOM and your EDGE is nothing more that a higher probability of one thing happening over another"</blockquote>
So, winning and losing trades are part and parcel of the game. What important is that you are winning in the long run. The problem is - you need to have an EDGE to succeed in winning in the long run.<br />
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The good edge is if it can show you..<br />
<br />
#1. a set of market conditions that give a higher probability of a trade working than not working.<br />
#2. to identify when the market is trending, in which case you take trades in the direction of the trend<br />
#3. to identify when the market is ranging, in which case you can buy at the lower boundary of the range and sell at the upper boundary of the range.<br />
#4. there is a random distribution of winning and losing trades and you must take a series of trades over time.<br />
<br />
Share with me you trading edge..<br />
<br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-27517475127409137702014-01-04T21:14:00.000+08:002014-01-04T22:42:09.707+08:00Avoid Recency Bias in Stock TradingFirst start with definition.<br />
<br />
In general, recency bias is the tendency of traders to focus only at the most recent events in his/her trading results while ignoring or disregarding the older, equally important trading results. If this bias is not well-recognized by traders, this will affect traders negatively in decision making.<br />
<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdtKPIGznD1pLVnA926jtRVrP1iXhre4lH4-dBg2DCuJhLEEuXDmL0b9MiMHaYhtdfY0kQEhaRXG2P37z12pBfcqCLeKl5Pn-XK7oCc-SsfCY0nb331ff-OrrOVyLMnRefe4wIc8gJnlE/s1600/recency+bias.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Recency Bias" border="0" height="304" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdtKPIGznD1pLVnA926jtRVrP1iXhre4lH4-dBg2DCuJhLEEuXDmL0b9MiMHaYhtdfY0kQEhaRXG2P37z12pBfcqCLeKl5Pn-XK7oCc-SsfCY0nb331ff-OrrOVyLMnRefe4wIc8gJnlE/s320/recency+bias.jpg" title="Recency Bias" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Recency Bias - Focus on recent event and disregard the bigger picture.</td></tr>
</tbody></table>
<br />
Curtis Faith, in his bestselling book (and my favorite too), <b>Way of the Turtle</b>, mentions:<br />
<blockquote class="tr_bq">
<b>"A trade that was made yesterday weighs more heavily than do trades from last week or last year. Two months of losing trades can count as much as or more than the six months of winning trades that happened previously. Thus, the outcome of a series of recent trades will cause most traders to doubt their method and decision-making process."</b></blockquote>
Examples of recency bias..<br />
<br />
#1. A mechanical trader, who uses technical analysis and candlestick patterns, places a lot of weight on newly formed candles or exponential moving average (which give more weight on recent results), making him lose track of the long-term trends.<br />
<br />
#2. A fundamentalist puts too much meaning to recent economic events and fails to take into account the larger macroeconomic background.<br />
<br />
#3. Another example related to psychological aspect. Say there are trader A and B, having each 10 trades so far. Trader A is on 3-trade winning streak, with overall record 4 wins and 6 losses. Trader B on the other hand, is on 3-trade losing streak, with record 7 wins and 3 losses. Trader A has 0% return, while trader B is 10% up year-to-date. If both traders are trapped in recency bias, trader A could end up ignoring possible warning signs and enter a trade hastily while trader B could become frustrated, abandon his risk management rules, and start overtrading. Both situations are clearly undesirable.<br />
<br />
<b>Solutions..</b><br />
<br />
#1. Keep track of all trades and trade history. This is obviously helpful so that you can always know where you stand and not trapped in recency bias. You do not have to be Excel expert to start making a simple spreadsheet to keep track your performance in the stock market.<br />
<br />
#2. Stick to your written plan and system.<br />
<br />
#3. Write down mistakes you did. Not following your system is a mistake - write it down. Forgetting to put a stop loss is a mistake - write it down. Pulling out of the market while still profiting is a mistake - write it down. Buying a stock out of excitement (because you are on winning streak) is a mistake - write it down.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-56177831030598469792014-01-01T22:15:00.002+08:002014-01-01T22:41:23.263+08:00The Psychology of Trading (2) - Dare to be DullThe point I want to convey here is stock investing or trading does not have to be sexy and excited. Even some market experts are saying that exciting investments are more often than not are a bad deal. When you seek entertainment or excitement in your stock trading is liable to lead you to poor result.<br />
<br />
According to William Bernstein, in his book <b><i>The Four Pillars of Investing</i></b>, one of the most deadly investment traits is <u>the need for excitement</u>.<br />
<blockquote class="tr_bq">
<b>"One of the most consistent findings in behavioral finance is that people gravitate towards low-probability/high-pay-off bets. For example, it is well known among professional horse race bettors that is much easier to make money on favorites than on long shots. The reason is that the amateurs tend to prefer long shots, making the odds for the remaining favorites more advantageous than they should be."</b></blockquote>
I, personally, trapped once in this situation. When the market is hyped, and the stock I had been watching, was showing a good uptrend sign, even though my system gave no buy signal. <b><i>I got excited!</i></b> I bought it and I sold it a few weeks later at loss. I should have understood that I should not trade for excitement.<br />
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxeDjtttzImM_i5ul7nkcAWNYv1Z3vlPyGe0pfYVPxPtiZWvt9SHpEsrTnqM_UEDXBAwdJBpvnjOWXLtW9hgx5DFWmVJXEJzGeQ89kps2jP3q88kceCOzWodYIHEjTtXsCelZyamHeTgw/s1600/ota.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img alt="Trading Psychology - Dare to be Dull" border="0" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxeDjtttzImM_i5ul7nkcAWNYv1Z3vlPyGe0pfYVPxPtiZWvt9SHpEsrTnqM_UEDXBAwdJBpvnjOWXLtW9hgx5DFWmVJXEJzGeQ89kps2jP3q88kceCOzWodYIHEjTtXsCelZyamHeTgw/s320/ota.jpg" title="Trading Psychology - Dare to be Dull" width="320" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">CC Image courtesy of ota_photos on Flickr</td></tr>
