Good Investing Lessons

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

I was watching the interview with Georege Soros by Google CEO and this sentence from George Soros and I was captured by this sentence. I think what he wanted to say was people don't make decision using information alone. When they make decisions, a lot of other things come in to interfere with the decision making. These things include emotions like fear, greed etc. Apart from that, people's anchoring causes them to be bias towards certain choices. In trading, it is very important to make sure we make decisions based on facts instead of emotions or intuitions. It is important that we do not let our emotions blind us the facts in front of us.

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

"You shouldn’t care about how you got to the current state but rather about what you should do now. A trader who trades differentially because of swings in confidence is focusing on his or her own past rather than on current realities." - Bill Eckhardt. Key trading rule: Forget how you got here! Do not let your emotion affect you. If you keep thinking about how you got to your current state, your emotion will affect your decision making. For example, if you are sitting on the paper gain of 10%, you emotion may want to urge you to take profit even though the current market trend is still at your advantage. On the other hand, if you are sitting on a paper loss of 10%, your internal urge is to ask yourself to hold on to it hoping that it will turn around even when the trend clearly tells you that it will continue. Eckhardt clarified, “What this means is that once an initiation is made, it should not matter at all to subsequent decisions what the initiation price was.” It is impo...