A Chat With A Friend 26 June 05

Was sharing with a good friend today about trading the markets after he showed me what his friend loaned him - Technical Analysis of the Financial Markets by John Murphy. To cut to the story short, I showed him where he could obtain free technical charts on the US Market - the most well-known of them all, Yahoo! Finance - and how to use each individual component to analyse the stock/market. I basically shared with him my method which took 3.5 years to put together. The underlying theory of the method has met the requirements that I've demanded a trading strategy to possess.

I shared that the indicators used in mainstream (or common) Technical Analysis are calculated only after an event has taken place and that there are no hard facts to suggest that a stock in oversold region will definitely move up.... the indicator can stay oversold as the stock continues to tank and the technical trader would have to cut his/her losses. I call it mainstream or common T.A. because I'm currently doing also falls under the purview of T.A. - under a different school of thought - but has allowed me to gain insights to what a stock/index (the broad market) may be doing in the near future using quantifiable reasons instead of blindly buying oversold and selling overbought.

FULL-TIME INVESTING/TRADING IS NOT FOR EVERYONE
I also shared with him about the foolishness of anyone who tries to jump into full-time trading without adequate capital and that it's far better for a person to have a stable stream of income while investing/trading on the side.

Having inadequate survival funds and trying to make it from the market is a dangerous thing. It means that a person must trade quite often, even during times when the quality of the buy/sell signal are not good, but are taken because of the need for income. Most end up losing more than gaining.

PROFESSIONAL ACTIVITY IN THE MARKET
In any field, there will be professionals, the same goes for the financial markets where some of the most brilliant minds are involved. That's why 80 to 90% of the participants lose money to the 10-20% of the professionals. That's the reason why sometimes the market decline in times of good news and rally in the midst of bad news. Many get stuck in a certain concept or theory - like Buffettology, Fundamental Analysis, Technical Analysis, Tips, Rumours, Analyst Recommendations etc - and expect the market to move within the confines of it when it should be the other way around. The only time people make (paper) money is when they are "in-line" with the smart money, it's paper money because the gains are unrealized and gets eroded as the smart money starts to quietly sell their holdings to more weak players that are sucked into the market by all the positive news/reports and bullish consensus from the general public and media.

I prefer to observe and monitor the market, and then find a method(s) that can help me spot the signs left behind by the smart money and capitalize on them.

WHY I WASNT CUT OUT TO BE A BROKER
The other reason that I entered the stock-broking industry (besides gaining a better understanding and becoming a better trader) was to help my clients make money, to ensure that they survive and thrive. To do that means that only good trades should be made and avoiding those that are in the middle of the road. By using an entry method based solely on stochastics being in the oversold region, one would only be making 11 trades in the QQQQ over a period of 2 years - and a broker doing that will be out of business. But the ironic thing is that many people (the uncles and the aunties) want to be in the market everyday! They want to buy something everyday! And that makes their brokers very happy!

The uncles and aunties also have a peculiar liking for 'special' tips, news or rumours. And those brokers who are able to provide them with such 'information' do very well...

And I found myself in a funny position; wanting to help (at my own expense), but the people refused to be helped. So I left the stock broking industry with a much better understanding of the mentality of a large part of "the crowd" and how the 20% making money from the 80% rule will stay true in the markets for a long time to come.

My Experience As A Stock Broker - Part 1

When I saw the ad in the papers that was put up by Phillip Securities, I was already jobless for almost 3months. During the 3 months, I was doing freelance car grooming for people. But my main source of income was from grooming the cars in a car dealership that a friend was working at. Though many things happen, I'm still grateful to this friend who helped me out.

I would also like to thank Larry for helping me out during that time as well, letting me polish his Nissan Skyline every month. Thanks Larry, you wont know how much those 50 dollars you gave meant to me.

Another person that I'm very grateful towards is a friend called Teck Leong. I met him while I was taking a Comprehensive Financial Planning Module for the Chartered Financial Consultant. TL was already a CPA and runs his own audit firm. He was also taking his MBA in finance and asked if I was available to help him in the completion of his thesis, and in return, would pay me for my efforts. It was a miracle that I managed to produced something presentable, and again, those 3 to 4 hundred dollars he would pay me as I completed the chapters in phases kept my stomach filled.