</tbody></table>
Key takeaway:<br />
<br />
#1. The most exciting assets tend to have the lowest long term returns, and the dullest ones tend to have the highest. If you find yourself stimulated in any way by your portfolio performance, then you are probably doing something very wrong.<br />
<br />
#2. The exciting investments are highly likely the ones that attracts a lot of public attention and hence will be over-owned. This means this drives up the price, lowering you potential future returns.<br />
<br />
#3. Stick to your trading plan. Eliminate emotion as much as you can. Follow your trading plan and rules religiously.<br />
<br />
<a href="http://bit.ly/18cqljD">The Psychology of Trading (1)</a><br />
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-59612443522851076072013-12-29T01:48:00.000+08:002013-12-29T11:19:51.773+08:00The Rule of 72Over the weekend, I read another great book, The Four Pillars of Investing by William Bernstein. I am not going to give a review this time around, but I am going to discuss on one of the concepts mentioned in the book: The Rule of 72. Honestly, it was the first time I knew it and I thought I would like to share it here in my blog.<br />
<br />
According to Wikipedia, it is a method for <b>estimating an investment's doubling time</b>. The rule number (e.g., 72) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. Although scientific calculators and spreadsheet programs have functions to find the accurate doubling time, the rules are useful for <b>mental calculations</b> and <b>when only a basic calculator is available</b>.<br />
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For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years. Below is a table to shows how accurate the rule is.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinSwDVPKyZPViFSiTmIl5hCDyn4wZVwq7Ooe32tnHfB0hfTQhyphenhyphenXgqUf8P5FiGtTfcMtX08yIGII4svSpIJtVnbmt3wTb-TG3tNX_vQbBXXC4hv-cJAbyGiPrx6JiixVVStsK2GlmIgru0/s1600/72.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="The rule of 72" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEinSwDVPKyZPViFSiTmIl5hCDyn4wZVwq7Ooe32tnHfB0hfTQhyphenhyphenXgqUf8P5FiGtTfcMtX08yIGII4svSpIJtVnbmt3wTb-TG3tNX_vQbBXXC4hv-cJAbyGiPrx6JiixVVStsK2GlmIgru0/s320/72.gif" title="The rule of 72" width="254" /></a></div>
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As you can see from the above, the rule is remarkably accurate. So long the interest rate is less than about twenty percent, it is rather reliable formula. At higher rates the error starts to become significant.</div>
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You can also run it backwards such that if you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.</div>
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Watch this<a href="http://www.investopedia.com/video/play/rule-of-72/" rel="nofollow"> video from Investopedia</a> to understand more about The Rule 72.</div>
<br />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-23784370317663678982013-12-26T21:58:00.002+08:002013-12-26T22:38:59.865+08:00Relating 80/20 Rule and 3M (Mind, Money, Method) in Your TradingI have just finished reading <b>The 4-Hour Workweek</b>, a bestseller book by Tim Ferris. One of his many interesting theories that struck me was the use of the 80/20 rule. This rule, also known as Pareto's Law is applied in business studies, sales, economy and many other endeavors. Today, I am going to illustrate how the 80-20 rule can help optimize your trading and boost your trading profits.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4sklRL0faAE_4Mt6v8d7Xhyphenhyphen4rwrmC9f3pNR0BKsfw6rupzToJa0tCq06vO1xHOl-QDmWSeXkW9DLLF3M85diSuz6Z3cfD3O0tIjKpokEPfdBBhJz2AjsTm0mu0RVDdjUFSqvBH1gJe5s/s1600/download.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="80/20 Rule" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4sklRL0faAE_4Mt6v8d7Xhyphenhyphen4rwrmC9f3pNR0BKsfw6rupzToJa0tCq06vO1xHOl-QDmWSeXkW9DLLF3M85diSuz6Z3cfD3O0tIjKpokEPfdBBhJz2AjsTm0mu0RVDdjUFSqvBH1gJe5s/s1600/download.jpg" title="80/20 Rule" /></a></div>
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Pareto's Law can be summarized as follow: 80% of the outputs result fro 20% of the inputs. To put it in different ways, Tim Ferris gives more examples in his book:<br />
<br />
<ol>
<li>80% of the consequences flow from 20% of the causes.</li>
<li>80% of the results come from 20% of the effort and time.</li>
<li>80% of the company profits come from 20% of the products and customers.</li>
<li>80% of all stock market gains are realized by 20% of the investors and 20% of an individual portfolio.</li>
</ol>
<div>
One important thing to note is that the ratio is often skewed even more severely such as 90/10, 95/5, 99/1 are also common, bu the minimum ratio to seek is 80/20.</div>
<div>
<br /></div>
<div>
How this Law is related to trading?</div>
<div>
<br /></div>
<div>
Trading in general consists of the 3M - <b>Mind, Money, Method</b>. Mind is basically how you manage your emotions and understand the psychology of trading. Money is the position sizing system so that you can manage the risk and survive in the trading business. Method is the strategy to buy and sell stocks. </div>
<div>
<br /></div>
<div>
For most traders out there, there is one thing that matters the most: the trading system. Trading system research and developing new strategies for trading are their main focus, but mostly this is about looking for that holy grail of trading systems. Their argument is that while I do like to apply money management and discipline/psychology, about 80% of what I do is test new trading systems and look for new methods. That leaves 20% for money management and trading psychology & discipline.</div>
<div>
<br /></div>
The truth is, to make profits in trading, one does not need to have the most accurate system in the world. What is needed is really a good system executed with discipline and using proper money management methods. I strongly believe that trading psychology + money management are the 20% which is responsible for 80% of trading success.<br />
<div>
<br /></div>
<div>
So, to relate the 80/20 rule, I would like to summarize this way..</div>
<div>
<ol>
