Girl Power Trading « High Heeled Traders

Buy 1 Take 1

February 9, 2011

I have to confess, I was away from the blog and was out shopping in the Sales. It’s back to school here and my children need shoes etc. and there are still fabulous bargains at the last days of the Sales. Promise, I was able to pick up some juicy lessons for preparing to Trade while at it! Hehehe

With low prices giving you “more bang for your buck”, we all look forward to buying the things we want and “saving money” on Sales. As a seasoned shopper, you probably know that this is “temporary” and will seize the opportunity. And as a bonus to us girls – we can definitely use shopping skills in the investment world! Yes, investments go on Sale too or ride a hot trend. It’s not a secret but few people would be brave (or knowledgeable) buying on these “Sales Season”at the financial markets , when stock prices go down and company valuations are attractive or “cheap”. Then, situations change and some markets could get attractive again due to growth prospects and markets “rally” or creep up gradually in cautious optimism. Yet again, there are times when there is a split in perspective of growth which affects risk appetite, some are positive about the market, others could find less reason to risk, in this case, there is a see-sawing or sideways movement in the market. So before doing any investing, you need to “know the different conditions” you could find yourself in, and know that each condition warrant different ways of thinking to make money. Please, please, take that as a Buy 1 Take 1 advise! It breaks my heart everytime I read about this or that “secret” or “strategy” that is promoted at full blast without equal emphasis to when they are suitable. No way! It’s like going out in stillettos everywhere! Can not! Think, when going out to the gym or a walk, sport shoes are essential to get the best benefits or protection. In the same way, for every market condition, there are appropriate winning solutions.

Bulls, Bears, … and Chickens

You would come across these “animals” in the financial markets, though I have to warn you wouldn’t read “chicken” in financial materials elsewhere. I just thought I’d add it in here because we all know not everything goes Up or Down, is Black or White, Left or Right. Do you hear what I’m saying? (No? OK, just read on…)

Bears – they say bears tear “down” their enemy or prey with their paws hence it’s used to describe investors who have a negative view of the market, more inclined to dump their holdings or keen to SELL, and push prices DOWN. When a lot of people have this negative view, we have a “Bear market”, meaning the market is on a Down trend.

Bulls — the bull on the other hand would fight with it’s horns going upward, hence its used to describe investors who have a positive view of the market, more inclined to add to their holdings and BUY pushing prices UP. Bull market then means the market is going on an Up trend.

Chickens –well in common language we say someone is a “chicken” or “chickened out” when tentative, unsure or quick to change his/her mind. In financial markets, when there is a lot of uncertainty, this causes prices to move or swing more (become volatile), therefore people are quick to take profit or don’t want to risk their money for longer periods in case the market reverses. There is a tug of war between the people who are positive or negative about the market , hence the market would move Sideways.

It’s worth repeating here and I hope you realize the importance of investing with these market conditions in mind– what are you going to invest on or trade that will still be profitable in Up, Down, or Sideways market. Usually this is the more “liquid” assets or markets. “Liquid” means how easy you can get in or out of an investment. Also in addition to what you invest on, is what strategy you can apply to profit from the market moves or be protected.

Alright, so what Strategies could work given these Market conditions. I will just mention some here and will provide more detailed explanations in an Options section later or you can look them up yourself in related references.

Bull Market – this is the easiest market to trade, usually by buying UP trending assets

Buy and Hold – basically, with this strategy, you buy an investment and intend to keep it for a long time. Not a bad strategy if you bought very cheap say when the stock is newly issued or at the bottom of the bear market if you were fortunate /skilful enough to have done so. The Motley Fool Foolish Four approach is an example of this strategy where they recommend buying Dow30 stocks and holding for a year. Just remember you still need to set a “Stop Loss” or a limit to tell you when you will get out of the investment, the Oxford Club newsletter recommends to set Stop at 25% off the highest price.
Buying Call Options – I explained this briefly in the article “ Learn to Last : Part 3 – Financially”, in using this strategy, you enter into a contract to have the right to Buy above a price on a timeframe that you choose, which is convenient and minimize your risk not needing to commit the whole amount of share price but pay only a small amount for the contract and let you participate in the upward move of the investment (Options can be used in stocks, as well as FOREX)

Bear Market – need to be careful and not a lot of assets can be traded in this Down trending market

Short-selling – basically with this strategy, you Sell first at a High price and then Buy later at a Lower price. The broker will facilitate the transaction by borrowing the asset from another owner. During the height of the Financial Crisis, short-selling was not allowed by the US and Australian regulators (the government), in an effort to keep the markets from falling too much.
Buying Put Options – I also explained this briefly in the article “ Learn to Last : Financially”. in using this strategy, you enter into a contract to have the right to SELL below a price on a timeframe that you choose. As in the bullish strategy, this is convenient and minimize your risk. In this strategy you have the right to sell and you don’t even have to own it first hand because you are just transacting on a contract which gives you the right. Say a stock is worth $50, with a Put Option, if price goes down to $47 the move is in your favor, you can profit by selling your Put Option which has a higher value now, or when you want to actually exercise your right to sell, you can buy it at the price at that time, the $47, you profit from the down move.

With Options, you pay only a small amount for the contract and let you participate in the move of the investment (Options can be used in stocks, as well as FOREX).

Sideways Market – the market moves in this market does not last long. One day, the market could go up 200points, then the next day, it goes down 150 points depending on say earnings or economic reports. Sharp moves can happen in different timeframes and a profit can quickly turn to a loss, as a private investor, remember that you need not get in when the conditions are too choppy.

Straddles – this is an Options strategy that is a combination of Buying Put (for Down move) and Call (for Up move) at the same Strike price. For example, a stock is priced at $15 and you think the price could have a massive move up or down from this price, you bought Put and Call options, then the price moved to $25, your Call option will be very profitable (say profit of $10) while you lose on your Put option (loss of $6), you then make $4.
There are other Options strategy that could work but would require careful and lengthy explanation so I will just mention, other strategies that could work in Sideways market is Spreading, Calendar Spread, Covered Call Writing.

And if only to emphasize this lesson of knowing the conditions and best strategy that go with it, I will give you another example. Remember “Dewi” my friend who wants to learn about trading? I suggested to her to do her research, gather information (check out “The Right Foundation”) and she sent me back an article in one of the finance websites she found. The author recommended to “Buy shares at regular intervals (monthly or every 2 months), if share prices are down and you buy the same shares, you would bring down the average price of the shares” — this strategy is called “Dollar Cost Averaging”, which works fine in a Bull Market, but if every month you buy shares in a Bear Market, it will become Dollar Cost Haemorrhaging. Why? Because you keep buying shares that do not go up and your original investment is at a loss, then what’s the point? You’d just keep on bleeding and eventually give up on it.

So remember to know the different conditions that could happen in the market and only use a strategy that will perform in those conditions. And yes, it’s like sandals to keep cool for hot Summers, then thick, cozy boots to protect you from cold Winters… bet I didn’t have to tell you that!

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: bear market, bull market, Options, trading for women, volatility

Learn to Last – Part 3 : Physically

January 31, 2011

Learn to Last PHYSICALLY

With the exception of disc-jockeys, voice-over announcers and phone-sex operators, there probably isn’t a job out there that is not physical.

I know you’d think there is nothing physical about Trading (I didn’t think so too earlier on) so let me enlighten you a bit. In studying to Trade, we already have physical demands, squeezing it in busy days at work, taking care of family, travel/driving or even social activities. In actual Trading, we have to make timely and competent decisions and here lies a very common physical challenge to Traders and that is STRESS. A lot of traders get stressed with losses as well as constant pressure to absorb news or developments in the market (for the more active traders). Lack of energy is another problem that affect Trading. In making decisions or monitoring the market, your tiredness can also distract you or make you lose self-control. We do have to have a sound body to have a sound mind.

Here are my top tips to last physically in Trading:

Exercise
Healthy diet –Eat fresh!
Rest and Relaxation

EXERCISE

I think this topic needs no introduction so let me just tell you my favourite way to exercise : long walks. Besides the physical workout, when you walk your mind is set free. I use this time as well to think of what I learned, sometimes I am able to connect two ideas to help me in my trade. Sometimes it helps me plan what I need to do for example protect or build up my capital. Sometimes it makes me realize the risks more. All those thinking and physical process meet up when I walk, its multi-tasking heaven 🙂

OK so now in keeping with the rest of the articles here, I am going to squeeze in discussing shoes. 🙂 Well because I have to warn you about wearing ‘WRONG’ ones! There was a time I was walking, doing all those wonderful thinking I told you about, when whooooops! I tripped, fell and sprained my ankle (no broken bones Thank God!). I think it’s caused by shoes that I had worn that day – one of those “new” ones on the market that elevate you or make you rock back and forth supposedly for toning muscles. (Don’t make me name names!) It’s probably OK to use in the gym because you really are not going anywhere. But when you are out in the street, or outdoors trail the path is likely to be irregular or uneven. Use shoes that are low, comfortable and let you balance easily.

