Thursday, January 10, 2008

Market cried wolf

Yesterday afternoon the spectacular rebound drew in loads of investors thinking a rebound is happening right before their eyes. Dow Jones close overnight with decent gains. However once again there was no follow through. I too was tempted to load up some stocks before closing. However I hold my horses prefering to wait to either short at strategic position in HSI or STI or go long when i detect strong buying interest. Should DJ rebound to my trendline resistance, i will attempt a small short. If proven right, show hand and double up. If i'm wrong, I gladly take my loss.. if i'm right that the market is going down until CNY, then tua tua huat liao. :P

Cheer up folks! Although I may not know you personally, but i believe we share a certain degree of affinity since you stumbled to my block. Let me guess, if you are a newbie, you should be stuck in some positions. Nothing to be ashame of, most of us start with losing. Trading is a game where failure is accepted! : ) It all depends on how u make use of the losses.

A good friend of mine called me up recently, we spoke and i came to know he is stuck in a position. I could really see a reflection of my younger self trading.

a) When market is rallying to new high, he was outside the market. When market falls, he naturally thinks it is cheaper now and that he should buy. He failed to understand what causes the market to retreat. There are 2 types, normal healthy retracement versus correction. Along the years, shallow pull backs and fast recovery has caused many to be complacent...especially enticing newbies, thinking it is easy money.

b) He feels that stock is cheap as compare to before the retracement now so can try. To trade or invest, one must have a working strategy be it FA or TA. By guessing, it is no different compared to a trip to Genting Casino. Trading should be treated like a business where one need to assess the risk and reward before putting on a position. There are proper techniques to identify trades.

c) Stock decline, because it is a fundamentally strong stock so it is not so bad to be holding. At this stage, i call it forced investor. My question is, what if we are really heading into a recession? credit crunch? high oil price... or worse, we goes into bearish mode? Should we hold fot 2 years? Or worse, the industry cycle is over and we have to wait for 10 yrs before we see that stock regain glory?

The above are exactly what I was doing previously! keke Everyone has to go through this stage of self discovery and losing. Everyone will pay his/her tuition fees to Market.... the challenge is, make yours an affordable one! Recently I finished reading Alexander Elder's second book, "Come to my trading rule". A number of key points:

a) winners focus on discipline and money management, amateurs always look for new indicators and methods.

b) beginners should target not to lose more than 10% of total equity in first year. Semi-pro will aim to make up to 20% consistently. Professionals will make up to 100% on some good runs.

c) Ask yourself this question.... when we first step into the world of trading, what do you think of first? The honest answer is to make money. Learning is secondary. This is wrong. We should have approached the market in the mentality to learn first and then make money. Didn't the high paying doctor or lawyer learn first as apprentice before they can perform their duty or fight in courtrooms? In trading, we did the opposite!! No wonder most of us loss money.

At my seminar last saturday, a woman participant told me a very shocking matter. She is full margin currently!!! That is scary! She doesn't understand risk... this stage of the market, no sensible risk management rule will say to go full margin. After I showed the many descending triangles around... I think i scared her.... nevertheless, i hope luck is with us and market to rebound from here. Notice the word is hope. We all know hope seldom works in the market.

Why is Capland so bearish?

The star of the week... jiu tian... holland loh.. 200EMA couldn't hold and bears will have their fun here... Celestial also the other with funds selling out. QDII? sold to QDII? Both were said to be good considerations as they are fundamentallicious. QDII fund has cried wolve for 3 times liao... I think look at charts better. So long down trend, either stand aside or short. Only buy when see uptrend... won't go too long.

Rotary: Very interesting development. 200EMA stood like a rock...toin toin toin!

YZJ: another QDII fund hot favourite....also recently added to the new FTSE STI... other than the lower high which I no like, the bullish divergence is something to cheer abt. As we near the apex of this triangle.. look out for actions...if support doesn't hold... yzj will become titanic.

DISCLAIMER: This is not an inducement to buy or sell. You should do your own analysis on top of my postings.