I was walking towards the mall when the idea that Trading is like Shopping hit me. At that time, I keep getting asked by my girlfriends to teach them to trade and want to make it easy for them. And there it was, “Sales” was all over the place, with a lot of women in attendance of course!
I thought so many skills/traits in trading are used in shopping :P. Things like —
- In shopping, we need to decide on what we want = setting Objectives in Trading.
Here’s a list I’ve come up with, read the left side of the table for the Shopping skills and read to the right side for the equivalent idea in Trading.
|Shopping skills||Equivalent to Trading|
|deciding on what we want||setting Objectives|
|finding out about things||research|
|Knowing how much to spend,||Position sizingTM|
|Judging appropriateness||Having rules|
|Making a buying decision – make the most of what we buy or satisfy need||Entry and Exit rules|
|finding value||where results/value is high bought at low price|
|getting a bargain||as above|
|deferring big purchases until Sales||wait for opportunity|
|getting in style (meow! Animal prints)||spotting a trend|
|looking around and trying things||practice trades|
|trying new things||independent-mindedness|
|walking away if not happy||avoiding risk|
|returning bought item||reflecting on transaction|
|Using credit card to get the opportunity ;p||Borrowing money for leverage|
There are lessons to learn in a similar manner, like:
|Shopping||Equivalent to Trading|
|Paying too much||Not waiting for pullback / jumping in too quickly|
|Being persuaded to Buying what u don’t like||Not being strong enough or poor discipline|
|Losing items||Loss from not verifying transaction|
|Making wrong purchase||Incorrect market or not following rules|
|Taking too long to decide and missing out||Indecisiveness, usually due to lack of preparation and not being able to seize opportunity|
|Forgetting things (no shopping list)||Not having documentation|
|Going overbudget||Letting losses run|
|Going overbudget – again and again!||Losing all of your capital|
I thought women can use shopping skills in Trading to make it easy, because, it is a simple thing to do. You buy something, it goes up in value, you sell. Simple. 😛 Though I always say “Trading is hard” – it’s because of the discipline involved — hehehe tells a lot about me? Don’t laugh! You will have your chance to find out! 😛
Shopping Strategies and Trading Concepts
At the very start of this project, I presented you with how women shop and equivalent Trading concept, let’s review “Women are Natural Traders”.
In Fashion = Trend Following
You like to buy what is in fashion – you would only go for the hot new style. You’re in with the Trend. In Trading, this is Trend Following.
A trend is set when you see most people following it, like wearing the season’s colors (yellow green,orange or ochre seems to be making the rounds in Spring 2011) or designs like the military –inspired outfits. This new thing gets so much press you really know it has arrived.
How to use in Trading:
- Look for the line chart in various timeframes, visually, you would see the direction of the line, whether it is going up or down. Looking back to see the major trend will be one guide, then you want to enter in the direction of the trend. If it breaks through and with high volume, trend can continue. Like if Resistance is pierced, it will move on to new High or if Support is breached, it will move on to new Low.
- If market is moving in a narrow range, trend could be changing.
- If market is moving sideways, use another strategy.
Bargain buying = Value Trading
Owing to the Global Financial Crisis, “bargainistas” have really come to the fore. It’s really cool to see people now paying value for money, looking looking looking for that “bargain buy”. In Trading, this is called “Value Trading”.
Bargainistas like to negotiate, compare items thoroughly, go for “vintage”, “the art” without the price tag.
How to use in Trading:
- Value trading requires looking for shares trading at a deep discount. You need to look into financial data. This requires a bit of research about Graham’s Number – NCAV or Net Current Asset Value . You can search online for resources or check out Dr. Tharp’s book “Safe Strategies for Financial Freedom” which discusses this concept, with detailed instructions on how to find the NCAV.
- Value trading suits a longer timeframe – hold until the undervalued stock will rise in price.
Band Trading / Seasonal
You buy what is not in season because you know it would be back.
- Like buying some popular designs that may not be the rage but looks good so it is sure to come back in favour — like bootcut jeans, a bit overshadowed by “skinny” style
- Buying out of season colors like white or light shades in the winter because summer will come along again and they will be popular. You just need to keep it awhile that’s all ;p
How to use in Trading:
In trading when you think differently about a trend ie. it will not continue or will go sideways, you can use Band Trading or Seasonal analysis.
Band Trading – I’ve talked about “rubber band”, observe how the band is stretched yet it goes back to it’s stable shape. Look at the line chart and look for opportunity to go against the trend when it shows signs of weakening – usually with lower volatility. For example, a stock would normally move by 1.20 then the following day, it moved only 50 cents, then 30 cents then finally it moved only 10 cents. You could also look at Support / Resistance level, if the price attempts to go past Support / Resistance for a number of days but did not close past it and volume is low, the trend is fading. You may also consider Negative or Cautious sentiment in the market.
Seasonal – you can anticipate a rise in price when demand is slack, this is easier to observe for Energy and Agricultural products.
Usually they will follow the hot/cold / wet/dry seasons of the year. For example, there is high demand for Oil in the summer (due to driving holidays) and winter (for heating). So you would have “shoulder season” where the demand is lower. There is a build up to the high demand season so prices could be on the upswing in prices and start to decline before the end of the high demand season.
You may want to review Technical Analysis for discussion of trends.
Online Shopping : Intermarket Analysis + Arbitrage
Online shopping is rocking Australia. I confess to doing it sometimes and telling my friends. Why?
- Online websites almost always sell things cheaper than Australia, the difference is something like 200 to 500%. (I think because of Australia’s pricey real estate, cost of finance and distribution – just my thoughts, nothing official! )
- Plus we can take advantage of overseas Sales on “out of season” stuff that we still need – especially clothing. Summer in the Northern Hemisphere – winter Down Under.
- Australian dollar is higher than US Dollar, so it is a “built-in” discount. Aussie $ may even march forward due to rise of interest rates (to contain inflation).
Intermarket Analysis involve looking at influences of a move in one market to another. Australia’s economy was spared a recession largely due to the strong demand of its commodities – iron ore, gold, coal, oil and gas — these markets performed strongly and is on a major boom due to the need of emerging markets (esp favourite customer China). The earnings of the government / industries enabled jobs to grow which let people spend confidently and Aussie Dollar.
Arbitrage is about exploiting a “loophole” or window of opportunity to profit or benefit. The difference in the seasons and half-yearly Sales is certainly a window of opportunity.
So if you are an online shopper in Australia, you are in fact doing Intermarket Analysis and Arbitrage – beauty mate!
Women and Shopping – always good together. Women and Trading, the world better watch out!