HEALTHY DIET – Eat Fresh!

This one is another familiar topic and there are lots of resources already out there. So I’m just going to tell you my top tip : Eat fresh.

Long before, I’ve been planting herbs that I conveniently pluck and enjoy in my salads, stew or soups. This summer was the very first time we planted tomatoes in our balcony, and it was wonderful! The children love watching it grow and bear fruit in bunches and enjoy seeing it ripen changing color from green to orange and red. The very first time we ate those red ripe tomatoes, I can feel and taste the healthy goodness of it. So fresh, no chemicals. I feel like I can live to 150years old! 🙂 I was thinking why I didn’t think of it before (well in a word, busy) . My mother’s family (she got sisters who are upwards of 80yrs old) are all still strong and spritely, they love eating vegetables and fruits most of which they like to grow around the house. My parents who had retired in dad’s island hometown enjoy fresh fish everyday and thankfully haven’t got much of the old-age illness from lifestyle factors like diabetes, high-cholesterol or liver problems. So all you people who want to live a long and healthy life, eat fresh. Nothing is impossible, grow some green vegetables or tomatoes in your balcony or window. There might even be community spaces where you can share a garden.

You actually get the most vitamins and minerals eating fresh food. Most vitamins “dissolve” with water, fat and when heated, so cooking and processing of things you eat rob you of the healthy goodness of the food. So have a diet consisting of a lot of fresh fruits and vegetables. It helps to juice or put them in a blender and drink it when pressed for time or for the children to have a fun and learning activity in the kitchen. We also cut up fruits/veg in small pieces and eat it while studying or playing (my daughter calls this “munch and crunch”).

Now in the interest of time, I know many mothers out there “pre-cook” food on the weekend for the work/school days. I’m not keen on this idea. When I do this, I try and just cook for the next day’s food with tomato sauce or vinegar that helps preserve the food like vegetables and meat (just judging from what the food is like – I think this is due to fermentation). Think of the usual practice of pickling. In Vietnam, and in the Philippines we have all sorts of pickled vegetables (we call “atsara”), green papaya, mangoes, carrots, mustard leaves. People from the Indian-subcontinent also have “chutneys”, while Koreans also have “kimchi” (cabbage with spices). Pressed for time, my weekly menu includes meat marinated that I just throw into the oven or grill coming from work and served with baby spinach salad (just washed and drained! No peeling, cutting or a lot of cleaning up hehehe). Come to think of it, pickled veg goes along well with anything from the grill!

I will separately post some fresh food suggestions and hope to hear from you if you got any to share 🙂

REST and Relaxation

During the summer here in Sydney, the sun is still up till 8pm. So oftentimes like yesterday we went to the beach around 6pm and stunned to find the parking is still full! People had the same idea as we did. And who can blame them, the wind from the sea is exhilarating and there is something just so invigorating sitting down to marvel at the power of the waves and sheer majesty of the blue sky. It was beautiful, beautiful, beautiful.

It took only 2 hours to travel and staying down at the seaside and yet I felt that I have another store of strength for the next 126 hours of my week’s waking life. Yes, a little time spent of complete peace and rest gives your body and mind more focus and energy with which to use in Trading and everything else.

Of course not everybody can go down to the seaside in minutes. Here’s a few other ways :

– Breathe. Slowly. Deeply….. One…. two….three …. combine this with relaxing your muscles and good posture. If you are sitting, pull your shoulders back and straighten up your spine.

– Soothing music. Just go for your slow favourites. Mine is instrumental piano and guitar .

– Meditation. Close your eyes and let your thoughts float.

– Sing. Dance. Laugh. Do it all together when you can and then collapse on the floor among the pillows. (I learned this from my children) 🙂

– Get a massage. Or you can do this to yourself throughout the day applying slight pressure with your fingertips on your forehead and shoulders. Use a scented oil like Jojoba or infused Virgin Coconut Oil if you like.

– Lie in a warm bath with herbs like rosemary, oregano and flowers. Aromatic treat and make you feel gorgeous.

– Look at pictures that make you smile. Happy faces, landscape.

– Hug someone. Preferably a small child, soak in that pure joy and innocence. But anyone else you love will be fine. 🙂

Notice that you can do this as quick or as long as you want do it. If you find yourself in a stressful situation, for example when US market breadth is negative (this means more companies fell than gained) and will likely influence your session’s trading. Before the start, relax yourself, do some breathing exercise, relax and just follow your System. Get out at the designated Stop or if the move is in your favour, be patient, follow the market don’t let your excitement cut your profit.

Your body will be more responsive to your thinking when it is rested and relaxed.

_________________________________________________________________________

Right! How do we make it happen?

All these activities for physical well-being I listed above needs time. How do you make it happen? We all lead what I consider frantically busy lives, (humans are funny creatures, with modern transport and communications, it actually saves and free us more time than before, but we find other things to busy ourselves anyway!) My “brilliant” idea before is to “find time” to do them. I even made a schedule for myself on what I should be doing when and tried to follow it. But it seemed I just couldn’t find the time what with work, children, and chores. If you live in a place where available help for domestic duties is available, you are sooooooooo lucky! (No excuses for you! Hehehe) But if you are one of those people like me without much help available, you just have to do all that you can and keep moving forward. Stay motivated, be efficient and get others to do things for you when possible (I’ve taught my 6 and 4yr old kids to do their own beds now when they wake up in the morning). Also study or trade in the best time for your “body clock”. But that’s another article. 🙂

Till then, chill baby, chill….

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: dieting, investing, market breadth, stress, stress management, trading for women, trading stress, US Market

Learn to Last – Part 2 : Psychologically

January 27, 2011

LEARN TO LAST PSYCHOLOGICALLY

“Cut your losses short, let your profits run”… must be the most repeated phrase in Trading. And if you’re new to this, trust me, don’t argue with it. The biggest mistake that you could make is to make a small loss balloon to a big loss. The other one is to make a small loss balloon to a big loss. 🙂 I know, because I did it and got wiped out.

What? Didn’t you know?

OK first let me tell you, if it is not obvious in what I’ve written so far, that in the business of Trading, losses are OK. Nobody told me that in the first years of my trading. One of the psychological preparation that you should include to Learn to Last in Trading is to accept that Losses is part of the Trading business. Small losses. I repeat : Small losses. I touched on this on the article “The Need to be Right and Other Myths”

I believe losses is part of doing any kind of business. Think about this : a business, to be successful, needs customers. And it is expensive to attract customers, for every 30 contacted, only 6 may sign up. They lose money on the 24 that didn’t. That’s also why companies have “Loyalty programs” – they want to make the most money from the customers that stay with them. Like so in trading, you have to tolerate 24 small losses of say $1 each — equal to $24, but make the most of the winning trades. 6 trades could comprise 2 trades of $3, 1 trade of $6, 2 trades of $7, 1 trade of $10 for a total of $36. Spending $1 for each trade or $30, you get $6 in the end which gives you a return of 20% (not including fees). The key to trading is making the most profit out of winning trades. So “cut your losses short and let your profits run”.

No. Of Trades	Amount Won	Total Value
2	$3	$6
1	$6	$6
2	$7	$14
1	$10	$10
	TOTAL	$36

No. Of Trades	Amount Lost	Total Value
24	$1	$24

SUMMARY
$36	value of winning trades
$30	amount spent for 30 trades at $1 each
$6	profit
0.20	percent return on capital

When you lose BIG

To analyse the mistake of making a small loss a big loss is not a simple one. Psychologically it could involve not accepting a small loss because of “ego” (you don’t want to admit when you’re wrong) or you are “hoping” that the move will return to your favour, or that you feel important when you get sympathy over the loss. Or all of the above. (Oh noooo!) One major loss I had was a result of being “distracted”, since I was on maternity leave taking care of 3 kids under 5, my world was confined to home and missing family and friends (you know, adult interaction), I got too involved with trying to catch up with loved ones in social networking. Wayyyyyy toooo much!

After the major loss, feel bad if you really feel that way. I’ve learned in Dr. Tharp’s Peak 101 workshop that it is healthy to feel your feelings. Rather than suppress it or go in “denial”. In your case as in mine, you might find a deeper reason as I found out later. This is the time to be honest and open to your thoughts about the issues that keep away your focus or do the right thing. We all make mistakes . The important thing is you recognize the mistakes you do which lead to runaway losses. You take personal responsibility and seek to learn from the mistakes and improve. Then you have to free yourself. There is a beautiful ceremony in Thailand called “Yi Peng festival “, traditional belief has it that when these huge hot air balloons are set adrift and float away, so do the troubles of the persons who launched the balloons. ( Northern Thai people celebrate the Festival of Lights in November of every year . Besides this festival, lanterns are released into the sky in other occassions, just like in New Year’s Eve.) Say goodbye to bad feelings.

