Wednesday, May 16, 2007

Managing your risk

The game show, "Deal or no Deal" is a perfect showcase of human psychology when we come to risk management! It can be applied to trading. They increase their risk inorder to maximise the prize money, just like traders when we hope that our counters will run higher and higher! The key word here is hope! A no no in trading. If we succeed, it's not because we are good. It is because we are lucky. Thus this how many mistook luck for skill. And when the market tanks, it's no surprise we will moan in pain. We want consistency delivered out of a sound trading system and not luck.

Another common mistake many made is, they went there empty handed and thus they can afford to take higher risk. This is not true, they have "sure money" offered to them to leave the game. Again, this is familiar to traders, how many times have we experienced a profitable position turned into losses? Profits on the table is yours! Take it!

What i have learnt over the years is to manage my risk. One of the many methods is to take your profits on the way up. Hence during my absence from blogging, I have been consolidating my positions. Especially when HSI was breaking 21k, I had to focus on the market and that leaves little time to update the blog. I made 2 trades around this psychological level and came out tops.

Trading the US market also took up alot of my time. However I am very happy. Happy because I am getting the consistency in options trading. While DJ was breaking all time highs, both my put and call options are making money. I started out trading options strategies but that doesn't work for me. I soon ditched all the strategies and began what they call, directional trades. Maybe because of my familiarity with technical analysis, most of my directional plays are right than wrong. This reminded me of what I have read from the books, everyone will find their own way of trading the market. For me directional play definitely works better. I feel so much more at ease than planning options strategies.

When the market is making new highs, breaking records and my stocks are not moving up but down, I know i am too early in the stocks. When market pulls back or face a corrections, my past experience told me, THEY WILL FALL DEEPER! Hence I never like to see my stocks not moving up when the rest of the market are.

Sold Adv Hldgs @ 0.06; bought at 0.07
Sold Skypetrol @ 0.420; bought at 0.470
Sold Wilmar warrants @ 0.110; bought at 0.150 <<< Complacent! this warrant gave me a 19% ROI when wilmar rallied to 3.20, wilmar turned together with market and i was caught. As time decay will kick in and that wilmar could be building base, my warrants will lose more value.
loaded second batches,
CSC @ 0.320
Yongnam @ 0.445

Now the good news,
Bought LottsVision @ 0.530 today! 4 red 1 green last night hor!!!!!!

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Noble Grp

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