the-ten-crash-commandments/

http://www.thereformedbroker.com/2011/09/22/the-ten-crash-commandments/

1. Acknowledge that its a crash. Once we're past down 10% in the Dow Jones Industrial Average from wherever the peak was (yes, the Dow is a way better crash gauge than the S&P 500), you can stop saying correction and start saying crash. Better to be wrong in hindsight on the nomenclature.

2. Pencils Down! Whatever trendlines or individual stock research you were working on needs to be shelved for the moment. Your drawings and calculations will not work here. If you happen to buy a stock and it rips higher, it will not be because of your research, it will be because the market went up. Correlations always get jiggy in crashes, stocks become commoditized like bushels of wheat that must be liquidated regardless of the underlying businesses.

3. Don't listen to "stockpickers" or sell-side equity analysts. They are only looking out from within their own little bubble and they cannot comprehend the other little bubbles around them let alone the whole bathtub. Anyone covering specific stocks needs to know when the macro gyrations trump whatever earnings they've estimated or the conference calls they've listened to. There'll be a time to "know your stocks" but this ain't it.

4. Ignore the asset-gatherers and the brokerage firm strategists, their job is to calm markets and soothe investors. Let's say Morgan Stanley runs $1 trillion in stock market wealth for investors. And then let's say they felt there was serious trouble ahead. Do you really think they would ever make the sell call? Can Morgan Stanley really say "Sell 20% of your equities"? No. Because that would be $200 billion in supply hitting the stock market at once - they would crash it all by themselves! Too Big To Keep It Real has always been the problem with the wirehouse advice model.

5. Make sacrifices by reducing stock exposure by beta and volatility. This is my iron-clad rule. The moment you recognize the crash, kick the small caps, biotechs, emerging markets etc. You must separate your feelings for a particular asset class, sector or individual stock and recognize that the higher the volatility, the worse they're gonna act in the short-term. I have a prenuptial agreement with every position I put on and we get divorced cleanly in a crash situation if need be.

5a. Also, margin balances must get cleaned up immediately, take the losses, I don't care. Because broker-dealers and clearing firms can and will raise equity requirements right at the moment of maximum pain and force you to sell out later - and lower. I could tell you war stories you would not believe, kids.

6. Make two lists. The first list everyone knows about and talks about - the "if they get cheap enough I'll buy it at that price" shopping list. Fine, but don't forget the "things I will sell on the next bounce list". Even the worst markets have short-term bounces in the midst of the chaos, use these bounces to get rid of the things that make you ill on the red days, even if you're taking a loss. The stocks you bought on a flyer one day or the companies that have been disappointing or where the story has changed - sell 'em on the rips.

7. Watch sentiment more closely than technicals or fundamentals. Pay attention to the squishier things in a crash moreso than you would normally. Are people screaming in pain? Or are they still looking for a bottom? Or have they given up entirely? There is no math to this, a lot of it is "feel".

8. Abandon any hope or intention of catching the bottom. You won't and it is unnecessary. No one will carry you out on their shoulders if you manage to do it but you will definitely get carried out on a stretcher if you get it really wrong with your own capital. Keep in mind that time becomes more important than price...not where will it end but when?

9. Suspend disbelief. "Bank of America could NEVER be a $5 stock!" "How could Bear Stearns possibly go out of business, its a hundred-year-old firm!" "No way this stock should trade at 5 times earnings, it's a Dow component!" "How could the market go down 5% four days in a row?" Guys, anything can happen in a crash, there are machines making the trades and they have no respect for the prestige or standing of a particular company. This is both gut-wrenching to behold and great for the level-headed who eventually got to buy Wells Fargo in the teens or Apple in the$100s once the bottom was in.

10. Stop being a know-it-all and shut up. If you are telling people a price or a support line where the selling will end, you are only kidding yourself. Have a guess based on your discipline and research, but don't act like you're talking facts. Fair Value is fine, but call it a guideline. Support is also fine, but call it a historical estimate of where buyers have come in before. The deal with crashes is that extremes are the norm, not the exception. Things tend to overshoot through reversion to the mean trendlines or fair value estimates on their way back to stasis.

Anyway, I've been through a lot of these, and I promise you I'll find myself standing tall on the other side of this one. Following these rules will give you a shot at doing the same.

50EMA weekly

HR GLASS

SUPER GRP

STARHUB

BIOSENSORS

BREADTALK

F&N

Rattling

Wow, January till now, I wonder who still reading my blog.

Market never change, collectively it is a rational mind deciding what is the best price reflecting the value of companies. Yet efficient market hypothesis is one of the worst strategy to employ, and people use technical analysis, fundamental analysis and even news flow to extract monies. Fools gains to say the least.