DO this regularly, “talking to yourself, learning and releasing”, and taking care of your needs. As a mother, it is our job to take care and nurture the children. We often forget to take care of ourselves, as in, we are the last in everything. As I found out, we take better care of people around us when we ourselves are happy and whole. If you need to go get some pampering or retail therapy to keep yourself from snapping then do it. (OK so you know this already? Good!)

I further recommend the Peak Performance Home Study Course for Traders and Investors and Peak Performance 101 Workshop from Van Tharp Institute. Both had been extraordinarily enlightening not just in dealing with losses but straightening out my meandering Life 🙂

After getting WIPED OUT

Hopefully you don’t get to the point of being wiped out but if you do, I’ve been there and have handy hints ready. 🙂 Try these :

1. Eat

2. Pray

3. Love

Sounds familiar? “Eat, Pray, Love” is a book and movie (starring Julia Roberts) about a woman’s journey of self-discovery. Go read it sometime.

At this point you would be really thinking and deciding if Trading fits in your life. Hopefully as part of your self-discovery, you get to recognize that we all have our need to achieve security / financial well-being, heck even just managing money matters for our everyday lives. Because that need is there, it’s got to be filled.There is a part of you that need to take charge of your financial well being so you were looking at Trading, right? And this is not just on a personal level, I am not saying everything revolves around money but money is a tool that keep civilizations going. Like this thing was started in the age of the Sumerian empire …. that is sooooo BC! (Before Christ my darlings…) 🙂

Being a “Trader” might not be the ultimate of what you want to be but does it still fit in your life plan? I told you about my miscarriage which made me think about Life. I decided that from henceforth I will do the best I can as a mom and to provide for their needs I will also be a Trader. I even started calling myself “TraderMom”…. So you can see me bring my children to school or the park or playgroup and shopping errands and monitor / act on my trades using my smartphone. (I prepare before that though). A trader I met started out from being a mountaineer and he wanted to climb Mt. Everest (he is that passionate). He started to trade to raise funds for the climb. He now manages money for his family and friends. I think it is a natural consequence that, once you get to have good results in something (like Trading), you learn more and get good at it. Like I’ve learned to bake bread (wooooo hoooo — with the help of a bread machine) hehehe. It is entirely possible to add to what you are already. A fascinating creature of many and superlative talents and achievements. Multi-dimensional. Diamonds have nothing to you, girl! (We talk ourselves into it!)

Now going back to trading again after losing all of your money — I want to share to you the three things that helped me:

PROGRESSION

I lost so much money early on when I first started Trading. If there was one consolation, it really cemented the fact that people can make serious money from trading the markets (the people who are more skilled than you hehehe). Though I heard that people go back to trading to get back what they lost (like with a stroke of magic their money will return to them ) – my main reason for going back to Trading is that I realized that “I made a lot of mistakes, which I learned from, and if I don’t go back to Trading , I am throwing those lessons away.” Though it was painful in the beginning to have to lost all that money, I’m glad I did it since I knew I learned a TON, got “out of my comfort zone” and made progress on something I really want to succeed on. Isn’t that good? Treat the loss as a “pruning” from which new life flourish.

MOTIVATION

Since you’re still reading this, I presume you really want to learn to Trade. Yesssss!!!

Here are some of the ways to get back your courage :

1. Heroes – people who have gotten successful in the field, that you can look up to and learn from or serve as inspiration.

a.       Billionaires Warren Buffett and George Soros are known as uber-rich and influential investors and traders.
b.      Have you heard that American star basketball player LeBron James has been seeking to be the wealthiest             person and consults with Warren Buffett?    Talk about being multi-dimensional.
c.       John Keys, Prime Minister of New Zealand built up his fortune from being a FOREX trader.

2. Check what’s missing in the above list. Women. Very few women trade and it’s a shame. You could be the new heroine for women traders! You go girlfriend!

3. Then there’s the usual activities that give us natural feeling of being positive. The list is long, but here are my favourites:

a. Music — there are just “anthems” that make you feel powerful. “We are the Champions”, “I Believe I can fly”, “Don’t Stop Believing” etc or even fast-tempo music that will get your energy going.

b. Walking – love the exercise and help me to clear my mind

c. Art appreciation – I don’t know why but seeing a beautiful painting, sculpture, dance or dress just give me so much inspiration and heightened feeling of my own capabilities.

d. Family and Friends – positive and honest people that appreciate and encourage you to give your best, inspire and support you. It would be nice if they can give you cash too. hahaha

e. Everyday, I start the day with Prayer, Goals, Affirmation, Gratefulness. It’s part of my preparation work in my Trading Procedure.

PRAYER

One of my current favourite reads is written by J.Alexander ( also known as MissJ, the 6 feet 6 inches, black drag queen in America’s Next Top Model). In his book “Follow The Model”, he wrote “The idea that God helps those who help themselves really does work. And the operative word there is work. You have to be willing to work hard, and if you do, other people aren’t going to be the only ones who notice. The universe does too. I don’t know how to put it much plainer. It has always worked that way in my life and my friends’ lives as well. Complaining and bitching about your situation will get you nowhere in life. No one wants to hear it, least of all a Higher power who has got more important things to do than listen to somebody whine without taking any action.”

In most big losses, I admit to not doing my work in TRADING , especially the homeWORK, the preparation.

I hope you get to last long and learn enough to make your harvest in Trading.

As my Muslim friends say, Inshallah (God willing).

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: psychology of trading, self-discovery, Thailand, trading for women, women traders, Ye Ping Festival

Learn to Last – Part 1 : Financially

January 20, 2011

What I’m going to tell you is probably something not discussed in most Trading books. I know, there are books about “Secrets”, “Edges” and others using marketing buzz words but guess what, they missed this! hehehe

Trading as we’ve talked about before, is fluid, sometimes erratic business. Yep it can get crazy. So you want to learn what will help you to be profitable, (not lose all of your money first of all) and eventually with the right skills to go for the stars! So the very first lesson I ever ever everrrrrrrr want to share with you is to Learn to Last.
Here’s what helped me to keep going :
1. Financial concepts
2. Psychological well-being
3. Physical activities
I will first discuss the Financial components in this article. Otherwise you won’t finish reading this until tomorrow 🙂

Learn to Last FINANCIALLY

I mentioned introducing myself in this blog that I started to attend seminars on Financial Freedom after starting to work in IT with long hours and getting slapped with high taxes. I think it is very valuable to get financial education through books, seminars and talking to people about their experience. Not all of them might be useful, analyze the information, doing so will improve your knowledge and sophistication. I came across these 3 concepts that I feel greatly helped me in my Trading and Investing, as I started out with very limited funds.

Velocity of Money

I first heard this idea in a Robert Kiyosaki CD series on building wealth. The Velocity of Money is an economic term that the St. Louis Fed (part of the US Federal Reserve System or central bank of the US) defines as “the rate of turnover in the money supply” – OR the number of times one dollar is used to purchase final goods and services (included in GDP). For example, a hairdresser and a dentist has 100 between them. The dentist goes to the hairdresser for a haircut paying $20 every time, and goes every month. The hairdresser has teeth cleaning done every 6 months and pay $100 each time. For one year, together they made $ 440 from their services with $100 to start with.
http://research.stlouisfed.org/fred2/categories/32242

Back when we started in Sydney and was living in one income, with limited funds to use, I hung on to this idea everytime I look at something to invest. I thought I should aim to use my 1 dollar several times to buy my investments. So when investing, use a combination of products or strategies, aim to get your money back quickly and use it to similarly buy / create another investment. Do it again and again and again. You can do magic with this idea! 🙂

Infinity
∞

When making an investment, we calculate how much we can get back, we meet the terms Return on Investment (ROI) or Yield. That presumes that we still have money invested and it is “returning” money back to us. What about if we don’t have money invested anymore (we’ve taken it already), but we still hold the investment and still we get money coming to us? WOW! That’s a return of Infinity. This is an old old old concept in Mathematics that basically mean “no limits” … Try this : take the calculator and get the Return for this investment — For monthly rental income put in 150 multiplied by 12 months, divide it by zero. What did you get? Mine says – Can’t divide by 0. That’s because the calculator has no imagination. Whereas humans, we are equipped with great minds to make money from nothing 🙂

Position Sizing TM
As you can see, I’ve had to put the letters “TM” after the word – it is to denote that this term is a registered trademark (by Dr. Van Tharp) . In my opinion this subject should be one of the VERY FIRST concept to ever be studied by traders. Because it’s one that would help traders to survive the learning process. I lost all my capital in 3 months when I first started to trade. The account balance just started to dwindle when I lose on my trades and eventually got wiped out.