<li>Instead of researching and keep updating/changing your Method (I am not saying it is not important), spend more time in understanding <a href="http://bit.ly/18cqljD">the trading psychology</a> and <a href="http://bit.ly/1bccSuw">position sizing</a>.</li>
<li>As 80% of your profits are coming from your top 20% trades, focus on the market movement and make sure you do not miss the boat when the market is uptrending.</li>
</ol>
<div>
Happy trading and happy holiday!</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-82683407400349355912013-12-25T23:56:00.000+08:002013-12-29T11:20:07.821+08:00Are You Discretionary or Mechanical Trader?Traders often classify themselves as stock traders, or e-mini traders, or ETF traders, or Forex traders. However, at a more basic level there are really just <b>TWO</b> types of traders – discretionary and mechanical.<br />
<blockquote class="tr_bq">
<i>The <b>discretionary trader</b> uses his or her experience and judgment to make trading decisions. The discretionary trader will usually have a documented trading plan with rules to guide or bound their trading decisions. But when it comes time to actually pull the trigger on an entry or an exit to a trade, they will evaluate the current market situation and apply the<b> intuition </b>they’ve developed over years of experience.</i></blockquote>
<blockquote class="tr_bq">
<i>Conversely, <b>systematic or mechanical traders</b> have a rigid set of rules that precisely dictate their entry point, when they will exit the trade, and the size of the position. Systematic traders do not take into account anything in the market environment that is not explicitly covered in their rules. They take every trade. Period. <b>Intuition, judgment, and experience do not enter into the equation.</b> Systematic traders will also have a documented trading plan, but their rules will be so specific that they can be, and usually have been, programmed and back-tested. (Back-testing is the process of modeling a trading concept in a computer program and testing to see how it performed in past market environments).</i></blockquote>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi586Ro60zP68-fe6DobK7t4KyzAtPHGxFfuqLotfSr3ZBqrMJ-rQcr7ZNZ3shpX02VRMRqQjeDiCiRT6ajV2v7U9xxBc4dWL81F_MhK7HgZXPtfoUzLqWPy-nCU6gB2xzMCh68Om0iY9A/s1600/forex_mechanical_trading.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="mechanical trading" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi586Ro60zP68-fe6DobK7t4KyzAtPHGxFfuqLotfSr3ZBqrMJ-rQcr7ZNZ3shpX02VRMRqQjeDiCiRT6ajV2v7U9xxBc4dWL81F_MhK7HgZXPtfoUzLqWPy-nCU6gB2xzMCh68Om0iY9A/s1600/forex_mechanical_trading.jpg" title="mechanical trading" /></a></div>
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I <a href="http://bit.ly/1j4lOkD">developed trading plan</a>, create a set of rigid <a href="http://bit.ly/1busXbt">trading rules</a>, combine a few technical indicators for my entry and exit strategy. So, yes, I am a mechanical trader. Not being biased, but my arguments are here.<br />
<br />
<b>#1. Systematic trading may not be as fun, but it’s much more consistent</b><br />
<b><br /></b>
<b>#2. Emotion is a demon to trading </b><br />
<b><br /></b>
I am not saying that discretionary trading is not as good as mechanical trading, but I was not in luck when I was one. I started my trading days as a discretionary trader, enjoying my time deciding - to buy and sell. However, even though it was exciting, the return was not as good as expected and hence I switched to mechanical trading. I developed codes to give me buy/sell signal and keep testing and updating my codes. In this way, I need to be really disciplined and try not to be affected by emotion.<br />
<br />
So which method is best? Which method should you choose? The answer is, of course, that it depends. Discretionary trading has the advantage of tapping the world’s best computer – your brain. But the downside is that the computer supported by our necks is very susceptible to the virus of emotion. Whether you’ve been trading 1 week or multiple decades, emotion is a demon that must always be neutralized.<br />
<br />
So what are you?Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-25296233536761224752013-12-20T21:04:00.001+08:002013-12-28T20:32:22.561+08:00Stock Trading is Just Like Doing MathsIf you recall your school days, your math teacher often asked you to do math exercise. It was easy to find the answer - flip the book to the last page and you can find the answer. However, by knowing the answer is not enough really. And probably you will not earn full marks for that. In math, workings are required and you need to understand fully to show it in your exam/homework.<br />
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<b>Stock trading is just like math!</b><br />
<br />
Most of us know the final answers! But again, knowing the answer is not enough, we need to know the "workings" and the steps to the right answers..<br />
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<b>Just think for a while, what are your "steps" (read - system) you have to get your answers (read - profit/wealth)?</b><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRuHEqf1CEh01UjerajGDDsyWcz-4lZxXKcBrBIGyQmdWMaOr4r3JIsZ2buSm_VV0SQdk2RPXsvnV1aoq5mc23g0lR6Q6_mxrqV3xn5OUXChvxGsSYlLpLvCqbEpMyMWxxyVKtQIBO354/s1600/math.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="what is your method?" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRuHEqf1CEh01UjerajGDDsyWcz-4lZxXKcBrBIGyQmdWMaOr4r3JIsZ2buSm_VV0SQdk2RPXsvnV1aoq5mc23g0lR6Q6_mxrqV3xn5OUXChvxGsSYlLpLvCqbEpMyMWxxyVKtQIBO354/s1600/math.jpg" title="what is your method?" /></a></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-674673971160201832013-12-19T00:00:00.000+08:002013-12-20T21:31:59.519+08:00Who are Your Shoe Shine Boys?The story goes like this..<br />
<br />
In 1928 in New York City, John D. Rockefeller was having his shoes shined. The shoe shine boy, presumably not knowing who Rockefeller was, started giving him stock tips and financial news of the day. Rockefeller took his shoe shine boy’s advice but not in the way you would expect. He decided that if a shoe shine boy was giving stock tips.. <b>It was time to get out of the market. </b>He did! And it’s the reason his family was able to stave off the Depression, and continued to be one of the richest in our history.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMsZHGrUX88jR6Tx6oBaFgS-MNEiUpft0rpLi6UfdTPTuGxLceMjXnSl5300CdFxA0oDIpTTW4Zc9E7XYBaU6y6eECrdoU5XRjdnKaiJc-iMW1Szu-C_A1tKBwVzbYap_rnEmfIAowMMg/s1600/shoe-shine-parlor.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="shoe shine boy" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgMsZHGrUX88jR6Tx6oBaFgS-MNEiUpft0rpLi6UfdTPTuGxLceMjXnSl5300CdFxA0oDIpTTW4Zc9E7XYBaU6y6eECrdoU5XRjdnKaiJc-iMW1Szu-C_A1tKBwVzbYap_rnEmfIAowMMg/s320/shoe-shine-parlor.jpg" title="shoe shine boy" width="228" /></a></div>