Back to the Phillip ad. I went ahead to apply for it and attended their career seminar. The brochures i read and the setting reminded me of those recruitment drives by insurance agencies. But the good thing was that they mentioned that we could concentrate on a certain area first (or for as long as we liked... as long as the revenue was generated). And so I decided to take the plunge and signed up for the courses for Modules 1 & 6.

I continued grooming cars while I was taking the classes, and managed to pass both papers on my first attempt. Although I only made abt S$1200 during the 5-6months polishing cars, I managed to get by.

I spent much thought about becoming a broker on how I was going to meet my bottom line, where am I gonna get clients etc. By then, I was already monitoring the Singapore and US markets for 2 years (including my 7 months of trading experience in the Singapore market back in 2002). My paper trading in the US market produced returns of 38% (Apr03-Oct03) and 23%(Jan04-Jun04) respectively while I was testing out my trading (or investing) strategies - as I CLEARLY lacked the funds for real investing.

At time, I was also planning on continuing my work on a trading system that would help me analyse the market and pick stocks that met certain criteria(s). This system would then form the backbone of my entire operation(s). That way, I could quantify the stocks I recommend, what to buy, when to buy, what to sell and when to sell. I would also be using the outputs from this system for my own trading activities. The outputs from the system would then be published on a website on a regular basis for my clients as well as another venue where new clients can be found. But sadly, I never got to complete the trading system during my time at Phillip (see previous post). However, I left Phillip with knowledge about the Singapore market that will serve me well for many years to come, was able to read up an emormous amount of books during that period, and realised that having a full-time job with constant income and investing on the side is not a bad idea after all. I guess I'll continue the story in my next entry.

Personal Thoughts 12 June 05

These few years have allowed me to see many new things, about life as well as about people. I'm basically a minimalist that tries to do only the things that 'mattered'. More engrossed in going somewhere than smelling the flowers on the way.

I've tried to 'embrace' the whole lot, trying to be a good guy to everybody, but I guess I should just be a good guy to those worthy of it... like the age-old chinese saying: "You can know the person, know his face, but you can never know his heart". Perhaps that's why so many marriages fall apart these days...

Its only after many disappointing encounters that I've learnt to appreciate my family more than ever. That's why I've decided to go for my Masters in Sydney on their persistent encouragement. I was a rebellious/stubborn person from young, insisting on doing what I felt I wanted from my poly days... the course I wanted, to be baptised, to try to go to a singapore uni, to start a company with friends, to forgo my first opportunity to apply for an Aust. PR, to become a stock-broker... etc etc etc.

So now, I guess its time to go with the suggestions of those that cared for me the most .... 12 years late, but I hope it's still not too late. Going over to Aust for my first degree was because I was out of options. But I managed to bring pride to my parents by graduating with a 2nd Upper... and I hope I can do as well, if not better this time round for my masters.

Personal Thoughts 22 June 05

Think I've almost isolated myself from the Singapore market by now. Would love to start looking into the Australian market to see if liquidity over there is as bad as the SGX. People might say that it's because I'm not really that good - cos good people can make money in all market conditions - but I no longer force myself to fit into their perceptions. After a year of intense observation of how stocks move - being a broker has its plus points too - and trying to make sense of what the countless trading books I've read say about stock movements, I managed to identify a couple of reliable short term trading setups during this time. But as it stood, the opportunities don't come very often and it's mentally and physically tiring to sit in front of a computer screen to wait for the signals.

I've talked alot - to other people - about the trading system that I was developing on Microsoft Excel using VBA. From downloading data from the internet to taking snapshots of intraday data of every stock every 2 minutes to locate stocks that exhibited a surge in volume over the 2-minute interval (that's just how fast the professionals can snap up the available supply). The system was supposed to calculate and analyse up to 38 (expandable) different technical indicators. The data would then be 'fused' to 'size-up' the state of the market, ita various sectors as well as individual stocks.

But sadly, I only managed to finish the data downloading, processing and charting components of the system. Much of the delays were caused by me side-tracking to new trading ideas, concepts, books that came up. Reading new materials (i.e. books) seems to be the main culprit, requiring further verification of the methods and things mentioned with actual market data (historical and present). Everytime I get a new book, I just cant help wondering "could what I've been looking for be contained within these pages?" And so I just kept reading and reading and reading.