To make it easier, think that it’s like buying shoes… (really?!) We buy a lot! Formal shoes, running shoes, many styles of sandals, boots, according to color, material etc. You have to have a range of shoe options for your lifestyle. Point is you have got to budget for all this kinds of “shoe situations”. You shouldn’t spend too much on one shoe. So this important lesson in Trading is that you have to keep how much you risk at an amount that does not blow out your budget and be able to fund next opportunities.

Position Sizing TM is a way to determine “how much” to risk in any one position. To clarify, this is not the amount you spend on a trade, but rather the amount you are willing to lose for that trade. You decide on this prior to trading anything, telling yourself how much you are willing to lose per trade, as a percentage of your capital. And when you are just Learning, the “how much” should be small so that you preserve your capital while still be able to profit from an opportunity. Say for example, you have $5000, you want to preserve 80% of your capital or $4000, you then have 1,000. Of this 1000, you want to budget for a string of losses (say 10) which will give you $100 to risk in a position. (fees are excluded here for simplicity but note it could cost $45 to open so $90 to open and close the transaction).
5,000 capital
4,000 amount to be preserved, at 80% of capital
1,000 amount to be risked at trading opportunities
10 number of successive losses you are willing to tolerate
100 the amount you will risk in a position

$100 or the 2% of $5000 is your position size(tm)

Is this a small enough risk for you? 100 is already 2% of your capital. If not, you should probably build up your capital, gain more knowledge and test your system and skills until you are comfortable to risk this amount.

Position Sizing TM to preserve and grow capital is discussed extensively by Dr. Van Tharp in his book “The Definitive Guide to Position Sizing” . He also has a free trading game that can be downloaded from his website www.vantharp.com. If you haven’t done so already, please go to the website and get your trading education on the right track!

______________________________________
Show Me How It’s Done!

Here’s my experience using all the above concepts – Note that the market when we were doing the transactions may be different from the prevailing market. Do not do this without TESTING and if you want to talk things through with me, send me an email!

Trading Stock Options

I was looking at Oil stocks because Oil moves a lot (up / down) plus it’s getting more expensive and want to be protected from Oil price increases by earning money from the stock trading. The stock I was trading at that time is Santos (STO ) priced at around 12.50 per share. I bought 1000 shares which will allow me to “write” 1 Call Options contract. (1 contract = 1000 shares). I will just make it very simple here for now – with “writing” a Call Options contract, I am giving someone else the right (but not the obligation) to buy my 1000 shares at the “strike price”– for example 13.00, this contract will expire in 2 months. To have this right, the other party (called the Taker) will pay me 30c per share (called the premium) which I keep no matter what happens. I will also hold the shares (and earn the dividends that may be payable which is 42c per year for this stock).

The Taker believes the stock will move up strongly in 2 months, however will only be profitable above 13.30 (the strike price of 13.00 and the 30c premium spent for the Options contract)

Move in Favor of Position

If the price moves down or up but below 13.00 when the contract expires, I keep my shares. In this case, I will get 30c profit per share and can write another Call Option Contract for another 30c per share premium payment. Getting 60c per share altogether for 4 months. I can repeat this several times, say 6 times a year (write contracts every 2 months).

12.50 – price I bought the share

13.00 – strike price at which I am selling my shares

.50 profit when price reaches strike price

.30 payment received from the 1^st Options contract = 300 for 1000 shares

.30 payment received from the 2nd Options contract = 300 for 1000 shares

.60 total of premium payments received = 600 for 1000 shares for 4 months

Move Against Position

If the price moves above 13.00 when the contract expires, I may have to give up my shares. In this case, I will get 80c profit per share

12.50 – price I bought the share

13.00 – strike price at which I am selling my shares

.50 profit = 500

.30 payment received from the Options contract = 300

.80 total profit per share = 800 profit for 2 months

** Since I own the shares, I can choose to keep my shares and instead write another Call Option at a higher Strike Price, say 13.50. To close an earlier transaction, I buy back the Option that I sold. More on this on an Options discussion later.

When Prices Go Down

I take some of the income (Velocity of Money concept) from writing Call Options to buy Put Options to protect the value of my stock. Put Options gives the right but not the obligation to sell stock – you use the strategy if you think prices are going down. In this strategy, I am the Taker and I am paying the premium to sell the stock to the Writer of the Option at the strike price. Say STO price has moved up to 13.60 and despite good news from the market the stock has not moved up further from this price after a continuous rise (maybe investors think it’s gone up too much and already expensive and unwilling to pay more). I think the price will go down below $13 in the 1 week to expiration of a Put Options contract and I am looking at risking very small – 5c per share to this position or $50 per contract. I spend $100 for 2 contracts which conforms to my Position Sizing TM rules. In the next days, the price moved sharply down to 12.80, the value of my Put Option is now 20c which I sell to close the transaction and receive a profit of 15c per share or 300% return.

______________________

The Important Thing

Note that since I own the shares, I can do the 2 strategies together. With the aim of using income earned by the Shares in Writing Calls (Velocity of Money concept) and Buy Put Options which I limit to $100 to observe my Position Sizing TM rules . With this Low-Risk High Returns strategy, I can build up capital, even take original capital out and just use all the profits to use in the business which can give me a return of Infinity.

Even if you don’t generate the same returns as the examples above, whatever happens, you receive money from the Call Option so even if you don’t profit from Buying Put Option (at which you only risked small – $100) – you still have money left over plus the shares, your original investment. You will be able to continue your learning process with your capital. You will survive!!!

To quote Buzz Lightyear, To Infinity… And Beyond!

TRADING STOCK OPTIONS
Purchase of Shares
12.50		purchase price of STO
1,000		number of shares in 1 Options contract
12,500		total investment to buy 1000 shares of STO @12.50

Income from Writing Call Options
13.00		strike price at which I will have to sell the shares
0.50		profit from strike price less purchase price
0.30		premium payment per share – 1st Contract, expired
0.30		premium payment per share – 2nd Contract, new
0.60		total premium received for 2 Contracts

Return on Investment
1,800.00		income fr writing Call options in 1 year (every 2 months)
500		profit from sale of 1000 shares @ 50c
420		Dividend payment for 1000 shares @ 42c
2,720.00		Total income from sale of Shares, Dividends and Options
21.76%		Rate of Return on original investment (of 12,500)

Income from Buying Put Options (to profit from view of prices going down)
13.6		share price, which you deem high and would go down
0.05		premium paid per share for buying Put Option
1000		number of shares per contract
50		premium paid per Put Option contract
2		number of contracts
100		total amount risked in position to Buy Put Options

13		Strike Price of Put Option
12.8		last share price (few days later)
0.2		value of premium at 12.80
0.05		premium paid per share when buying Put Option
0.15		profit from selling Put Option
300		Total profit from trading Put Option (total proceeds was $400 = .20 x 2 contracts)
300%		Return on Investment on Buying Put Option

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Where are you going?

January 18, 2011

We mentioned preparation in “Entering the Water”… where are you going anyway?

I touched on Objectives couple of times before. Like when we buy shoes – We should know what we are after “Oh I really need new shoes for a wedding”.

It helps so that you don’t get distracted (like when another non-formal shoe “Is On Sale” — be strong girl, be strong) and NOT spend your resources on “other” things that don’t fulfill the Objective. Say your Objective can be “consistently achieve 3% of capital per month (total of 36% per year!) .

BUT since we are first taking baby steps to Trading, know that – you won’t get to this right away. One of the first Objectives I recommend is to LEARN. Then there should be a sense of “graduation” as you gain knowledge and skills. Just so you know, professional traders (who manage other people’s money) are viewed to do a good job when generating upwards of 20% consistently for their clients.

I personally see three levels to this :

1. Profitability – your ability to add to your capital

2. Consistency – your ability to add to your capital regularly

3. Alchemy – your ability to profit excessive returns with low-risk at the right conditions

(I mean you know, this is Goddless-like powers!)

Profitability – I remember reading the book “Trade Your Way to Financial Freedom” by Dr. Van Tharp and thought that the concepts in there, not discussed in other books elsewhere are very powerful. I was convinced to trade using ONLY his concepts. I put together a System from the “ingredients” presented in the book. I remember I had about 6 months trading and after that, lo and behold, I made 18% of my capital – even with a lot of human errors too. (I mean I did not follow the concept or how I should be using the System). It’s probably not a marvel, but 18% beats bank interest rate anywhere!