Technical analysis, a simple statistics game where either win rate or win-dollar have to be high enough to beat the game. But they forgot the human nature, the human personalities which is in its pure sense inconsistent in emotions and "rational mind". One inconsistence will just mess-up

Chapter 2 Expectancy

As the previous chapter mentioned, expectancy is the 2nd most important component of a trading plan. And due to easier illustration, it will be placed ahead of psychology

Expectancy seems like a big word to a new investors or traders. However, it is not, put it in very simple term, to let the winners run and cut the losers short.

blogs been dead.. haha.. prove i can't write

For many technical traders, finding the right technical setups (cross moving averages, technical shape) seem to be the most important component in a decision to put in a trade. But what is least emphasize has been another technical term: expectancy ratio.

It seems like a big word, but basically in layman term: let your winners run and cut your losses short.

Taking a very simple example of 10 trades, with a high 7 wins, 3losses and average dollars per trade as below, a trader lose -$200

Trades	Win%	Lose%	Win$/trade	Loss$/trade	Overall
10	7	3	$100	$300	-$200

Reversing all the variables now, we can see from the table below, the trader with a small win-rate is still able to achieve $200 gain.

Trades	Win%	Lose%	Win$/trade	Loss$/trade	Overall
10	3	7	$300	$100	+$200

Multiple above statistics a few hundreds to thousands trades, you will be able to see how important loss$/trade affect the performance of a portfolio.

Chapter 1

Some changes from original idea but big picture still stay:

There is no serious lack of trading books in the library, why should I bother myself with writing one more. For 1 reason, I am free. For 2nd reason, there are components within a trading plan that are not widely explored in the trading books arena. Besides Brett Steenbarger trading psychology books that are selling at 100+bucks, simple books on mindset and psychology are seriously lacked.

Mostly on the book shelves, you will be able to find "how to make money in the market", there is absolutely nothing wrong with it and most of them do work, but trading strategies are just one part of a big picture. Do you hear of "how do you consistently take money from market?" and" Why do most and i means 99% contra players lose money?" "How do you outperform the index?" Therefore this book seek to fill up the area that is lacking in other books and I hoped in a very simple way.

First of all, as I mentioned, component of a trading plan, what are them? And for simple explanation, I will treat investing as trading with more than six months horizon, so basically long term trading. I would classify the components of a trading plan into 4: strategy, psychology, expectancy and money management.

1. Strategy - there is no lack of books on this, stochastic, RSI, etc, etc

2. Psychology - it is to be the most important component, what is your mindset in the market? To make money for retirement? to pay off debts? for entertainment?

3. Expectancy - among the 4 components I believe to be 2nd most important because ensure consistence in profits.

4. Money management - Given 1mio in cash, how do you allocate to make sure diversification can outperform the market? If allocation below 1mio, how do you compensate for the lack by outperforming? Does leverage helps?

So I will show you in the following chapters how do you discover the components for yourselves. Because as individuals, we have different personalities that will fit in the market and trade optimally within. Optimal in this context means being able to have emotions stability (cool like), personality fit in the market (doesn't feel irritated) and profits.

And I hope I will be able to focus more on psychology and expectancy.

Stages of a trader

Just like in primary school, we learn about counting numbers, then addition, subtraction, multiplication, etc, then sec to differentiation, integration blah blah. Therefore to jump start your trading journey by getting ahead of your learning curve will not help you, rather more harmful. By learning how to multiple without understanding the concept of addition will result confusion later on. Similarly, by learning strategies and not testing them will in most cases, cause losses.

So in following I seek to identify which stages you should be in and what should you do in each stages to minimize the errors (not eliminate errors) you will encounter. Many people have make and loss money and they have gone ahead to give you lessons, so that you do not waste your time and money repeating the same. From some books I read, experts says the time taken to become professional is 10,000hrs of practice. Well in our modern days, there are ways to optimize to reduce it

1. noob (lack of terminology)

You do not know anything about stock market, but you want to make a lot of moneyas you heard story of traders making millions and you aspire to be one of them. In reality, ask yourself seriously, do you think by the abilities you have, are you able to beat the smartest people in the world in this "so-called" zero sum game.

"For more than two decades, Simons' Renaissance Technologies' hedge funds, which trade in markets around the world, have employed mathematical models to analyze and execute trades, many automated. Renaissance uses computer-based models to predict price changes in easily-traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions."

Yes of course, I am playing down your ego which help you save some money at the beginning. For a start, learn all the basics, timing of markets, what bids/asks, limit orders/market orders? what is a technical analysis, fundamental analysis, quantifiable analysis? what are the terms normally used? MA, PE, RSI, Stocastic, BB, PS, what are they? Learn the ABCs before you step out into battle ground. Learn the basic definitions, the strategies can wait later.

