Good Investing Lessons

After many years of struggling, in the end, I realise that identifying trends is still the most important skill in chart reading. Various indicators are mostly trying to catch small turns in the price directions. Since charts are based on historical data, the information we can get from the charts are mostly lagging. Using charts to catch immediate changes in price direction is quite difficult. However, for long term trading or investing, I think charts are more useful in telling us the future movement in prices. Certainly, for longer term investing, the market fundamental is still the major deciding force. Reading the chart helps us know where we are relative to the overall position. That in turn gives indication of when to buy and sell. Many gurus advised us not to time the market. Certainly, that is fine if we consider 25 years ago when we have time and if we could set aside say $100K or more and we invest based on pure fundamentals, we would probably be sitting on $millions. That...

Here is my plan for Trading in 2010: Q1 2010 Research Work: Jan-2010: Identify Counters that can be used for short-mid term trading using RSMA method. Doing Back Testing to list out counters that works for last 3-5 years. Identify "new counters" that potentially can use RSMA short term trading method. Live Trading: Using the results obtained and testing the trading using Money Management Method. Trading sizing: Risk per trade: Total Risk: Trading Log: Standard Log To be Kept with Excel Spreadsheet.

I started investing in stock market about 20 years ago. Initially subscribing to IPOs. I had not have luck with IPOs. All of them ended with money losing deal, even though I held on to them for a few years. So, I concluded that the IPOs in Singapore market is over priced. Then I started to read analyst reports on stocks and invest in companies (typically blue chips). Not much profit but good dividends during the good years. Then, came the financial crises. I went on to buy blue chip companies during crises and I held them over the years and sold of a about 120% gain over 5 years on average. Due to some distraction, I stayed away from the market during this crisis and missed the opportunity to buy during the lows. Recently (few months ago), I had been doing some stock trading and currency trading using technical analysis method for more than a year. So far, I had tried many different technical analysis using different indicators (Moving averages, MACD, RMO, Fibonacci, Stochastics, RSI e...

Trading Rules Using Combinations of RSMA, Stochastics, RMO, MACD Mid Term Trend Following Entry Strategy 1 RSMA Buy Signal - enter on next day or day after (latest), skip if missed 2 Stochastic at Oversold and turning up crossing 25 3 MACD has gone down into negative territory 4 If N (Turtle True Range) exits 10% of closing price, do not Entry Exit Strategy 1 Stop Loss at 1.5~2.5 ATR or N (Turtle True Range) below entry and less than 10% 2 First Stop Loss point stay for at least 4 weeks before adjusting 3 Adjust Stop Loss point upon next RSMA Buy Signal (if trade is correct) Trade Sizing 1 Maximum Risk per Trade = $900 2 Maximum Total Risk = $9,000

Risk Measurement (N) The trade size is determined by measuring the volatility using the Average True Range (N). Where N is the largest absolute value among the following: The distance from today’s high to today’s low The distance from yesterday’s close to today’s high The distance from yesterday’s close to today’s low Using Simple Moving Average of 15 sessions (SMA15) to determine the value. Setting Stops There are 2 ways in which we can set stops. One is to use 2N as guide to set stops. That means, for a stock where price is $8 and if N = $0.50, then, the stop will be $1.00 below the entry point. This is quite a large percentage of the entry price which will potentially resulting in large draw down. That may cause some sleeps. The second method is to use arbitrary support level and place 2 bits below the support. This method may result in too small stop and frequent stop out or the support may be too low that it may cause too much risk. I have come up with another method where you use...

It was better to risk taking many small losses than to risk missing one large profit. In order for this to work, you must have a trading edge. Without which, you are taking unnecessary risk. Trading is like gambling. You want to know your edge first. You need to calculate your edge for every trading decision you make, because you can’t make “bets” if you don’t know your edge. It’s not about the frequency of how correct you are; it’s about the magnitude of how correct you are. For winning edge to happen, the expectancy of the trades must be positive: E = (PW x AW) - (PL x AL) Where: E = Expectation or Edge PW = Winning Percent AW = Average Winner PL = Losing Percent AL = Average Loser

In order to get positive return in the long run, we need to have positive expectancy in our trading system. In trading, the best edges come from the market behaviors caused by cognitive biases. To find an edge, you need to locate entry points where there is a greater than normal probability that the market will move in a particular direction within your desired time frame. You then pair those entries with an exit strategy designed to profit from the type of moves for which the entry is designed. Simply put, to maximize your edge, entry strategies should be paired with exit strategies. To understand why this is important, let’s dig further into the components that make up the edge for a system. System edges come from three components: Portfolio selection : The algorithms that select which markets are valid for trading on any specific day Entry signals : The algorithms that determine when to buy or sell to enter a trade Exit signals : The algorithms that determine when to buy or sell to ...

One of the key factor in successful trade is the set the stop loss at the right place. Selling off too early is often the cause of my losing trade and at the end I sit and wait to see the stock move up much higher that it was and could has resulted in reasonable profit. I sold off Ascendas India Trust at 0.68. I was getting impatient over this counter. Within the next 3 trading sessions, it went up to 0.71. Healthway was sold at 0.10 and it closed at 0.105 on 17th July. Parkway was sold off at 1.69 on 17th July during intra-day and it turn out that it was closed at 1.71. Now the counter looks a little bullish. Again, the same mistake as the above 2 counters. Looking back at my records, I could have made a lot more money if not for selling off too early. I was able to pick the right stock but often too early in the stage. But if I has set my stop loss a little lower, those trades would not have been prematurely sold off. Another issue is the trading horizon. I seems to be very impatient...