Consistency -remember about the Retirement we were talking about in Oceans of Opportunities article? If at 25, you put your money, say 10,000 at the bank that pays 6% interest it will be 102,857 after 40 years (doesn’t seem much does it?) . Now let’s take my example of being profitable by 18% , the same 10,000 after 40 years will amount to a staggering 7,503,783 — sounds like we have serious money now doesn’t it? (See Table below) . Imagine that if you consistently make 18% from your trading and investments, that will really make the difference in your life.

Alchemy – In the olden times, Alchemy was practiced to turn cheap metals into Gold. I just want it here to represent making excessive returns from low-risk. To do that, one has got to have the knowledge and experience to know when the situation could be ripe for such opportunities. George Soros made $1 Billion making a massive bet against the British pound sterling when he correctly anticipated that the Bank of England would have to devalue their currency. (Just researching about him again, I just found that he actually wrote the book “Alchemy of Finance” – there we are!). In my case, I have found these opportunities do exist when back testing. Now I just need more knowledge and experience to actually see it before it happens hehehe

Let’s do it!

So now, let’s focus on our Number 1 Objective: To Learn to have consistent skills in Investing / Trading. I’m excited! Are you? If it helps I am going to confess that early on I struggled in learning to trade too. I mean no one wrote an easy-to- read blog for me to follow! 🙂 I had to lose some brain cells trying to understand finance books and when you get to read a lot of them they are conflicting or confuse the heck out of you!

Anyway, I just know I have to do it so I just kept going. I remember my friend, a very nice lady who is newly retired with her husband who was a builder. At the depths of the financial crisis (2years ago), she told me one day that she got a report from her financial planner that their “retirement account” (Superannuation) is down by $80,000. She was shaking. Now I don’t know about you but $80,000 is a big amount to me! I think actually it’s kind of funny that we let our financial lives be run by these “professionals” — we assume that since we don’t know much about finance that they do. I say assume nothing!

So it’s worth spending time on Learning to trade and invest, if only to know how to choose financial professionals to whom you would be entrusting your money. Don’t be among people who lost money like Steven Spielberg who entrusted millions of funds to Bernard Maddoff – who was even a figurehead in the NASDAQ electronic exchange — he went on to run a scheme scamming people of billions of dollars in life savings. There was a suspicion that his returns is not mathematically possible — but was not proven before he admitted to the fraud when his clients began redeeming money during the Global Financial Crisis.

If the “professionals” are not doing a good job… you’d know what to do. Find another one, or do it yourself! Let’s get ready to Learn…

(For comments : pls email charmel@highheeledtraders.com) or
Register to enable Comments, pls bear with me as I get too much spam

_________________________________________

6% and 18% CONSISTENT RETURNS
Years	Capital	% Return – Yearly	Profit	Accumulated Capital
1	10,000	6%	600	10,600
2	10,600	6%	636	11,236
3	11,236	6%	674	11,910
4	11,910	6%	715	12,625
5	12,625	6%	757	13,382
6	13,382	6%	803	14,185
7	14,185	6%	851	15,036
8	15,036	6%	902	15,938
9	15,938	6%	956	16,895
10	16,895	6%	1,014	17,908
11	17,908	6%	1,075	18,983
12	18,983	6%	1,139	20,122
13	20,122	6%	1,207	21,329
14	21,329	6%	1,280	22,609
15	22,609	6%	1,357	23,966
16	23,966	6%	1,438	25,404
17	25,404	6%	1,524	26,928
18	26,928	6%	1,616	28,543
19	28,543	6%	1,713	30,256
20	30,256	6%	1,815	32,071
21	32,071	6%	1,924	33,996
22	33,996	6%	2,040	36,035
23	36,035	6%	2,162	38,197
24	38,197	6%	2,292	40,489
25	40,489	6%	2,429	42,919
26	42,919	6%	2,575	45,494
27	45,494	6%	2,730	48,223
28	48,223	6%	2,893	51,117
29	51,117	6%	3,067	54,184
30	54,184	6%	3,251	57,435
31	57,435	6%	3,446	60,881
32	60,881	6%	3,653	64,534
33	64,534	6%	3,872	68,406
34	68,406	6%	4,104	72,510
35	72,510	6%	4,351	76,861
36	76,861	6%	4,612	81,473
37	81,473	6%	4,888	86,361
38	86,361	6%	5,182	91,543
39	91,543	6%	5,493	97,035
40	97,035	6%	5,822	102,857

Years	Capital	% Return – Yearly	Profit	Accumulated Capital
1	10,000	18%	1,800	11,800
2	11,800	18%	2,124	13,924
3	13,924	18%	2,506	16,430
4	16,430	18%	2,957	19,388
5	19,388	18%	3,490	22,878
6	22,878	18%	4,118	26,996
7	26,996	18%	4,859	31,855
8	31,855	18%	5,734	37,589
9	37,589	18%	6,766	44,355
10	44,355	18%	7,984	52,338
11	52,338	18%	9,421	61,759
12	61,759	18%	11,117	72,876
13	72,876	18%	13,118	85,994
14	85,994	18%	15,479	101,472
15	101,472	18%	18,265	119,737
16	119,737	18%	21,553	141,290
17	141,290	18%	25,432	166,722
18	166,722	18%	30,010	196,733
19	196,733	18%	35,412	232,144
20	232,144	18%	41,786	273,930
21	273,930	18%	49,307	323,238
22	323,238	18%	58,183	381,421
23	381,421	18%	68,656	450,076
24	450,076	18%	81,014	531,090
25	531,090	18%	95,596	626,686
26	626,686	18%	112,804	739,490
27	739,490	18%	133,108	872,598
28	872,598	18%	157,068	1,029,666
29	1,029,666	18%	185,340	1,215,005
30	1,215,005	18%	218,701	1,433,706
31	1,433,706	18%	258,067	1,691,774
32	1,691,774	18%	304,519	1,996,293
33	1,996,293	18%	359,333	2,355,625
34	2,355,625	18%	424,013	2,779,638
35	2,779,638	18%	500,335	3,279,973
36	3,279,973	18%	590,395	3,870,368
37	3,870,368	18%	696,666	4,567,034
38	4,567,034	18%	822,066	5,389,100
39	5,389,100	18%	970,038	6,359,139
40	6,359,139	18%	1,144,645	7,503,783

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: alchemy of trading, George Soros, learning to trade, Maddoff scam, trading for women, trading objectives, trading performance, trading profits

Entering The Water

January 14, 2011

Jump in! photo by Noel Abejero

I had a hard time deciding what to write after the last article. I am considering a logical sequence to the topics but somewhat didn’t have creative juices flowing or that I didn’t felt enthusiastic at all about any topic. Today I realized that it’s because I am trying to do so many things, read with my children, teach my son to write, bring them to the park, learning a new system at work, chores around the house, analysing a trade, planning a menu, reading market news, playdates for the kids, going outdoors while it’s summer, catching up with family and friends overseas in Facebook, losing weight, shopping for fresh food etc…..! (Also known as Life 🙂 )

Anyway, when I started the blog, I meant to share what I learned to my friends interested to know about trading. It is a responsibility I do not take lightly and I have been blessed that writing it reinforces what I have learned . Foremost though, I want the blog to be based on the success or progression I feel I am having in Trading. Now considering that we are cruising through the new year and it’s already middle of January, I was fidgety that I haven’t been trading! Yes I watch the markets but I haven’t done any trade! Thankfully, one of the latest articles I wrote about was Self-Mastery so I didn’t just trade ( I have self-control woooo hooooo) 🙂

I’m glad it was the VERY first one I wrote for the year as it helped me when I was analysing a potential opportunity. The opportunity looks good however I did not trade it. I guess coming from holidays, I just did not feel good about my trading preparation overall. At the last article, Oceans of Opportunities, I said a trader doesn’t have to explain what is going on in the markets , you just have to know how to ride the waves. First order then in the “How” is to “be prepared” before you enter the water…

These are some of the things I thought I should sort out first:

1) Objectives — Sure I have Objectives long before my trading, but thanks to the break during the holidays, it got me thinking of what I want in my life. I kind of just plunged into Trading because of some need (to earn income to replace job and focus on role as mother to my 3 kids), however I find that my energy to do it is low sometimes. (with 3 kids it is actually low sometimes … everyday). Anyway, I discovered new, exciting ideas that helps to boost my energy and “Self-Mastery” in Trading. Thus, my Life Goals are somewhat different now, here are some of mine:

a) Happiness by fulfilling God’s Plan for me
It was said, “money can’t buy you happiness”, then someone said “you just don’t know where to shop”… well I know my Happiness . Do you know yours? I realized that Trading led me to know my Happiness… it also changed where I shopped 🙂

b) Trading Success based on Self-Mastery in every Trade
i) Do Trading Tasks Daily

ii) Follow Trading System

iii) Performance Review Weekly, Monthly

c) Being Organized to fulfil the above.
i) Schedule – this change as situation change e.g. start of school
ii) Healthy Diet
iii) Note taking and filing

As you begin to Trade, it is very important to know your Goals. After all, if you don’t know where you want to end up, how can you get there? Take the time to reflect and write them down. Dr. Van Tharp’s book “Trade Your Way to Financial Freedom” has a comprehensive section on Objectives.