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Honestly, I do not give a damn if the story is true or not. But this story really give us a piece of important lesson!<br />
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Who is your equivalent shoe shine boy? Is he the taxi driver? Is he your colleague who has shown sudden interest in stocks like never before? The first tip is about increasing your street smarts by surveying the sentiments of the people around you. When many people are optimistic about investing in stocks, it is probably time to get out.<br />
<blockquote class="tr_bq">
<b>"Honesty is a very expensive gift, don't expect it from cheap people"</b></blockquote>
Stick to your trading plan, and be disciplined. Keep it simple.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-69059753237563392342013-12-15T21:35:00.001+08:002013-12-20T21:32:13.363+08:003 Reasons to Use Moving Average 200 (MA 200) in Your Stock Trading AnalysisOut of a few simple technical indicators I use in my daily stock analysis, <b>Moving Average (MA) 200</b> is one of the most important.<br />
<blockquote class="tr_bq">
"The 200 day moving average may be the granddaddy of moving averages.<b> Simply put, a financial instrument that is trading above it is healthy; below it, anemic.</b> The 200 day moving average measures the sentiment of the market on a longer term basis. This is where major players like pension plans and hedge funds need to look in order to move a large amount of stocks. I display it on all my workspaces proudly, formatted in emerald green and real thick so I can't help but notice."</blockquote>
MA 200 lags. This indicator does not predict the direction of the price, but rather the current situation. Coupled with other leading indicators, you analysis could be more complete. Therefore, when you hear "the trend is your friend," technically put it really means that the price over the last 200 days is indicating an upward trend, therefore look for buy opportunities; versus the price is below the last 200 days, therefore look for sell opportunities.<br />
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So, in nutshell, what are the uses of MA 200 then?<br />
<br />
In my trading analysis, the indicator basically give a good picture on the following.<br />
<br />
#1. <b>TREND</b> - check if the price is well below, above or touching the MA? This will show you generally what is the trend of the price movement. This comes useful if you want to find out the performance of the stock in terms of growth.<br />
<br />
#2. <b>SLOPE</b> - ask yourself if the slope in steep enough (being up or downtrend), or is it just a neutral slope. Generally, as a trend-following trader, the steep slope is a good chance of continuous up-trending.<br />
<br />
#3. <b>CROSSOVER</b> - this is in relation to other short-term MAs I am using. If the price and other short term is well above the MA 200, it is a good chance that the stock is still up-trending. However, if the short term MA (or even the price) starts to crossover MA 200, the trend could change.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHUKoFMXYoJgnnjhMRzPil7mGafhSfsRgcQ-ajqSQ0mybcdyn4VPvWo50k4_WkCTL7CDMnCJaQdupPYt2e_2WK2REM0YR8ADzAwxD_eNBuCfxg4vpCVJE3spsrzXLjkRb110xgSnli2YI/s1600/trend+slope+crossover.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="The use of MA 200" border="0" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHUKoFMXYoJgnnjhMRzPil7mGafhSfsRgcQ-ajqSQ0mybcdyn4VPvWo50k4_WkCTL7CDMnCJaQdupPYt2e_2WK2REM0YR8ADzAwxD_eNBuCfxg4vpCVJE3spsrzXLjkRb110xgSnli2YI/s640/trend+slope+crossover.gif" title="The use of MA 200" width="640" /></a></div>
<a name='more'></a>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-13801076601068953452013-12-12T20:18:00.003+08:002013-12-20T21:32:24.697+08:00Ask "Frugal Filter" Questions Before Buying Things<blockquote class="tr_bq">
<b>"If You Buy Things You Do Not Need, You May Soon Have To Sell Things You Need"</b></blockquote>
Well, this article is not preaching you to be frugal, but to share my "system" wherever I want to buy something. Just recently I started asking myself these questions before buying stuffs, and the effect is actually quite amazing. I am now can decide well if I really need to buy or not. Practice and let me know what you think.<br />
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#1. Do I really need this?<br />
#2. Do I have something else of the similar function?<br />
#3. If I really need this, can I get somewhere cheaper (or free!)?<br />
#4. If I cannot get it cheaper or free, how can I get the price down?<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivlwzTfkwJ-CZYUbA0KmvYwrSKICSFkX0wLAV5qUqg7URuvCx3j_1SHNuEqHI8wlrtLpVNTjwFnqRKr1iq5pzNiYHISQdChs7kfqJOPOPfsVplQjRYgjAXYpzMamEU86XS2YbwgDwEA8g/s1600/frugal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="frugal filter" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivlwzTfkwJ-CZYUbA0KmvYwrSKICSFkX0wLAV5qUqg7URuvCx3j_1SHNuEqHI8wlrtLpVNTjwFnqRKr1iq5pzNiYHISQdChs7kfqJOPOPfsVplQjRYgjAXYpzMamEU86XS2YbwgDwEA8g/s1600/frugal.jpg" title="frugal filter" /></a><br />
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These are the questions I would ask myself before deciding to buy something. Here are some examples.<br />
<br />
<b>Thinking of buying an Android Tablet.</b><br />
#1. Do I really need this? <i>Nope! This is a WANT, not a NEED</i><br />
#2. Do I have something else of the similar function? <i>Yes, my laptop and Nexus 4 are more than sufficient.</i><br />
<b><span style="color: lime;">Decision - Do not buy</span></b><br />
<br />
<b>Looking at Digital weighing machine</b><br />
#1. Do I really need this? <i>Yes! I am too fat.</i><br />
#2. Do I have something else of the similar function?<i> Nope, my previous weigh is not functional</i><br />