If you are still in the noobs state, certain parts of the books are still not for you yet. Read up or search the web, then the terminology will sound more right.

2. Amateur (searching and seeking)

You have read up financial statements and think that every (if not certain) companies can buy. Or you have read forums and people have been recommending certain stocks and had gone up. You look at the market and realise there is certain ways you can make money from it. You are either confident to make a plunge or still too careful in committing (different personalities which I will explore in future chapters)

You will seek trading gurus in whatever they claim to be, attending whatever seminars you can get your hands and search for a holy grail that you can make money from the market. You look at charts and use technical tools taught to you. Sometimes you make money, sometimes you don't. Overtime you forgot what you had been taught and seek the next best tools or systems. On the whole, either you lose money gradually or for some exponentially.

At this stage, which I feel a lot of people will be spending most time. And to be put it even worse, to be perpetual in this state as they get excited from one knowledge to another and want to test the market with it. But the best way to move on is to get to the discovery state.

3. Discoverer (Discovery state)

As the name suggests, this state is very important as you discover who you are in the market. If you did not give up from your losses from the amateur state, congratulation.

From now, you should discover that trading/investing is a game of probabilities. Taking full responsibilities of every trades you put in, accepting the rules of the game. Accept losses and commissions knowing is natural course of the business. You blame no one, even yourself, why? Because you should be finding out your personalities, and where and which time frame in the market and that is the reason why this book is written in this sequence to help you discover yourself and find the timeframe and the style of trading that suit you.

Book Writing

I am getting very free recently, been thinking what to do with my free time. Well, the idea of writing a trading book came out. But of course with my wonderful grammar and incredible volcab, i will probably need a copy writer to put down my idea. I don't mind writing here, since I got 2 readers every week, haha...

Most trading book on the shelves of sg today are strategy, buy and sell calls. We have serious lack of psychology, sentiments, expectancy, money management. I always considered expectancy to be the most important in trading or investing.

Chapter 1

What is most important - expectancy

Trading plan - money management, expectancy, strategies

brief outline of above 3

Stages of a trader

- noob (lack of terminology)

- searching of holy grail (reading)

- transition state (give up or arrogant)

- finding your own style (zen like)

Chapter 2

Expectancy

2 ways to make money in mkt consistently

- either win more than lose

- every time u win is more than u lose

Chapter 3

Timeframe

- Intraday trader/swing trader/positions trader

- Mix up of timeframe vs personalities

Chapter 4

Find your personalities, then find your timeframe, now find your strategies fitting that timeframe

1. Shortterm stratgies - high probabilities trade

2. Swing strategies - half:half probabilities, win dollars must be more

3. Longterm - half:half probabilities, win dollars must be more

Chapter 5

Market first, sector 2nd, stocks 3rd for all 3 timeframe

Chapter 6 - Shortterm strategies

- lots size, limit order or market order

- trendday or consolidation

- extreme oversold/bought

Chapter 7 - Swing strategies

- lots size

- pullback/breakout

Chapter 8 - Positions trade

- money management

- Bull or bear market: economy swing

- sentiments swing

- Growth stock or Dividend yields

Chapter 9

Warning against mixing your timeframe with your strategies

Chapter 10

Beating the market, what should i name this book?

Failure swings - RSI

Wilder also talked about failure swings. Failure swings can be used as strong indicators of an impending reversal. Failure swings are not affected by price action. Failure swings are only concerned with the RSI for the signals, and you ignore any divergences between the RSI level and the security's price level. These failure swings are found at the overbought and oversold levels.

As an example, let's assume that the RSI reaches 77. This is clearly overbought territory. Now, in the next move the RSI pulls back to 71. This pull-back does not cross below the 70 or overbought level.

The next move finds the RSI going back up to 79. If the next move down the RSI makes does not cross 70, this is what Wilder called a failure swing above 70. Wilder said that failure swings above 70 or below 30 are strong indications of a market reversal. RSI levels can also help identify trends.

Others have taken Wilder's work and expanded on it. Andrew Cardwell has developed new interpretations of the RSI in order to determine and confirm an existing trend. Cardwell noticed that an up trend can generally be seen in the 40 and 80 level. A down trend occurred between the 60 and 20 level.

Calendar Timing

But there are all sorts of market timing techniques. Right now we’re at the beginning of one called the “mid-term election year cycle”. Over 80 years and 25 presidential elections, the stock market has followed a fairly definite course during the period surrounding the mid-term elections.