2) Funds position – I suffered some losses on my trades before the break so considering the many projects I have lined up (also known as Life), I want to make sure that I am able to preserve my capital and take only Low-Risk High Reward trades. Based on these Objectives I would need different strategies, systems and products. For example:

a) Preserve Funds – I currently hold Oil stocks by Santos (STO)
i) Strategy : Hold Stock, write Call Option to receive income from premium payments
ii) Concept : Band Trading
iii) Stock : STO an oil stock which I have observed to fit the above concept
iv) Timeframe – 1 to 2 months expiry on Option

b) Low-Risk High Reward — that fit Risk I can afford
i) Strategy : Buying Option to take more opportunities/higher frequency trading
ii) Concept : Trend Following
iii) Stock : BHP a mining / commodities stock which fits above concept
iv) Timeframe – 1 to 2 weeks to expiry of Option

How about you? What is your Funds position? I strongly recommend that your Funds is separate to any Savings or Expense account. Though to keep yourself motivated, I think it is alright to use some profits to give yourself a special treat 🙂

Also learning to trade is also like “WINDOW SHOPPING” — it’s free to look! How many shoes do you try and fit before you buy 1 pair? I’d say I’ve never bought the very first shoe I ever saw when out shopping. When I already have something in mind, I survey the display for the shoes available to see the trend. Right now, gladiator or military-inspired shoes are popular, so are peeptoes and wedges. I am not too keen on wedges and glad to try gladiator shoes. However, some that really show attitude have chunky straps that make my legs look like a tree trunk. I go and try something else. I could visit 3 stores and fit 7 shoes and still come out empty-handed, it’s time well spent if nothing seems right.

So even if you are still building up your fund for trading, you can start gathering knowledge, analyzing trades, study behavior of a stock, study your behaviour and feelings. If it helps to make it bit more “realistic” – use a substitute for money to be aware of your feelings about Profits and Losses – — something you will miss. Like coffee or chocolate 🙁

3) Trading Knowledge — preparing to trade I have to review and familiarize myself of my Trading Tasks, System and Daily Procedure. For readers – this is a big topic and would differ to each Trader. I mentioned above examples of Strategy and Trading Concepts that form part of your System. Trading Tasks and Daily Procedure will help you run your business correctly – things you should know to learn “how to ride the waves”. I will discuss them in the next articles. (So Help Me God! 🙂 )

If you are feeling a little bit overwhelmed, (or you are a bit worried – very normal and that’s OK) just remember “The Little Engine That Could”…. I think I can, I think I can, I think I can….

—————————————————————————————————–
The Little Engine That Could
(Pulled this Children’s story from Wikipedia in a minute – don’t we live in amazing times!)
A little railroad engine was employed about a station yard for such work as it was built for, pulling a few cars on and off the switches. One morning it was waiting for the next call when a long train of freight-cars asked a large engine in the roundhouse to take it over the hill “I can’t; that is too much a pull for me,” said the great engine built for hard work. Then the train asked another engine, and another, only to hear excuses and be refused. In desperation, the train asked the little switch engine to draw it up the grade and down on the other side. “I think I can,” puffed the little locomotive, and put itself in front of the great heavy train. As it went on the little engine kept bravely puffing faster and faster, “I think I can, I think I can, I think I can.”
As it neared the top of the grade, which had so discouraged the larger engines, it went more slowly. However, it still kept saying, “I–think–I–can, I–think–I–can.” It reached the top by drawing on bravery and then went on down the grade, congratulating itself by saying, “I thought I could, I thought I could.”

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Oceans of Opportunities

January 11, 2011

So Inviting! Bohol, Philippines - by Ingrid

Let me say it again, Trading is a way to multiply your returns through “buying low and selling high” or “selling high and buying low”. Also that Trading is a way to make money from your ideas.

Therefore, as mere ideas, opportunities can come and go on the “markets”. Just stepping back a bit, a “market” is like the same thing in everyday life, it’s basically where buyers and sellers meet. There’s a general market (which have “everything”) or specialized — fish market, flower market, produce market (fruits and veg etc), – these days there’s even online markets like eBay,TradingPost etc. I think back in my days in the Ship for Southeast Asian Youth Program, we visited 7 countries in 2 months, I like to check out the markets in every country we visited.

Market Day - photo by Noel Abejero

The markets are a bright contrast. I think it is a disadvantage to people living in “developed” societies not to have the daily scenes of a market. When we need something, we go to the “supermarket” where there is only one seller so they just post how much they want for something and that’s it. Not much excitement there. Being exposed to a “market culture” you can readily see the market in action, that there is movement, even chaos… prices go Up, when there are a lot of people buying, Down when too many sellers eager to sell, or Sideways when there is uncertainty, it could also be Quiet when there is not a lot of participants (e.g. low volume of buyers and sellers).

It is often a very fluid situation at the short term on any financial market. So I like to think about the financial markets as oceans, like the real world oceans, they are distinct (Indian, Atlantic, Pacific,) and yet they are one (interconnected).

Let’s cruise …

Sailing in Boracay,Philippines - photo by Fr. Noi Azupardo

First let me describe some markets or investments and the opportunities they present
• Stockmarket / Equities
• Bonds
• Foreign Exchange
• Commodities
• Derivatives
• Funds
• Real Estate

The stockmarket is where a company’s stocks (also called Shares) are traded. An investor who wants to put his/her money expecting capital gains and/or regular income (“dividends”) could buy shares. Each “share” represents ownership of a company’s assets less its debt (net assets). A ‘share’ is issued by a company for owners’ to cash in on their investment or to finance its growth. After the first issue (or Initial Public Offering) , they are traded in the stockmarket so that people can get in or out of the investment.

You will also hear about an “Exchange”. The “Exchange “ is responsible for matching the buyer and the seller who should both transact in the same exchange. This is because a company can be listed (available for buying/selling) in more than one Exchange. For example, Sony – Japanese company, maker of electronic goods with worldwide presence is listed in the New York Stock Exchange and Tokyo Stock Exchange. So an investor buying Sony stock in Japan will transact with investor selling in Japan, the Tokyo Stock Exchange will match them.

Bond market – Bonds are debt investments. Governments and companies issue bonds to finance their operations. So if you invest in bonds, you are lending your money to them. In exchange you get regular interest payments and you get your money back at a certain time – the “maturity”. Bond market is usually made up of institutional investors (like banks), governments, or a sprinkling of wealthy individuals. These days, if you want to invest in bonds you may do so through an investment bank or join a pool of investors through a “mutual fund or “exchange traded fund” (more details below).

Foreign Exchange (or FOREX) market — Wayyyyyy back in history, when trading of goods and investment went beyond territories, a way to convert “currencies” was devised. After all, buyer and seller have to agree on the value of item being traded, say silk, which could be 30 dollars equivalent to 50 dinar. A currency is used by a country or a group of countries that have agreed to use the same currency. FOREX market is the biggest in the world, averaging $3.98 Trillion daily which makes it very liquid (easy to get in and out of) and attractive to traders. The FOREX market presents opportunities to gain from the increase in value in one currency or to get more return from interest rate payable on your funds when converted to the currency of another country (or both!). It has been said that money will go where it is treated best. Australia’s official cash rate is 4.75%, the highest among the most developed (and least risky) countries, Japan’s interest rate is 0 to 0.10% . Where will your money earn more? You do the math!

Commodities market – where physical, raw or primary products are bought and sold in standardized contracts. Examples are agricultural products like corn, soybeans, cotton, wheat, sugar. Energy products like crude oil, natural gas, heating oil. Precious metals like Gold, Platinum, Silver. Industrial metals like Copper, Steel, Zinc, Aluminum. Economic situation also affect the movement in prices as poor economy would result to lower demand and dampen the prices. In times of crisis some commodities like gold and oil tend to attract investment as they are thought of as “safe haven” or critical asset. Commodities trading involve physical delivery of the product, although thanks to the fertile imagination of finance professionals, Derivative contracts are also now traded.