#3. If I really need this, can I get somewhere cheaper (or free!)? <i>My housemate use to have it and I can use it for free, but not anymore. I think I do not need digital one, the normal weighing scale will do (cheaper).</i><br />
<b><span style="color: lime;">Decision - Buy cheaper weighing scale</span></b><br />
<br />
<b>Malcom Gladwell's bestseller book Outliers</b><br />
#1. Do I really need this? <i>Yup, a lot of friends recommends this book</i><br />
#2. Do I have something else of the similar function?<i> Not really</i><br />
#3. If I really need this, can I get somewhere cheaper (or free!)? <i>Yes! I can read it free at library</i><br />
<b><span style="color: lime;">Decision - Do not buy, instead read it at library and making own notes</span></b>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-84973850086996925022013-12-10T22:16:00.001+08:002013-12-20T21:32:30.353+08:00Why Market Order Works for MeI do not really like to trade when a stock moving sideways and I keep telling my wife that I am a trend-following trader (<a href="http://bit.ly/HOLCFC">what are you?</a>). I will only buy a stock when there is higher probability that the uptrend is obvious.<br />
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You may argue that I may not buy at the bottom, and you are actually right. I do not usually buy at the bottom as I will wait until I am sure that likely bottom has formed (by using my indicators). So when I observe a start of a trend then I PROBABLY have better chance of making money. So I put a BUY order. MARKET ORDER.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhf0Mt4SyJbgt49_wrXCkVPXihtEXmNOGXWIjpHVCa8zVlzNE_UTqbZRwEqBYmvS466EKn-PZ9HI2Cr1RNBHnlTzWW7s8d_hrHlmzC-tHhtXssepoMlmtS4Lo26LM2FOjpJBIgyr0XRxug/s1600/missing+the+boat.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Don't miss the boat!" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhf0Mt4SyJbgt49_wrXCkVPXihtEXmNOGXWIjpHVCa8zVlzNE_UTqbZRwEqBYmvS466EKn-PZ9HI2Cr1RNBHnlTzWW7s8d_hrHlmzC-tHhtXssepoMlmtS4Lo26LM2FOjpJBIgyr0XRxug/s320/missing+the+boat.JPG" title="Don't miss the boat!" width="282" /></a></div>
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So, get in the boat no matter what!<br />
<blockquote class="tr_bq">
<b>"Your market order is executed at the best price obtainable at the time the order is executed. In other words, with a market order the fact that the order will be filled is all but guaranteed (subject to the availability or liquidity of the stock), but the price at which it will be filled is not."</b></blockquote>
Sometimes (often) I got slippage. But that's okay as long as you follow the trend. But again, the trend could be a trap, and you end up going down, so remember your cut loss strategy.<br />
<br />
So write comment below your preferred order. Market or Limit order?Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-60555724979559180092013-12-09T20:58:00.002+08:002013-12-28T20:33:16.988+08:00Test: Trading System A on Indonesia Stocks (2)Today, I did the usual. After work, I downloaded the EOD for Indonesia market, and check my watchlist. So, as one of my criteria is ratings from analysts, the watchlist may change quite often. And today it changed! One stock is out and a new stock is added in. So what I do is just to change my watchlist in my Amibroker and <a href="http://bit.ly/17ysfNg">Android app accordingly</a>.<br />
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<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8VHDYD3VF1OKlst5O-HVJJP66aue86YC4Rjm6h3uYjmTl81H0Xq9m1bVYRrTBIksF-zPX-J0u1K1iq46GFa_Y89g3dSuwI9QLIcV9gceKORtpvdbKurLsDX1I2NAaH8uzU3hlI1C7YYs/s1600/9+12+13+screen.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="watchlist check" border="0" height="304" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi8VHDYD3VF1OKlst5O-HVJJP66aue86YC4Rjm6h3uYjmTl81H0Xq9m1bVYRrTBIksF-zPX-J0u1K1iq46GFa_Y89g3dSuwI9QLIcV9gceKORtpvdbKurLsDX1I2NAaH8uzU3hlI1C7YYs/s320/9+12+13+screen.gif" title="watchlist check" width="320" /></a></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-UV46SN5aHUd5WYwmvFslO39GQp1bTDdZnfl7tPdxLVekSn6WnnkDVjH68lXyPWOcoxEAMnLHc44Ok0gx6Wd-AVmSqJ53bzEN8WBmIM4L0OpjToNdDDMiSJScor2xfThbcmr9HU0B848/s1600/Screenshot_2013-12-09-20-45-50.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="android app watchlist" border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-UV46SN5aHUd5WYwmvFslO39GQp1bTDdZnfl7tPdxLVekSn6WnnkDVjH68lXyPWOcoxEAMnLHc44Ok0gx6Wd-AVmSqJ53bzEN8WBmIM4L0OpjToNdDDMiSJScor2xfThbcmr9HU0B848/s320/Screenshot_2013-12-09-20-45-50.png" title="android app watchlist" width="192" /></a></div>
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I run the EOD, and still no buy signal. Patience is golden :)Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-62004161719271069692013-12-04T23:39:00.001+08:002013-12-20T21:32:51.924+08:00How to Become a Trader - Van Tharp's Video<div class="separator" style="clear: both; text-align: left;">
Van Tharp is one of my favorite authors of <a href="http://bit.ly/1hzVx2e">trading books</a>. I have read some of his books and inspired by his theory of business plan for stock trading (or investing). If you have read my post on <a href="http://bit.ly/1j4lOkD">the business plan template for stock trading</a> or my <a href="http://bit.ly/IyNcLV">trading system test</a>, I adopt most of my trading systems and plans from his ideas. I do not really follow all his points, but it was all started from his thoughts and idea. </div>
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<div class="separator" style="clear: both; text-align: left;">
Anyway, if you are not convinced about the importance of business plan before you start trading, you may want to watch this short video. Enjoy.</div>
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<iframe allowfullscreen='allowfullscreen' webkitallowfullscreen='webkitallowfullscreen' mozallowfullscreen='mozallowfullscreen' width='320' height='266' src='https://www.youtube.com/embed/Hjs44kZgJh0?feature=player_embedded' frameborder='0'></iframe></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-55620263947099926102013-12-03T23:37:00.000+08:002013-12-28T20:31:46.024+08:00Always Cut Your Losses Short. Always.I learnt this the hard way really. In my early trading days, I stuck too long in a stock that kept dropping. I had not exit plan, what I had was just hope that the stock will go up. It didn't. Since then, I set my rules right and always cut my losses short.<br />