For the fun of it, maybe I'll just list down the books I've read:
0. Introduction to Technical Analysis - Martin Pring
1. Pattern, Price & Time : Using Gann Theory in Trading Systems - James Hyerczyk
2. Gann's Master Stock Market Course - WD Gann
3. Japanese Candlestick Charting Techniques - Steve Nison
4. The Master Swing Trader - Alan Farley
5. Sniper Trading - George Angell
6. How To Make Money In Stocks - William O'Neil
7. A Beginner's Guide To Short-Term Trading - Toni Turner
8. Applying Elliott Wave Theory Profitably - Stephen Poser
9. The Profit Magic of Stock Transaction Timing - JM Hurst
10. MIDAS Method of Technical Analysis - Paul Levine
11. Long Term Secrets To Short Term Trading - Larry Williams
12. The New Techincal Trader - Tushar Chande & Stanley Kroll
13. How To Identify High Profit Elliott Wave Trades In Real Time - Myles Wilson Walker
14. Fibonacci Applications And Strategies For Traders - Robert Fisher
15. The 5-Day Momentum Method - Jeff Cooper
16. Gann's Scientific Methods Unveiled Vol.1 - Patrick Mikula
17. Gann's Scientific Methods Unveiled Vol.2 - Patrick Mikula
18. Encyclopedia Of Planetary Aspects For Short Term Trading - Patrick Mikula
19. Planetary Stock Trading - Bill Meridian
20. Planetary Harmonics Of Speculative Markets - Larry Pesavento
21. Stock Market Prediction - Donald Bradley
22. The Gann Pyramid, Square Of Nine Essentials - Daniel Ferrera
23. Four-Dimensional Stock Market Structures And Cycles - Bradley Cowan
24. Gann Made Easy - William Mclaren
25. Super Timing - Myles Wilson Walker
26. Astro Cycles, The Traders Viewpoint - Larry Pesavento
27. The Geometry Of Stock Market Profits - Michael Jenkins
28. Demark On Day Trading Options - Tom DeMark
29. Trading Chaos - Bill Williams
30. The Haller Theory Of Stock Market Trends - Gilbert Haller
31. The Best Trendline Methods Of Alan Andrews - Patrick Mikula
32. Trading The Ross Hook - Joe Ross
33. Trading By The Book - Joe Ross
34. The Hedge Fund Edge - Mark Boucher
35. Methods Of A Wall Street Master - Victor Seperandeo
36. Trader Vic - Victor Seperandeo
37. How I Trade For A Living - Gary Smith
38. Profiting In Bull And Bear Markets - George Dagnino
39. 101 Option Trading Secrets - Ken Trester
40. Rocket Science For Traders - John Ehlers
41. Bollinger On Bollinger Bands - John Bollinger
42. The Street.Com - Dave Kansas
43. How I Trade Options - Jon Najarian
44. Rule The Freakin Markets - Michael Parness
45. Real Money - James Cramer
46. The Vital Few Vs The Trivial Many - George Mueza
47. Big Trends In Trading - Price Headley
48. Getting Started In Techincal Analysis - Jack Schwager
49. Market Wizards - Jack Schwager
50. All About Technical Analysis - Constance Brown

So there, about 51 books, maybe I left out 1 or 2. These books led me on a journey of how people analysed the markets to profit from it. There's alot of things that I wouldnt use though...

US Market Thoughts 20 June 05

The NASDAQ managed to close in slight negative territory after being down as much as 11pts early on due to the high oil price. It even managed to trade into positive territory after lunch. Volume came in at 1.4billion, significantly lower than the 2billion last friday.

Last friday was a narrow down bar closing at the low with high volume. So it may seem like further distribution (started in early June) is taking place with today's action - moderate up bar closing in the middle with low volume - suggesting that buying strength is weak.

The market will be a 'buy' once it breaks 2100 on firm volume or a 'sell' once it breaks 2050 on firm volume.

A possible factor to consider is the abnormally high number of puts being bought in the LEAPS market while the normal equity puts have came down significantly. So these 2 are not telling the same story. Thus the market is still likely to resume it's uptrend should the pros decide to destroy those that are 'putting' the LEAPS... we'll wait and see...

Techincal indicators are on the high side at the moment, with the 5-day slow stochastics doing a bearish crossover and the MACD still in bearish mode (quick line below slow line). I would however, give more weight to the above 2 items.