Other Investments

Derivatives – these are financial contracts that has value “derived” from an underlying asset (such as share , currency or commodity) . The common types are Swaps, Futures and Options. Traders use Derivatives for leverage (e.g. profit from a move in value using small amount of cash ), speculate or take profit if the value of the asset move as expected, hedge or protect from risk especially when they hold the asset, participate in a trading opportunity when not possible physically e.g. Oil – if you don’t own a warehouse you can’t take delivery of barrels of oil. I trade Options on Oil Stocks, apart from the benefits mentioned above, I like the idea that I can earn an income while protecting my stockholdings, effectively lowering my risk and increasing my returns. It’s a bit complicated, but helpful to lower your risk — so it is totally worth the effort. More on this later. 🙂

Funds – investors could put their money together into “funds” — with other investors to invest in assets. A fund manager would usually manage the money. You might have heard of “mutual funds”, “hedge funds”, “pension funds” or “exchange-traded funds (ETFs)”. Also, Sovereign-wealth funds – which are money managed by the government in behalf of their people/ state. Among the above mentioned, ETFs are the only funds traded in the stock exchanges. ETFs provides profit opportunities for an investor where he may not be able to do so alone. For example, buy Gold ETF instead of physical gold – when you don’t have huge sum of money and storage, or Country-specific ETF that can let you profit from strong growth in companies doing business in countries like India, Brazil, Indonesia or South Korea. ETFs are sold in units and are traded like stocks in that it is allowed limit orders, you can short sell (sell first to Open transaction and Close to Buy back order), and carry out Options trades.

Real Estate market – Of course, who can forget real estate? It is just not popular now but people borrow/still put money in it though, after all, we all need somewhere to live or conduct business on. There are many kinds of real estate investment– residential, commercial, rural property, etc. there are also “group investments” like property syndicates, REITs (Real Estate Investment Trust) etc. Rental income from tenants and capital gain from increase in land value are the main reasons to invest in real estate. Do you hear that? Not, “the tiles were a beautiful sky blue” or ornate fireplace or you’d have a chance to pay less tax. (Alarrrrm bells! If you are being cajoled into investing in property harping about the tax benefits, run away! More details later, promise.) Real estate is just not too profitable at the moment because of the Global Financial Crisis, banks used to advertise willingness to lend 100% to buy a house. Now credit is harder to get. Which is a good thing. Some people need to be saved from themselves.

A Super Ocean

This brings me finally, to say I believe all these markets are interconnected and affect their performance, or movement. I mentioned the idea that “money will go where it is treated best”. If you have any doubts about this, just think of Retirement. By then, you won’t / can’t work and income have to come from somewhere. So to provide for the future, early on, money is put to where one can get the best returns. Say at 25 years old, you put your money in a term deposit account paying 6% over 40 years, with compounding (means keep adding the earnings to the original amount), an initial 10,000 investment becomes 102,857 (roughly) – which you are supposed to live on for the rest of your life. Say another 20 years, it’s not enough is it? That’s why you need to keep adding on your retirement fund AND make sure you get the best returns.

And where are the best returns you might ask?

The Information Age have made it so easy to know what happens on other parts of the world. Just before I went to sleep last night, I checked the markets and Europe stockmarket was down due to debt issues with Portugal, there is fear that the government can not pay back their debt (the bonds that investors lent on). I woke up with Gold moving up $4.50 as it is thought of as “safe haven” from weak currency or too much “wild swings” (volatility) of either Euro or US Dollar. The US market which opens following the European market fell 100points at the start of the session, when seemingly, it recovered since there were some upbeat news about US companies, though more companies fell than rose and session still ended lower. Big money could move to invest in growing economies with less debt worries – Indonesia, Thailand, VietNam, or the robustly growing India, Brazil and China. That’s why US companies that get a lot of revenues from these markets also report high earnings which excite the stockmarket. OK before anyone runs out to invest – I am just describing what happens in the markets, the Up / Down moves are not predictable. One time, there was even a very poor Jobs report in the US but the stockmarket even moved up 100points and kept inching up for 2 months or so because it is believed to justify the US government’s spending to stimulate the economy – a case of “bad news is good news”. In May last year, the US market plunged 10,000 points in a matter of minutes, and recovered in a matter of minutes, people offered different explanations, like someone with a fat finger entered wrong trading price and following that, technical sell signals were triggered by computer programs. Eventually, months after and even after government investigation, no one figured it out.

Alright, so these markets move a lot and affect each other. This leads me to share what I’ve learned that the financial markets, is like a vast, complex, dynamic Super Ocean. I spent countless hours trying to know everything I can, with no spectacular result. It turns out you don’t have to. It is what it is. I think women can easily accept this truth, just like… when a man you shared a few good dates with gets cold, … “he’s just not that into you”.

As a trader you don’t need to know everything about the Super Ocean that is the Financial markets, you just need to know how to ride the waves. 🙂

Ride the waves - photo by Noel Abejero

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: Girl Power Trading

: financial markets, investing, market knowledge, trading for women

The Need to be Right and Other Myths

January 7, 2011

So I said earlier Trading is simply Buying and Selling.

When I first tried to learn to trade – went to seminars and read books and first things they talk about is how to open a trade or “Entry” techniques… then comes a parade of Oscillators, Stochastics, Bollinger bands, Fibonacci numbers, Moving Averages (exponential, weighted etc)… just hearing these terms already give me “indicator overload” and confuse the *%r$^ out of me! I guess for years I just traded using the simplest indicator (the one that I actually understood? Then forgot which one now)….after all so many Myths abound in Trading. I am writing about them here in the hope that it won’t stop you to learn to Trade or altogether get messed up!

Here are my favourites :

1) Myth 1 : The Need to be Right — why Entry techniques or use of indicators are so popular is because traders have a need to understand, need to explain, need to be right. In the book “Trade Your Way to Financial Freedom” by Dr. Van Tharp, I picked up the idea that “Being right has very little to do with making money”. Traders think they can control the outcome of their trading by knowing everything there is to know before entering a trade, the truth is, after Entry, the market will do whatever it is going to do. HAHAHA

Discovering this idea is so liberating. I don’t have to “sweat the small stuff” trying to understand and explain. So in my Trading, I include in my preparation reading about what is going on in the market, what has happened in the share price – but I always give myself an allowance or room to move, after all, I can be wrong. (Don’t tell my children…;p )

2) Myth 2 : It’s Risky Business – Risk is found in every worthwhile activity of humankind. A life-saving surgery has risks. Driving has risks. Even a pleasurable activity like Shopping has risks. (what overspending? ). Key is to understand and prepare for what the risks are. In Trading, most of the risk is not exercising Self-Control.

My favourite analogy with Risks is Trading and Driving. Let’s see, how does one get into trouble with both :

a) Not Focusing at the task at hand

b) Not following the Rules

c) Overconfidence

In Trading, it is worth mentioning that you make Trading Rules that is right for you. If you don’t have a set of rules to follow, stop trading, work out the system and paper trade. You’ve been warned! I made this mistake too,,,my company was a “non-profit organization” for years ;p

3) Myth 3 : Losses are bad – Do you ever get a telemarketer from a big company (tempted to mention a pesky one here) calling to offer you a “Special Deal” and yet you still don’t want it? You just costed that company money because of the time, staff, tools and communication costs to contact you and try to make a sale. That’s a loss. And yet they are still in business (wooo hoo!) Somehow, the telemarketers generate a sale from other leads. Same is true in trading. You don’t have to always win in order to be profitable. You have to make Losses a part of Trading. Key to Trading is keeping Losses small and make a winning trade’s profits grow as big as possible. So spend a lot of time learning and mastering how to do Profit-taking EXITS, rather than Entry strategies that get so hyped up.

Say you have $10 and for every trade, you spend $1. After 10 trades, you have 7 losses of $1 and 3 gains — 1 of $3 and 1 of $5 and 1 of $6. You lose 7 times amounting to $7 however your gain from 3 trades is $14 which gives you a total profit of $4 or 40% of equity. Compare that with a Term Deposit here in Australia, the highest in the world at 6% annual rate …. What is not to like?

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: market knowledge, risk management, trading concepts, trading for women, Trading Losses

It’s not me, it’s YOU!

January 5, 2011

Happy New Year! I hope that through Christmas and New Year holidays you were able to reflect on the past year to power you through the future! My Indonesian friend “Dewi” who volunteered to be a “guinea pig” of my “trading for women learning program” told me that when she read about my background, she thought business is in my blood, like it’s easy for me. I heaved a heavy sigh on that one, to me it’s like – yeah, blood, sweat, tears and some other facial fluids! Hahaha Tell you what, my background was no big advantage (it even had a slight disadvantage because I was too opportunity-oriented rather than “risk aware” especially in the beginning). I started to learn Trading skills from scratch. So can YOU!