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In my view, there are some important benefits why you should always apply cut loss.<br />
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<b>#1. Admit it.. You are Losing the Trades. Move on.</b><br />
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This is about pride, isn't it? When the price keep dropping 5, 10, 15, 20 percent of your buying price, you may have this ego saying, "This can't be right! It will bounce up". The reality is that when what's left is HOPE, you should get out of the market and just admit you lost. <a href="http://bit.ly/182L0Zf">Understand the 4 important emotions in trading.</a><br />
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<b>#2. Boost Your Confidence. Really!</b><br />
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I can tell you that the period when I was seeing my stocks were down 20-40% of the buying price was terrible. Sometimes I asked myself what I went wrong and started to doubt this whole trading thing. So avoid getting this feeling. Cut your losses short. <a href="http://bit.ly/18cqljD">Learn to set you mindset right.</a> I believe this is also important.<br />
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<b>#3. By Staying in Losing Trades, You are Losing Opportunity for Other Winners</b><br />
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When you are in the losing stocks too long, you are losing opportunity to move on to other stocks that could be a winner. It is the same principle with my other post on <a href="http://bit.ly/18rQeIG">why you should not average down</a>.<br />
<blockquote class="tr_bq">
<b>"Cutting losses is like having disaster insurance. By shielding your nest egg from devastating trades, you earn the privilege to invest again."</b></blockquote>
<b>#4. Stocks Always Bounce Back, don't They?</b><br />
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Well, what I can tell you is that, I dare not to predict, and if I am in a position where I am losing my trade below my limit, what I know is that I am risking my capital for further losses and and should get out. Who cares if it will go up tomorrow, next week, or next month or never? Nobody knows really. Stick to your trading system and cut your losses short.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-16162857072810625172013-12-01T21:11:00.004+08:002013-12-29T11:23:11.105+08:00Test: Trading System A on Indonesia Stocks (1) Hey hey..<br />
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I love doing test! This article will be the first of many test-related article you will see in this blog. What I am going to do is to test my trading system (or you can call it <a href="http://bit.ly/1j4lOkD">business plan</a>) and see if the system will give positive return in the long term. I have experimented many system and this one will be experimented publicly! :)<br />
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With this, I am also testing myself (all of you are the judges) if I can follow strictly my rules and system. Please note that the <a href="http://bit.ly/1b5THkz">disclaimer page is here</a> and my trading system may work for me but may not for you. Also, I have evolved into <a href="http://bit.ly/HOLCFC">a type of trader</a> I am now, and pardon me if you are of different type and find this system does not suit you. :)<br />
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Let's start!<br />
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<b>Trading System A</b> (yes, you will see I am testing other systems)<br />
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<b>#1. MISSION</b><br />
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I created this system so that I will have a POSITIVE return over long period of time (this test will be one year long!). Losing trades is part and parcel of this business, what matters the most is to have a positive return in the end. Note that I categorize this system as a trend following system and hence you will not see many trades in one year.<br />
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<b>#2. GOALS</b><br />
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To trade right, strictly following my system and to minimize mistakes.<br />
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<b>#3. RULES</b><br />
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<a href="http://bit.ly/1busXbt">My rules are here</a>.<br />
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<b>#4. METHOD</b><br />
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Step 1 - <b>Choose the market you would like to trade</b> - Indonesia stocks<br />
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Step 2 - <b>Choose a bucket of stocks you would like to watch</b> - I am using <a href="http://bit.ly/19WqEPX">online stock screener</a> with fundamental analysis, which mostly include strictly good earning and sales growth. The following are the stocks screened as of today (1 Dec 2013). I will check this everyday as the watchlist can change whenever the criteria changes.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSEd6kn5e6U6EFyN1ULdgB9pdP05kq8-xfj36lPcU_AwhmA_57jNqh6K6xcDaKkxtoxN83Mda0yExQxhHyQPEnVH4DL1LscKpgdhWfZenujEX9vkiQd_e1hchpwWB_VLzQCoC1yG66OKI/s1600/system1.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Stock selection" border="0" height="302" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSEd6kn5e6U6EFyN1ULdgB9pdP05kq8-xfj36lPcU_AwhmA_57jNqh6K6xcDaKkxtoxN83Mda0yExQxhHyQPEnVH4DL1LscKpgdhWfZenujEX9vkiQd_e1hchpwWB_VLzQCoC1yG66OKI/s320/system1.gif" title="Stock selection" width="320" /></a></div>
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Step 3 - <b>Add the watchlist in your trading software</b>. I am using Amibroker.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7i1MNzI7G2fIFK7P7_dIe1kIZ5lwmLCXINHoEfoEPofMCGe64IXNDHJP-JyMAreRUS2PaCcQXxh_7Nh6faqdl6LkaMrTDfvVaxg0cEyXAEM2A4iMpSfCey6x_FnbEomRMk99b3RJMMAs/s1600/system2.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="watchlist in trading software" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7i1MNzI7G2fIFK7P7_dIe1kIZ5lwmLCXINHoEfoEPofMCGe64IXNDHJP-JyMAreRUS2PaCcQXxh_7Nh6faqdl6LkaMrTDfvVaxg0cEyXAEM2A4iMpSfCey6x_FnbEomRMk99b3RJMMAs/s1600/system2.gif" title="watchlist in trading software" /></a></div>
