Importance of Closing Prices

It's Ninja Lesson time.

I am not sure if you have heard of the quote before

"Amateurs open the market, but professionals close it".

 In short term trading, closing prices are more important than opening prices. It tells your the force behind the price movement and whether the price is weak or strong.

Who sets the opening price? Usually it will be people who have read the news (such as results or news announcement) the night before and then put in their orders early in the morning before market opens. 

Who sets the closing prices? Usually, it will be the professionals or market players who determine how and where the prices should close. They have their reasons for wanting to close the prices at a certain level and they usually come into the market nearer to its closing time. Which is why sometimes you see a spike in volume after 4pm for the Singapore market and you can even see some stocks closing 2-3 bids higher than the last traded price between 5 to 5.05pm. This is just one example.

Some examples of "professionals" who set the closing prices. 

Case study 1 - business owners who have pledged their shares for loan.

Case study 2 - Fund managers who buy the shares near the close of the market. The more obvious ones are found guilty and the more subtle ones get away. :-P

Case study 3 - Fund manager who window dress.

Examples of other types of instruments besides stocks and shares - Oil price is rigged. LIBOR is rigged. Gold price is rigged. hahaha

I have shown you all the 'negative' examples but you can probably get the idea as to why closing prices are more important than opening prices. 

On a more positive note, it can also mean that the stock is gaining a lot of attention and fund managers and retail investors alike are piling into the counter. Probably this can help explain the rise in Far East Hospitality today? :)

Happy trading.

The stars are starting to appear for some stocks..

You must be wondering why i wrote this post last evening about looking out for shooting stars and evening stars etc. This is because this is usually the first sign that the market is undecided and hints of possible corrections.

Some of them have appeared and if you are a trader, it will be good to tighten your stops when a doji or shooting star first appear. 

Just scan through the charts and i am sure you can catch some of them. I share some of them with you so that you know how to spot them yourself.

Evening star - Noble. A possible correction back to the 1.25-1.28 region

Shooting star - Olam. A possible correction back to the 1.90-2.00 region.

Evening doji star - SC Global. A possible correction back to the 1.05-1.10 region

Happy stars gazing.

Look out for the shooting stars!

There are a few phenomenons in the stock market which you may want to watch out for to determine if the bull run is coming to an end soon. It is like an early-warning system.

What are the few phenomenons i will watch out for?

1.  The pennies start to run.

Be very wary when the penny stocks suddenly come alive and hog the top 20 volume counters. These are usually stocks that have no fundamentals to begin with and are what the hokkiens will say "5 cents 10 cents" stocks. 

My definition of penny stocks are stocks that are very cheap in monetary terms but expensive in valuation terms. In other words, they may only be trading at 10 cents but the reason why they are trading at 10c is because they are usually loss making or trading at have very high PEs. These stocks will usually start to run only after the blue chips and good stocks have 'finish running' and the profits made from those stocks are now being rotated into the penny stocks.

Whenever you see many penny stocks running, it is time to take money off the table.  

2. You start to see stars!

If the stocks you are invested in start to show you stars, it will be a good idea to tighten your stops. You can check out the different types of bearish stars here. Two types of stars are presented below for your reference. 

Shooting star

Evening star

It can be a shooting star, it can be evening star and they usually appear at the end of an extended run. Be wary when the stars start to appear!

3. Taxi uncles and housewives comes to the market

The above is a generalization. I am sure there are many educated tax drivers and sophisticated housewives. (so pardon me if you belong to this category. haha).

Basically it means people who never touch the market starts to flock to the stock market thinking there is easy money to be made.  For example if someone who doesn't dabble in stock suddenly starts to tell you what stocks to buy. You know the end is near!

4. When newspapers headlines are very bullish.

Usually you will see many bullish headlines at the peak. The reverse for a stock market bottom is true too! 

Here you go. I have shared with you the various symptoms which you should look out for. You will be able to see it when it comes. 

Happy investing.

Closing off position - Sarin

Diamonds are forever but not this position of mine.

