Ninja Trading Strategy

This is the last part of my strategy series where i will talk about my "Ninja Master Fund". The trading strategy is here. After this I can just concentrate on other things.

Why the fascination with Ninja?

You must be wondering why i named it ninja. That is because of a few reasons:

• Candlesticks is part of my toolkit and that originates from rice traders in Japan (not to mention i love travelling in Japan).
• Ninjas are like assassins. You kill silently and this is how you should behave in the stock market. Ins and Outs with precision and quietly.
• Ninjas are ruthless... in that i mean ruthless in cutting losses when i am wrong.
• Ninjas are flexible... can long and short any positions and play any instruments.
• Ninjas are mysterious... you hide behind a veil. :-P

Anyway, I now managed my own trading account. I used to manage money for other people but i have stopped doing that because i just don't have the time to do it anymore. So instead of looking after other people's money, i decided that 'reporting' to myself is easier and stress free since i hate losing money for friends....

Trading Capital

In trading, you need a decent capital size. Otherwise, it is pretty difficult for proper money management and to take a decent position. Let me use a "story to illustrate" why trading is like a business.

Mr. IPO has finally decided to become an entrepreneur... You must be wondering what business he has gone into and whether he is having mid-life crisis.

What is the business model? Let me give you some clues. 

Business model

It is actually quite a simple business. Mr. IPO has decided to be more adventurous and started an "import and export" trading company. Import things which people wants from all around the world (stock exchanges) and then sell them for a profit (trading profits). 

Inventory (aka stocks)

In this business, you need to stock up on goods. The inventory to stock up depends on what people wants to buy. On some days, they may want to buy an Apple iPod and on other days, they are interested to buy an OSIM massage chair. You can also use Alibaba to source for the products but you can even use PayPal to pay for your inventory. You use DHL to deliver the goods and the inventory will be kept in a warehouse managed by Global Logistics. Sometimes I may also stock up on brent and in other times, I may hoard gold.

Some inventory can be sold within days (swing trade) and some takes a much longer time to sell (trend trading). Sometimes you can sell the inventory without owning them too! (CFDs and Futures)

Banking facility (aka leverage)

In any business, you will need to have a liquidity facility. When the demand is strong, you may want to import more goods using leverage. You can also pay them in SGD or USD depending on how you foresee the forex movements. Euros is currently a dirty word. (I haven't trade in forex yet...but the leverage is very attractive... but imagine you short CHF and go bust....over leverage can kill you too...)

Minimizing the cost of doing business 

If you intend to trade for a living, you must find the cheapest cost of doing business. I think i have one of the lowest costs around. I used to aspire to be a broker/dealer one day but i think the margins are just too low, so i have since given up that "aspiration."

Below are some of the rates which i get.... 

Solid Platform

I need a solid platform that can place in complicated orders like OCO, Buy Stop, etc... so if you are contemplating full time trading, you will need a good trading system as well but if you are an investor... then this is not as critical.

Ninja Master Fund

Ninja Master Fund has a capital of $250,000....but because i have no time to trade and monitor the market, I actually set a very low return target of around 10% to 25% for the entire year. Let's see if i can achieve it by end of this year.... so far it's off to a slow start... trading in Apple, Simsci and CWT... 

Happy trading :)

Watch out for the hammers

Not sure if you remember my post on "the stars are starting to appear..."back on 18 Sep.

Today I write the other version of it. Watch out for the hammers and this will be how i can potentially trade it.

Hammer

As in a shooting star, the hammer in the candlestick is the other opposite version of a reversal signal at the end of the "correction". The aggressive trader will buy near the close of 1.07 yesterday and put a stop loss at 1.02. The less aggressive trader can buy this morning and use the same stop. The first target will be around 112-114, the second target will be around 116-120 and the more aggressive target will be around 122-124. Since the price has already moved up, i will also move the stop to around 106 to ride the stock.

Shooting stars again?

GLP and Osim showed shooting stars today and i will usually tighten my stops if i am trading the position.

Happy trading.

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.

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. 

STI update

The market seemed to have come to a standstill and is in a 'neither here nor there' stance. The market seemed like it doesn't want to run up but at the same time it doesn't smell bearish either.

I am taking a view that the market is poised for a correction but trading sideways for now waiting for news. This is consistent with my earlier view. 

I am not taking any short term positions until the signs are clearer. The beauty of a small time player like me is that i decide when to play the market. Unlike a unit trust manager who has to long the market all the time, the small trader has the luxury to choose the timing as he or she can enter or exit the market pretty quickly.

Imagine the difference between managing a $100m portfolio versus a $1m portfolio. The one with the larger portfolio will not be as nimble and will probably has to take a long term view and position whereas the one with the smaller portfolio will be able to react quicker and faster. 

No position is a position

For a discretionary trader like myself who trades only when my work schedule permits, deciding when to trade is a right which i enjoy. I decide when to play the market at my terms, hence if i am unsure, i will just stay out of the market and watch from the sidelines. I don't have to trade everyday since i have a full time job. Unlike someone who is a full time trader, he or she may not enjoy such luxury but the good thing is he can watch the market all day long. haha. Anyway, always remember that no position is a position. :)  

In this instance, i will stay on the sidelines as my view of STI remained the same. It will trade sideways with downward bias.