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Step 4 - <b>Create a program/algorithm that will give me a buy and sell signal</b>. To craft this algorithm, I spent hours/days/weeks to find out what combination of indicators that suits me. This system is for trend following and not very suitable to sideways markets. I have backtested it and give positive return if the signals are religiously followed and no slippage when you put order.<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwv5CCqXyQ-coIhp7Qcz5cIwqNG70wsAOGFQikxaoJ0p-rirQ_BQZqyvXDqoahCAo_4BOlytZBiKeDl5S62P3NdppTdbl8ZFu228sWF-QWagHP1664xSh6kWGm34HfJlCdV-INSCabzzc/s1600/WIKA+2013+10+07.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="Green triangle for BUY, red triangle for SELL" border="0" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwv5CCqXyQ-coIhp7Qcz5cIwqNG70wsAOGFQikxaoJ0p-rirQ_BQZqyvXDqoahCAo_4BOlytZBiKeDl5S62P3NdppTdbl8ZFu228sWF-QWagHP1664xSh6kWGm34HfJlCdV-INSCabzzc/s640/WIKA+2013+10+07.png" title="Green triangle for BUY, red triangle for SELL" width="640" /></a><br />
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Step 5 - Everyday, I will <b>download EOD (free)</b> for the Indonesia market (<a href="http://bit.ly/1eLRcEJ">contact me</a> if you want to find out where to get). Upload the EOD to your software (Amibroker) and monitor daily (at most 15 minutes daily) if there are signals for all the stocks in your watchlist. Yup, I am only monitoring my watchlist, ignore the rest.<br />
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Step 6 - When signals BUY is given, quickly put an MARKET order, so you won't missed the boat. This is trend following system, so getting the order transacted is more important that what price you are getting. When signals SELL given, I will sell it 2 days after the signal is given.<br />
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Step 7 - Exit when there is a SELL signal or cutting loss at 10% drop from buying price<br />
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<b>#5. MONEY</b><br />
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My capital allocated for this test is IDR 38,000,000. The size of lots I am buying will follow <a href="http://bit.ly/1i1KH5k">my position sizing system</a>.<br />
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<b>#6. MIND</b><br />
<div class="separator" style="clear: both; text-align: center;">
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Psychology/Emotion is not really playing important part here as I am following buy/sell signal. But if you want to know how I manage my trading psychology, you can find my articles on <a href="http://bit.ly/18cqljD">Psychology Trading</a>.<br />
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<b>#7. TRADING ROUTINES</b><br />
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Explained in the METHOD part. You can make use of your <a href="http://bit.ly/17ysfNg">android smartphone to monitor your watchlist</a> too.<br />
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<b>#8. MISTAKES</b><br />
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Not yet committed :)<br />
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Wait for further update..Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-31671733571396325832013-11-30T23:16:00.001+08:002013-12-20T21:33:15.254+08:00Understanding Fear, Hope, Greed and Despair in Stock TradingFrom one of <a href="http://bit.ly/1hzVx2e">my favorite trading books</a>, <b><i>Way of the Turtle</i></b> by Curtis Faith, I learnt about 4 most common emotions that traders experience during trading days. The key point here is to understand these emotions so that you will not be trapped in this trading psychology. I myself experience these emotions while trading, and in my early trading days, not having understand and knowing how to deal with it, I lost many trades.<br />
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The 4 emotions are well-written in the title of this post, but with some examples, here they are..</div>
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<b>#1. Fear</b> - I can’t take another loss; I’ll sit this one out.</div>
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<b>#2. Hope</b> - I sure hope this goes up right after I buy it. </div>
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<b>#3. Greed</b> - I’m making so much money, I’m going to double my position.</div>
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<b>#4. Despair</b> - This trading system doesn’t work; I keep losing money.</div>
<blockquote class="tr_bq">
<b>"How many times have you felt these emotions while trading?"</b></blockquote>
So how do you avoid being trapped and finally losing your hard-earn money because of these emotions? My simple answer is to stay DISCIPLINED to stick to your trading rules and plan. Before trading stocks, you should spend some time <a href="http://bit.ly/1j4lOkD">crafting your business plan (trading system)</a>, read books on fundamental and technical analysis, <a href="http://bit.ly/1busXbt">create rules </a>to enter and exit the market (keep testing your system).<br />
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Come up with a good system (good here means the system will give you positive return in the long run if you religiously following it) and be disciplined.<br />
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Some examples:<br />
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<i>You see a stock that's cheap enough and your friends keep telling you how this stock will go up in a few days. You want to buy it because you HOPE it will go up.</i> Instead, go to your system and ask yourself questions if the stock is worth buying. Does it satisfy your entry rules? Is your capital big enough to allow you to buy the minimum lot of the stocks? Have you done research on the stock personally (<a href="http://bit.ly/17LltUk">you are responsible on your own trades anyway</a>)?<br />
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<i>You are in the market having bought stock A which has gone down passing your cut-loss limit of 10%. Deep in your heart you know you should get out, because you write it in you system that you have to get out when it drops by 10% from your buying price (why 10%? you need to figure out what percentage works best for you). However, unknown voice in your brains says,"Hey, it will bounce back up tomorrow! Do not worry!"</i>. Again, this is HOPE! Once in a while the stock will go up, but dare not to predict market! You better get out before you lose more money.<br />