I have adopted trading strategy (3) and unloaded all my position in Sarin at 105 :)

Happy trading.

CapMallsAsia & JB Foods

A possible swing trade back to 1.70 or better with a cut loss below 1.60?

Interesting to see that JB Foods have finally turned "positive". Perhaps it is because the CEO started buying at 1m shares 29c recently. It has also recommended a 1c interim dividend. Probably can see higher prices in the coming days?

STI and Sarin

Let's do a quick update on STI.

Further to my post on 8 Sep 2012, STI has moved above 3050. I see some traders doing 'short trades', my personal opinion is to play stocks on the long side for now as STI has seemed to resume its uptrend and most stocks are trending up and taking turns to be a dog. haha.  STI should be able to break its resistance at 3090 in the coming days.

Anyway, i was lucky to bite the bullet and took a long position in Sarin on Thursday morning. Otherwise, it will be another lamenting post. One thing good about illiquid stock is it moves up and down very fast... hahaha... now that i have entered the positions and the stock has moved up quickly, there are a few ways to trade this. Choose one that meets your personality and style.

(1) Sell some at current levels and let the remaining ride the trend with a moving stop.

(2) Ride the trend but put a moving stop (meaning i will liquidate my position if the price hit the stop price). Move the stop to around 98c.

(3) Sell all at the resistance levels of between 104-108.

(4) Ride the trend till the sell signals appear.

Happy trading. Enjoy while the diamond sparkles.

Sarin and F&N

I decided to take the trade this morning before being 'consumed' by meetings the whole day... :(

Same target and cut loss price as mentioned in my posting last evening.

I am quite 'upset' with myself. If you remember my posting on 30 July, i have been monitoring F&N since then and wanted to pull the trigger last friday...sigh..too bad... good luck to readers who have the stock as the Thai Tycoon has finally show hand.. Looks like the APB sale may be derailed! :)

How come i am so busy...... :(

It has been a frustrating week as i missed out on a few trades due to a very busy week... :(

These were for counters i were seriously contemplating for a long trade but I put them off due to back-to-back meetings. Perhaps I should have just bite the bullet and trade them!

Monday - Wanted to do an arbitrage trade on F&N since the buy back is at $8.50 (this one rank second)

Tues - Wanted to buy Yanlord at 1.16 yesterday (this is the biggest regret. hahaha).

Wed - Wanted to buy UOB at 19.30 this morning. (this one is expensive...)

Urggh...maybe tomorrow the heartache will be Sarin? I have a day full of meetings tomorrow...sigh.

I quite like the set up for Sarin but the liquidity is really too low for my liking. This is a counter trend trade, thus the cut loss will be tight, below the recent low and target will be around 98-100. :)

Online "Investing" Competition?

It is interesting to note that SGX (or most other organizers) call this an "Investing" Competition. The website is here.

The more appropriate name for this competition should be the Art of Speculation where the speculator with the most profits win! If you want to learn about the art of speculating the stock market without being burnt, this is the competition for you. Unfortunately, it will not help you in your trading or investing journey. Let's take a look at the winning criteria.

In order to win this competition, the winner will likely be one who takes concentrated positions and bet 'big' in a few stocks which is more volatile (i.e. have a higher beta). Players will probably try to catch all the upswings and downswings to maximize the opportunities of winning. I will be very surprised if the winner on 30 Nov is one who 'buys now and sells on 30 Nov". The winner will likely be a speculator who don't really practise money management and bet big. In any case, i will play it this way to win since this is just virtual money. I will be interested to find out and analyse the trades of the winner at the end of the competition if it is available. :)

I would consider this game as a form of entertainment as this will not be how you will play with real money. However, it may encourage players to trade more in real life to generate commissions for sgx.

Happy Speculating :-P

 

STI - update

Lets do a quick update to my earlier posting on the STI on 28 Aug 2012.

STI is at a very interesting juncture. Yesterday's price action showed its indecision when it closed off the day with a "doji'. (Doji -means opening and closing price are very near each other in candlestick terms).