I tossed around for a while if I should tell you, as in now, in this article, about the most important factor in your Trading success… After all, 8 years and so many months after I started this business it really didn’t sink in until a few days ago (hehehe) JUST HOW IMPORTANT it is to make it the cornerstone of every trade I do! Like what I said in the Welcome page, there are tons of material out there, but a lot of them would push ideas about “cutting-edge entry strategy, “secrets to win in the Market” etc. I am sure a lot would be persuaded by the arguments, tell you what, most of them could work! The financial markets is a dynamic, complex environment that anything could be accommodated and be profitable (at one time or another, hehehe). But what is the most important factor in achieving consistent Trading income? That is the question!

I am reminded about McDonalds. Do you know what makes the money for McDonalds? Yes! Sure, heck, “why do you ask this question” you would say. McDonalds is equal to Hamburgers. But wait, is the hamburger what makes money for McDonalds? Aha! … Think, think, think! Ray Kroc, founder of McDonalds Corporation, aggressively built the business (from 1955) with a solid, industrial-mode “System” – one which can even have high-schoolers run the business and make your order to exact standards (where the hamburger sold in Brunei has the same look and taste as one sold in Dubai). However, with all the money being made by the hamburgers produced from the System, they also have a research, development and training facility and unrelenting advertising campaigns that is expensive, it was said it kinda just breakeven. It has been revealed in business schools that what really made money in their franchise model was the real estate owned by the corporation where every store stands and franchisees pay rent on. Consistent income that got McDonald’s on a firm foothold into the Dow 30 (The Top30 American companies by value that indicates the strength of the American economy ; formally known as the Dow Jones Industrial Average or DJIA or simply, the Dow). It pays to know what consistently makes the income.

http://money.cnn.com/data/markets/dow/?page=2

Now let’s go back to the Trading business. I talked about Trading as : Buying Low and Selling High. In an earlier article “First Things First: Why Trade?” — I outlined a set of Rules to do Trading, this “set of rules” is an example of a simple System. It is basically a shortcut to decision-making on when to take an opportunity, when to get out and make the most money from it. However, like in the McDonald’s example above, it will help you run the business, but it does not make the money. Especially when you are just new in the Trading business, you need to create, follow, review and improve your System. In all these activities, there is YOU. YOU are the most important factor in your Trading success.

In my case, I think I have a fairly effective, simple System that I have developed. For 6 months, the result was a profit 40% of my capital (target was 60% per year), the System delivered like a dream as I consistently followed it. Then I went to a seminar and excitedly tweaked it with what I learned (without testing) and the result was a nightmare hehehe. Other stories are about lack of self-control. My System for example tells me to only risk $200 but I was staring at the prices and just didn’t follow the stop loss, so it ballooned to a $600 loss. On that same trade, get this, I have a set of procedures, but I didn’t follow it because I was just too excited to jump in as the price has moved in my favour, though I haven’t done the complete risk assessment as called for in the procedure, it turned out the move was short-lived and reversed, but I could have captured a good move had I chosen a strategy for a longer timeframe (a step in my risk assessment). I remember that day was near the close of the month and I wanted to “prove” that I was making consistent monthly income. HAHAHA So there, my System is fine. I was the one who did not follow it.

I said earlier that it is so important that I really have to make it the cornerstone of my trading, in every trade I do. I like to call it Self-Mastery. The doing when something needs to be done and NOT doing when it is not supposed to be done (self-control). I have heard about people saying that in bringing out one’s best “think like the rent is due tonight” or that “there would be no food on the table”…like you’re pressured to perform. That doesn’t work in Trading. You don’t go out and chase profits. You patiently wait for the opportunity, seize when it comes, drop the trade when unfavorable to limit your loss, when the market moves favorably wait/allow to reach your target or move it further till the market reverse and take you out. All this combination of waiting, acting is necessary in Trading that’s why I say Self-Mastery is important in consistently making the income from Trading . (The doing and Not doing at the right time).

…. sounds like Smart Shoe Shopping to me! Don’t you agree? You don’t just go and buy any shoe, you try it on, walk it, if it looks good but hurt your feet, you’d think about it more and move on to try another one. You can try five shoes and it’s time well spent. Then there’s the price factor – is it worth it? You take a look, think it over and if it really feels good overall then you buy it. Told you there’s a lot of women’s shopping wisdom useful in Trading!

So how do we achieve Self-Mastery? I think it starts with being personally responsible. Knowing that mistakes were made and go about analysing what went wrong and what should have been done or better. And being guided with that, to do the correct action that the situation required. You also need to be in good health in body and mind. The thing that I like doing that does good to both is to take long walks. I prefer early in the morning but late afternoon will do is OK if I’m too busy in the early morning. It gives me the exercise, relieve stress, clears my mind and help me to reflect, pray, think things through and be positive.

Physical well-being is a big topic that I am sure has coverage in the media so help yourself to those resources in the meantime. My main strategy in this area apart from walking, is to eat fresh! Mental well-being is a delicate topic that I can only refer you to the best resource I know — Dr. Van Tharp has this covered in Peak Performance Home Study Course as well as workshops starting with Peak Performance 101. (I did both that revealed so much of what stops me from being successful. Life-changing! )

My short and sweet advice to you though in mental well-being is this : strive to be happy 🙂

Sounds like a New Year’s Resolution doesn’t it!

————————

Thanks to Wittner for allowing me to use their shoe images.

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Trading: Make money off people who make money from you!

December 31, 2010

Jumping off from the other article about why you would consider Trading – that it is a way to multiply your returns through “buying low and selling high” or “selling high and buying low”. Mainly I think, Trading is making money with your ideas.

We can form our ideas that will be profitable even just from our everyday lives. Say I have the idea that more and more people are going to be able to buy cars (because of the booming population in Asia for example and India is even producing low-cost cars at $2000) there will be more demand for gasoline that make the cars run. I now have an opportunity to make money from this idea. Big money can buy the Oil itself. But as a small investor, I can buy shares of companies that extract the oil, or the refiners (oil need to be processed to become gasoline) or the petrol company. I recall the widespread complaints at buying petrol when Oil reached $147 in Jun 2008. I was not too worried because I have an oil stock. I liked that I am “protected” from these price increases, because the oil stock price went up as well. Same goes for food. To make plants grow, we need fertilizer. And there are companies who make it. To fatten cows, poultry etc we need corn feeds for example or other grains that need to be grown. Since population continues to grow and people will need basic necessities , I can make money from this idea by buying the companies that produce or sell them (the retailers) . There will be more and more ways to communicate, is another idea . Even a fridge can now communicate about not having enough food right? Now that’s a cool fridge. Nowadays, you can’t live your life without a phone and there are companies who make the phone, sell the phone as well as companies who provide the communication service. Another idea is that Women are a booming market and increasingly powerful demographic, all sorts of products are aimed at women (see the pink cars now!) . By buying shares of the companies aiming to cash in on women’s buying power you can now have a stake in the growth of the company. It’s like getting a “refund” from buying all those make-up, clothes, shoes and bling! Trading is a chance to make money off people who make money from you!

To be able to trade I only need a computer, pen and notebook, internet to connect to an online broker (they place your buy and sell order for you and hold your funds). To form my ideas I need trading education and market knowledge from books, go to seminars, read news, articles (blogs) and newsletters. That’s basically it and all within my control.

I am soooooo thankful that this business exists! Unlike a restaurant business, for example, apart from money , you need people, real cooking skills and knowledge of food, suppliers, place of business , advertising to get customers etc. I don’t have to have / do an inventory of products. I don’t have to go anywhere I don’t want to go. I was recruited in a network marketing business before and gosh have to travel all the time even on weekends and even at night. I was pregnant by then and didn’t think it was a good idea to be on the road that much. Back when I was active in real estate, there are legal and taxation issues that really have to pay attention to as the consequences are severe. I think this is the least stressful business I have ever done! (Hint: If you are stressed, need more trading education)

I have an Indonesian friend who asked me to teach her, and I asked her what attracts her about it. She said she doesn’t have to sell or influence anybody, because she’s basically a shy person. I thought I “wasn’t artistic enough” to create beautiful products, but I can sell them so trading is a good fit. Another person I met, Jewish guy from South Africa is very friendly and outgoing and has his own store, he trades because he imports what he sells (he pays for the goods he gets from Germany/ HongKong etc in US Dollars) and trades currencies piggybacking on his current business.

Trading is simply making money from your ideas. I think it’s a beautiful thing!

_______

On Trading Education :

There are tons of material out there and most are confusing, conflicting and outright wrong. Allow me this shameless plug for Dr. Van Tharp — see www.vantharp.com. The education program is a bit advanced — for trader with some experience already — but IT WORKS people!

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: investing for women, trading for women, trading tools, why trade?

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