Boring Index, Some Lively Stocks

That's the situation with the local market for the past weeks. Even with the 200pt rally of the NASDAQ that started in early May (sending the local tech counters into a frenzy), many popular stocks remained quiet and uneventful. Two stocks worth mentioning are Sembcorp and Starhub. The biggest giveaway to be in these 2 stocks were the huge buy-ups compared to the low sell-downs over the last 3 mths.

16 June 05 My Farewell Dinner

Met up with some of my ex-colleagues at Phillip Securities for dinner at a Thai joint @ Purvis Street. Those who attended were:
1) Walter
2) Desmond
3) Dharma - came bluddy late!
4) Aaron
5) Earvin
6) Joseph
7) David
8) Myself

SAME SH*T AT PHILLIP
The guys were having one of those 'talks' by Jack again, and it seems like they're starting to take notice of people playing computer games during market hours... wahahahaha. I've been told that those who are caught twice for playing computer games will be asked to leave the company. There were times that what they (Credit Admin/Biz Dev) did was simply hilarious. Can't blame those playing games actually, the singapore market's been pretty dead lately because of so much conflicting information coming over from the US side and Oil prices are starting to rally again.

But then again, there's always something to do as a broker, just depends on whether there's enough discipline or not. Being an excellent broker requires alot of effort, balancing between Client Servicing (emailing, sending reports, etc), Market Research and Personal Trading.

In my 9 months at Phillip, I have yet to see/meet a broker that can perform all three tasks. The majority belonging to either the Client Servicing or Personal Trading depts. I spent too much time on market research that my bottom line suffered tremendously and subsequently contributed to my departure.

Back to my colleagues. It seems like the 'conversion' exercise is starting to kick in once again, and this time, I wonder how many casualties there's gonna be this time round.

THE GUYS ARE MOVING ON
I was glad to know that despite the dead market (taking a toll on their brokerage), many of the guys have ventured into futures trading, namely Desmond and Dharma. Desmond's been fiddling with SiMSCI while Dharma the Taiwan Weighted Index. They were thrilled because they said that everything we learnt about Techincal Analysis could be applied to the futures market but worked like a cold-turkey in the Singapore market. I shared that the singapore market requires one to add volume & price analysis on top of the techincal indicators to be effective. But even so, I was commenting on the horrible risk-to-reward ratio of trading in the singapore market requiring me to make 2 winning trades to make up for 1 losing trade... and thus my foray into the US options market... I shared with them my views on options and the guys were pretty interested too...

End of Day Maket Thoughts 10 June 05

On the US side, it seems like the Government and the Fed are going different dir3ctions. The Bush administration gave a report expecting softer economy in the next 2 quarters but Uncle Greenspan is saying that the economy is on firm footing... inflation's under control and a whole of other stuff. So the market took that to mean that a slowdown of interest rate hikes may take awhile more... So, 2 pieces of positive news from the Fed and a negative one from the US Govt caused the market to go nowhere.

I had 'bot' 20 QQQ 38.4 (i think) July Puts on my investopedia simulator a/c on the day of Uncle Greenspan's comment based on techinical indications... the MACD was crossing over (bearish) on the daily chart while the slow stochastics was crossing over (bearish) on the weekly chart in overbought territory. The MACD on the weekly chart however, had just crossed over (bullish). So there's a likelihood that the market MAY be consolidating (or correcting slightly) in the near term and possibly heading higher in the mid term. I closed out the option position after about 2 days.... The sentiment indicators were getting more bullish, but I'm still waiting for an extreme indication before 'putting' again. So, better to take small profits in the meantime, and go with the market.

Date::Trade Type::Symbol::Quantity::Price::Fee::Total Cash Value
6/10/05 11:08 AM::Sell_To_Close Put::QQQ SL::20::$0.85::$54.99::$1,645.01
6/7/20 11:29 AM::Buy_To_Open Put::QQQ SL::20::$0.55::$54.99::$1,154.99

Oh well, since I'm babbling about interest rates, the market is now expecting the rates to slow once it hits 3.5%. The recent employment numbers slowed to a low of 78,000 suggesting that the economy is indeed slowing. Just waiting for the lagging indicators to slow and head down... even thou it looks like a good time for that to happen, it'll be better to wait for a confirmation as such trends are usually intermediate to (short) long terms affairs - giving a larger window period to buy.