However, the most interesting part is that the trend is at a cross junction. The EMA 13 has just cut the EMA 26. I highlight the 2 points in time where the 2 cut in the last 6 months. One was the red arrow in May and the other was the green arrow in late June. For STI to overcome its 'bearish bias', it will need to move and trade above 3050 in the coming days. Otherwise, this may just be a counter-trend move with a target of 2950.

Let's see how it perform in the coming days and i will keep you posted again.

Trading for a living

As mentioned in my 2Y Real Estate Blog, i was cleaning up to find articles that can be suitable for this blog where i read about my article in 2008 on trading for a living. 

Maybe you will find the article interesting but i am not going to 'repost' the entire article here.

One reason why i segregated my blogs into various categories (Investing - Starfish SRS Fund, Trading - Ninja Master Fund, Punting - Singapore IPOs, Real Estate - 2Y Real Estate Fund) is so that beginners who are just venturing into investing and trading are aware of the differences.

Back to the topic today, is it easy to trade for a living? My frank answer is I don't know because i have never ever tried it. I don't think it will be easy if you have 6 mouths waiting for you to feed from your trading income. However, what i do know is that if i ever need to trade for a living, i think i can make it happen because i have already learnt the art of trading through all the school fees i paid to Mr. Market. There are many different types of traders, traders who scalp for a few cents, traders who trade within a day and square off all positions, traders who swing trade for days and traders who swing trade for weeks. You have to know which category of traders you belong to. I have share a lesson on time frame previously. It is sometimes difficult for me to share some of the trades because our time frames can be very different.

Let's talk about the tools or environment you need (or what i think a trader needs).

1. Money management skills 

The ability to cut loss is very important. If your hands freeze when it comes to cutting losses, trading is not for you. Please consider other asset classes or methodology. I have shared with you previously that you must know yourself! When i enter each trading position, i know exactly where my cut loss is. 

2. Volume and Volatility

Traders need to trade instruments that is liquid and possibly volatile. Without volatility, a trader is 'dead'. Imagine trading some of the stocks that i have in my SRS portfolio, i think the trader is going to be very hungry. Pick the right stocks and shares for trading. When i trade, i only pick stocks that have a healthy volume or better than usual volume.

3. Technical analysis (TA)

When you are trading, fundamentals analysis will be of a lower priority. I use FA to pick stocks to invest but i use TA to pick stocks to trade. Test out a few indicators to get a feel of how the indicators are. There are so many indicators available and being created every now and then. Just pick those TA indicators that you have a 'feel' for. For example, i used the following TA indicators when i just started: Candlesticks, MACD, Parabolic SAR, Bollinger Bands, Stochastics, RSI, Trend lines, supports and resistances, Sooner or later, you will realise that you will use the same few indicators again and again. I have since cut down my indicators to just a few of them to make trading decisions. I will not tell you which indicators i used as these are very personal to each trader. You have to discover for yourself which indicators or tools work best for you as a trader.

I have also shared my trading journey previously. You can find the link here.  Dr. Elder shared about the 3Ms in his book, trading for a living. Money Management, Mindset and Methodology. I still like this classic book best if you intend to venture into trading. You can skip the rest of his books (just like RIch Dad Poor Dad, i only find the first one inspiring. hahaha). 

Happy trading. 

Trading Seminars

Today i am going to touch on an interesting (or perhaps sensitive) topic.

Have you attended seminars on trading or investing before and proceed to sign up for the course? 

Well i had. When I just started out to learn how to invest, i attended a trading seminar on US stocks.I really can't remember the exact year or the course fees but I think i paid between US$2,400 to US$3,000. They assure you that investing (or trading) is a very simple process because they have this wonderful trading system. The system has 3 indicators, MACD, Stochastic and Moving Average. 

When you see 3 green arrows, you buy. When you see 3 red arrows you sell.