Since 1931, the 5-quarters surrounding that election (one quarter before through 4 quarters after) have always been up with an average return of 25.5% plus dividends. Had you invested $1,000 in the Dow Index only during these 4 quarters (31% of the time) it would have appreciated to $68,200 by the end of 2009. A $1,000 investment in the Dow only during all remaining trading days (69% of the time) since 1931 would have grown to just $1,800.

But there are other interesting calendar-based timing rules:

• January Effect: The hypothesis that stock market performance in January predicts its performance for the rest of the year. If the stock market rises in January, it is likely to continue to rise by the end of December. This rule of thumb has an outstanding record for predicting the general course of the market each year, with only five major errors since 1950, for a 91.5% accuracy ratio. Since 1950 this trend has been repeated 32 of a possible 39 times.
• Santa Claus Rally: a rise in stock prices in the month of December, generally over the final week of trading prior to New Year. The rally is generally attributed to anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons.
• Superbowl Effect: The Super Bowl Indicator says that the stock market’s performance in a given year can be predicted based on the outcome of the Super Bowl of that year. If a team from the American Football Conference (AFC) wins, then it will be a bear market (or down market), but if a team from the National Football Conference (NFC) wins, then it will be a bull market (up market). The indicator has been correct 33 out of 41 times, as measured by the Dow Jones Industrial Average – a success rate of over 80%.
• Daily: On a typical market day, volume will often look U-shaped being heaviest in the first 90 minutes of the day, again in the last 60-90 minutes and usually light in between these periods, with the lightest volume occurring during the noon hour period (Eastern).
• Weekly: It’s been said that “amateurs” trade on Mondays and Fridays while pros trade mostly during the middle of the week.
• Years:
  • Years ending with the digit “0” have been the worst year in the decennial cycle for 127 years. For the last nine decades, the market ended up on only three occasions for the years ending in “0”.
  • Another annual cycle that comes close to being constant is the four-year-cycle with the Dow Jones Industrial Average making lows in 1950, 1954, 1958 and in 1962….there are bottoms in 1966, 1970, 1974, 1978, 1982 and 1987….the market reached bottoms in 1990, 1994, 1998 and again in 2002….It appears that [the market] wants to make a bottom every four to four-and-a-half years no matter what we think should happen. Not actually declines but there was a consolidation pause in 2006 preceding an up leg…..will 2010 follow suit?
• Options Expiration: Options expiration days can be and usually are extremely volatile with unpredictable results as to whether the market winds up or down.
• The Ordeal of September and October: While September is known to be the worst month of the year, most Crashes take their biggest tolls in October, with most Black Fridays or Black Mondays occurring during those two months. Between 1939 and 2009, the S&P 500 suffered an average loss of .33% in September… the only month when the average change was negative. Had it not been for the major crashes, October would have been no different than any other month.
• Summer Doldrums (aka “Sell in May ….”): Whether due to the fact that most Americans take vacations during the summer or because of the overlap with the September/October Ordeal, statistics bear out the fact that if investors were to take their money out of the market at the end of April and reinvest six months later at the beginning of November, performance would improve appreciably. Here are some of the facts:
  • Since 1950, the DJ 30 has produced an average gain of 7.4 percent from November through April vs. 0.4 percent from May through October.
  • Investing $10,000 in the DJ 30 during the “best” six-month period and switching to bonds during the “worst” six months every year since 1950 would have posted a $527,388 return. Doing the reverse would have cost the investor $474.
  • The same approach with the S&P 500 index all the way back to 1945 shows November=April returns beating the remaining months 71 percent of the time.
  • Adhering to the practice also would have reduced risk by avoiding the stock market crashes of 1929, 1987 and 2008.
• Lunar: Finally, many adherents believe that the periods around new moons are bullish as compared with periods around full moons (see “Lunar Cycle Update“).

All these facts and statistics are interesting but I’ll rely on the market telling me when it’s time to buy or sell; I’ll stick with my market timing indicator.

http://www.thetradingreport.com/2010/10/27/calendar-based-market-timing/

High Probability Trades

Fundamental (background info)

EPS, Sales, PE, dividend growth, earnings

Technical

Stretched/oversold/weekly

was actually thinking of writing down the strategies for high probabilities trading, but looking through the pasts record of strategies, mostly works, just need proper cutloss and mindset which is what most people will not seek in trading books.

Another question ponders me too if I am to setup a fund.

10mio funds size, with 20/2 model, best returns of course will be more than 20%, which means 3 mio a yr at least. What troubles me will be the allocation of funds, in order to achieve 30%, I cannot possible dump 10mio in a stock, but yet i cannot dump in a portfolio of stocks because if one is 50%gain, the other is -5%loss, with equal allocation will still be 25% less.

So allocation is a big question too if size get bigger not only trader psychology.

abterra - placement 1.166