<blockquote class="tr_bq">
<b>"When HOPE is what's left, get out of the market"</b></blockquote>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-48664424832398300182013-11-28T22:42:00.004+08:002013-12-20T21:33:25.495+08:00Build Your Capital for Stock TradingI love system. Whatever I do, I want to see it happening in a systematic way. When you have a system, a good system, what you need to do is to strictly follow it. I made my own trading system. Before buying stocks, it has to go through a series of requirement before I am allowed to buy a stock.<br />
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I would like to introduce a money system on how you can build you capital for your stock trading.<br />
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If you have read my post of <a href="http://bit.ly/1bccSuw">position sizing</a>, it is clear that you need a rather big capital (C) in order to stay alive in the market. As you limit your risk (R), you can only be allowed to trade limited amount of shares (again, it is a position sizing system). So how can you build your capital?<br />
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Here is my money system.<br />
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#1. I strictly believe you should spend your earning <b>AFTER</b> saving! I mean when you get your salary every month, quickly distribute it (automatically) to a series of saving buckets. Do this religiously. When I started working, I have 4 criteria of savings:<b> short term savings</b> (to be used within one year - vacations),<b> long term investment</b> (retirement, kids educations, practically anything I need to spend my money more than five years from now), <b>emergency fund</b> (you wont know when you are out of job, or when your loved ones fall sick), and <b>investment savings</b> (this is for your stock trading and any investment-related).<br />
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My shares: 5% - short term, 5% - long term, 5% emergency and 10% investment. And do not get surprised, I have different bank accounts for each of them.<br />
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#2. Short term savings will be used in near future, so I don't really monitor it. However, for the other three, I create an <b>excel sheet</b> to monitor it monthly. If my "ideal" amount doesn't match my real savings, I will do re-balancing, QUICKLY.<br />
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#3. If you do it religiously, your investment savings will increase in no time! (Okay, it took me 6 months to be able to buy 1 lot of stocks).<br />
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So ask yourself, do you have a system for your savings? If the answer is no, make one now and share with me :)Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-1794373625334655312013-11-26T22:51:00.001+08:002013-12-29T11:22:45.530+08:00Plan Your RetirementIn my full <a href="http://bit.ly/1j4lOkD">business plan for stock trading</a>, you need to start with MISSION of your trading activities. You can have any mission you like, from getting passive income or just to get new challenges. It is totally up to you. However, a more sensible mission for every trader to invest and trade in stocks is to have extra income for retirement.<br />
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So, how do you plan your retirement? Start with this <a href="http://on-msn.com/1cq2HzB" rel="nofollow">online calculator</a>. It is easy to use!<br />
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Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3306970469991433440.post-13003643268866484352013-11-26T00:07:00.000+08:002013-12-20T21:33:48.820+08:003 Questions to Ask Yourself Before You Trade StocksYesterday, I found an interesting article from BigFatPurse's Alvin Chow. The article titled "3 questions to ask yourself before investing in stocks" discusses about the important 3 questions that you should answer well before you decide (or allowed!) to trade in stocks market. These three questions, to some may be debatable, are very relavant!<br />
<br />
<i>Question #1</i><br />
<blockquote class="tr_bq">
<b>Do I Own a House?</b></blockquote>
<i>Question #2</i><br />
<blockquote class="tr_bq">
<b>Do I Need the Money?</b></blockquote>
<i>Question #3</i><br />
<blockquote class="tr_bq">
<b>Do I Have the Personal Qualities It Takes to Succeed?</b><br />
</blockquote>
My points:<br />
<br />
<i>Question #1</i><br />
House is really the first investment you should have. The reason being is that you need a house soon or later. I bought an apartment 2 years before my wedding, after accumulating savings from the years of working part time while studying in University (also borrow money from parents). I believe you must set your priority right in terms of personal finance. Make sure you have a steady source(s) of incomes. Make a plan for you saving and spending. Once you have enough to invest in a house, do it!<br />
<br />
<i>Question #2</i><br />
If you remember my post on<a href="http://bit.ly/1bccSuw"> position sizing</a>, you need a rather big Capital (C), to even be able to buy minimum amount of shares. To keep your alive in trading, you need sizable amount of money. You have to be disciplined enough not to disturb your capital as it will affect your trading plan. So, make sure you do not need to use this capital. Make sure you have emergency savings to use in case of urgent matter. Leave your trading capital alone!<br />
<br />
<i>Question #3</i><br />
This is important. Trading is not a game. It is a BUSINESS. Make a <a href="http://bit.ly/1j4lOkD">business plan</a>. Understand the method of <a href="http://bit.ly/19WqEPX">stock screening</a>, technical analysis, entry rules, cut loss. Understand the importance of <a href="http://bit.ly/1i1KH5k">position sizing</a> as well as the <a href="http://bit.ly/18cqljD">psychology of trading</a>. Allow yourself to make mistake and take <a href="http://bit.ly/17LltUk">all the blame yourself</a>, and learn from the mistakes.Unknownnoreply@blogger.com0