Wow such a wonderful system!?! Why would they be selling it! if they are making money from this...well, that is because there are gullible people like me who then believed that money can be made so easily.

Usually the story line goes like this....

1. There is a free 3 hours limited time and limited space seminar to share with you how to become rich and you sign up for the "free" seminar.

2.  At the seminar, a very charming and persuasive person appears. (let's use a "he" for simplicity). He will tell you his rags to riches story. Show you pictures of his nice house and flashy car. While we don't really know if the Ferrari belongs to him (or maybe it really does), the idea is this, he wants to sell you a dream. A dream where you don't have to work and can trade from anywhere in the world. You are travelling round the world living your dream.

3. He will then share with you a few secrets on how he managed to achieve this. After many trials and errors, he finally got it right. His wonderful black box trading system will show you exactly when you need to buy and when you need to sell and how he has made money from this black box. If you want to use his box, all you have to do is to sign up for his $3,888 course. But today is special because he is going to allow you to sign up at special price of $3,288. If you are a couple (husband and wife) doing this together, even better, $2,888 each. Basically, the idea is this... this is a time-pressing marketing technique for a limited period to help you make up your mind to give him the credit card details. He knows that once you walk out of the door, you won't sign for the seminar.

4. The more savy presenter will show you an 'audited trading statement' to prove to you that he is the 'real deal'. Some will ask the 'audience' to shout out their favourite stocks and he will then flash those stocks on the trading system to show you that it truly works and you imagine that you would have made a lot of money from your favorite stocks. At this stage, you will be fully convinced and will hand over your credit card details obediently. hahaha.

5. The less ethical ones will even ask you to buy monthly 'data' services through him so that it can become a recurring income for him.

Personally, i think most of them make more money from selling seminars than from trading itself. It is such a lucrative business. So be discerning if you really need to attend one. Don't be shy, go ahead and ask to verify his trading records or statements! Most of the concepts can be picked up from books be it value investing or trading methodology. In the end, i learned more from reading books and paying school fees to Mr. Market than from the course. hahaha... in any case, whether you like it or not, you are going to pay school fees to Mr. Market regardless of whether you have attended any trading or investing courses.

Many a times, you can see many 'testimonials' being flashed to show you how great the system or the seminar was. Well, it is quite easy to ask you friends to help you write one isn't it? After all, who in the right frame of mind will show bad testimonials and who can verify if those testimonials of turning $6,000 to $30,000 in 6 months is true?! If you want a "more objective" testimonials, the easier way i guess is to goggle for it. hahaha. I am sure there will be enough disgruntled people who have attended the courses.

Well, here you go. I have shared with you my experience attending such 'get rich quick' seminar. My take is this. Attend the free seminar if you must but be very discerning. Ask yourself or the presenter the following questions.

1. Do you want to learn a trader or to be an investor. (I have emphasized many times that the two concepts are very different). If you want to be an investor, attend a seminar that teaches you how to be a value investor. If you want to be a trader, attend a seminar that teach you how to trade using technical indicators and charts.

2. Avoid those that try to sell you a system. Go for genuine investors or traders who try to teach you how to fish rather than showing you the fish. 

3. Ask to see the actual trading results or statements. If they can stand up to scrutiny, probably you can learn from the person. But do realize this, investing or trading is a very personal journey. There is no one size fits all. What he has or uses may be suitable for him but not for you yet because you have yet to reach his level. 

4. Don't pay too much for such seminars. Many are in this 'teaching' profession and it is a lucrative business. You are just enriching them and the $3,888 you paid can actually pay you dividends for the next 30 years if you invest in the right company.

5. Find out what is being taught at the course.  In addition investing or trading techniques, it is important they impart money management skills. 

Anyway, these are my biased views on seminars and i may be wrong. The trouble with most people is that they don't bother to read or they want someone to explain to them. There are many good blogs or articles or books out there. Go read a book today. I have only 2 takeaways for you.

1. Read and understand. 
2. Pay Mr. Market some fees and be enlightened.

Happy trading and investing.