Happy Trading.

China Minzhong - The analysts don't get it?

Let's talk about an interesting topic today. Analysts reports.

I share with you a real time classic case where reports by analysts may cause you more confusion than help!?. :)

China Minzhong released its 4th quarter results yesterday. Frankly I don't know how to play this stock. It can make you very rich but it can also make you very poor, depending on how you have traded it. It is pretty volatile vis-a-vis the market. If you don't have a strong heart, i suggest you watch from the sidelines. hahaha The weekly chart below for your reference.

Lets just read the different headlines of the analysts reports issued on this company this 2 days and you can get pretty confused.

Macquarie dated 27 Aug 2012

Macquarie continues to give an outperform rating and a $1.40 target price.

Maybank-KimEng 28 Aug 12

Kim Eng went one step further. Not only did it maintain its buy rating and its target price of $1.16, it also had a sexy header on its report suggesting a possible dividend payout since IPO.

Then someone more neutral decided to come into the picture.

CIMB 28 Aug 2012

CIMB downgraded the stock to Neutral and lower its target price to S$0.78.

I always have a hard time trying to understand exactly what "neutral" means in most reports. Does "neutral means sell?" or "does neutral means I don't know?" or "does it mean invest at your own risk?". Neutral is like sitting on a fence, refusing to take a position or stand....

and finally lagi best, we have one report at the other end of the spectrum, an "underweight" rating. Probably underweight means saying sell in a nice way.

JPM 27 Aug 12

JPM says underweight with a price target of $0.70. JPM says a re-rating in future will come via a meaningful dividend.

In case you don't know what China Minzhong do, it is a vegetable grower and the various vegetables are presented below for your consumption.(source from JPM report).

Well here you go. One company, 3 differing analysts' views. Read what you want to read and believe who you want to believe. Isn't this a beauty?!

Most importantly, i give you my view so that you have another view to choose from.

My View

If you have been following my blog, you already know my biased views with regards to companies from certain countries and certain industries such as agricultural and biological assets. sorry to disappoint you ah...my views remain consistent. hahaha

Lesson time - Analysts reports

Anyway, back to my lesson today - analyst reports.

It is good to read the analyst reports for a overview of what the company is doing but do read it with a huge pinch of salt for the following reasons.

Lesson 1 - Companies only invite analysts for site visits because they want them to issue a buy report. 

If you are the management, would you invite analysts to your company if you don't have a good story to share? By the same token, the management will only show the analysts what they want them to write about.

Lesson 2 - Some brokerage firms may have other business dealings with the company and the report is just one of the many dealings. 

It is not unheard of where the 'conclusion' is already given to the analysts by their bosses and analysts have to write the reports without compromising their integrity. Business dealings include corporate finance, share placements, etc. The better governed brokerage firms will usually declare their interest in the reports issued to address any perceived conflict of interest.

Lesson 3. Treat the target price and ratings for guidance only. 

If you are in the investment line, you probably know how financial modelling works. If you don't, here is the key word in financial modelling. Garbage in garbage out. In other words, the model is only as good as your assumptions. If the analyst made some wrong assumptions, then the forecast will be hay wire and you know what assume means right? Assume makes an ass out of you and me. Hence i guess the lesson here will be to follow the right analyst (for example the award winning starmine analysts?) instead. The most important attribute any analyst must have is consistency. As long as the analyst is consistently right or consistently wrong, they are good analysts. hahaha... you don't want to follow an analyst who is right some times and wrong some times, that makes it very difficult for us to profit from their calls.

Lesson 4. Valuation methodologies are subject to changes.

The best part to analysts issuing a target price is that there are many different valuation methodologies to choose from. You can use the Price Earning Ratio, you can use Discounted Cash Flow, you can use Price to Book or when you run out of ideas, use Sum-of-the-parts! In most cases, you can probably start with the target price you want to see and then works backwards to see which methodology meets your needs. hahaha..As such, treat all target prices (including those in my blogs) for reference only. If i am really so good, probably i won't be blogging?! :-P

Lesson 5.  How i use analyst reports

Don't get me wrong and think that analysts reports are useless. They are useful and there are probably some very good analysts out there but the key is to find out for yourself, who the better analysts are.

I primarily use analysts reports to generate investing and trading ideas. The reports help me know the companies better and whether i feel that the reports had been  written in an objective manner.

I also use analysts reports to determine if i should get into certain trading positions. I prefer to long stocks with favorable analysts recommendations primarily because they will re-issue the report every now and then and that will help create momentum and liquidity to the stocks i am trading.  Similarly, it is easier to short a stock that has sell recommendations from analysts.

For long term investing positions (such as those in my SRS account), i will usually read the reports just to keep myself updated on how the company is performing and watch out for any red flags raised. It is good if they agree with my analysis but if they don't it is fine with me as well. As you can see I bought starhub a few years back when most analysts had a sell call on it. Right now they are issuing 'sell calls' again but i am continuing to hold on to it.

That is it for today. 

Happy analyzing and if you like this posting, you follow me either on facebook or twitter.