Showing posts with label Money Management. Show all posts
Showing posts with label Money Management. Show all posts
Monday, March 29, 2010
I Am SO Fraidy!!
Since I got to breakeven with my GBP/USD position, which admittedly went to financial hell and back, I got out of the position and I'm now in again at a few pips below my original entry level. My reasoning is mainly fraidy.
I was in this trade and I was thinking: I'm in this long GBP/USD trade and it has to go up because I'm in it. It was the whole TETSOB thing. Then, I realised... hey, isn't this the trade setup that I usually like to short?? And it was that very familiar setup indeed, but I didn't see it because I was long. So, I said, I'll get out, recover my money and try to get in again before the night is over, which I've done. I halved my original position and got in at just a few pips below my original entry - in case the Guys of London decide to try on some little black dresses just for fun. I'll be able to hold onto my beret (not that I have any).
I know how lucky I was and in hindsight, GBP/USD could have totally disregarded the bullish divergences. But the Guys of London did the whole Alpha + Tall European Muscular Men thing.
I don't want to go through another week of not knowing if I'll be able to withstand some more GBP/USD volatility, so I'm trying to keep my account flexible. After all, it's tiny.
If you're going to have a big account, it shouldn't be because you're afraid of overleveraging it. It's to maintain your financial agility and flexibility, isn't it. But don't be overly TETSOB - or overly fraidy!
I am so emotionally volatile though...
Good night and Happy Shiny Profit Taking to everyone!
Monday, December 7, 2009
Learning To Ride Trends...
When I first started trading, I used to take really minor profits. I didn't know anything about money management strategies, but through a lot of trades with very minor profits, I was able to achieve a ROI of about 12% in my first year of trading. I had very little capital back then - even less than I have now. I remember only being able to own three or four stocks at a time then. So that first year of trading was actually pretty good for me.
Back then, I was trading the following stocks:
AMZN... bought at around $32
BHP... bought at around $45
TIF... bought at around $32
AMD... bought at around $21
ET (now known as ETFC)... bought at around $23
ABER (now known as HWD)... bought at around $33
In hindsight, I made some drastic mistakes by not realising that AMZN, BHP, and TIF could have been worth so much more. I didn't realise the importance of learning how to ride a trend. AMZN could have been a $10,000 profit for me - at least.
If I took profit on all my winning positions today, I'd have a ROI of 13.7%. However, I'm sticking to my plan, looking to the long term, and learning how to ride a trend this time.
I realise that by withdrawing from my portfolio in favour of PDO, I might be engaging in some serious self-sabotage. I could be staring at very stellar stock market gains six months from now and be lamenting that I should have kept more of BAC.
Finally, I think I've gotten to the point in my trading where I'm saying I deserve more from this position.
In my diva opinion, the best thing that could happen to your money management is owning a lot of shares at the lowest price. Duh! But implementing it flawlessly?
That requires a lot of skill!
Sunday, October 11, 2009
Am I Better Off Today Than A Year Ago?
Getting into the global financial crisis, my portfolio was in really bad shape. I had committed financial suicide with:
a. shopaholic tendencies
b. a substantial forex trading loss
c. terrible portfolio diversification
d. all of the above
Now, a little over a year after Lehman collapsed, I am asking myself whether I am better off today? Did I learn enough? Did I do enough?
Throughout the crisis, I invested another high four figure sum into my equities portfolio. After all this, I am better off percentage wise (+6.93% to be exact), but not in dollar terms. However, if I had just sat back and let the market take its course, my entire portfolio would be -70% today with no recovery in sight. That's a scary thought.
I've had some winners and some losers. But all in all, when I had averaged into a position, I ended up better off the majority of the time with the exception of C. I've got to turn this one around.
When I think about it, I still might have got it all wrong. I mean, I spent more on my Big Holiday than I did investing in my portfolio.
The bigger question, I suppose, is will my JBQ strategy work? And that takes time to ascertain.
I wish Rusty would say something - anything...
In the meantime, I keep telling myself that the darkest hour is right before dawn.
a. shopaholic tendencies
b. a substantial forex trading loss
c. terrible portfolio diversification
d. all of the above
Now, a little over a year after Lehman collapsed, I am asking myself whether I am better off today? Did I learn enough? Did I do enough?
Throughout the crisis, I invested another high four figure sum into my equities portfolio. After all this, I am better off percentage wise (+6.93% to be exact), but not in dollar terms. However, if I had just sat back and let the market take its course, my entire portfolio would be -70% today with no recovery in sight. That's a scary thought.
I've had some winners and some losers. But all in all, when I had averaged into a position, I ended up better off the majority of the time with the exception of C. I've got to turn this one around.
When I think about it, I still might have got it all wrong. I mean, I spent more on my Big Holiday than I did investing in my portfolio.
The bigger question, I suppose, is will my JBQ strategy work? And that takes time to ascertain.
I wish Rusty would say something - anything...
In the meantime, I keep telling myself that the darkest hour is right before dawn.
Sunday, September 27, 2009
Retirement & IRAs...
Ever since I officially got Age 30 stamped on my forehead, I've been feeling a lot more pressure with regard to establishing and developing my financial security. Considering that I'd like to go for the Early Retirement option as well, I now have at least 70 years of financial responsibility on my shoulders due to the need to reverse 30 years of fiscal irresponsibility as well as 40 years of retirement income to be built up. That's a lot to achieve in a very short amount of time.
Whilst I look forward to the day that I will no longer be able to contribute to my Roth IRA as that would mean that my salary has skyrocketed, I am still taking every advantage of it whilst the option is still available to me. And why shouldn't I? It's obviously got a lot of perks.
Looking back, I've committed some IRA mistakes I wish I hadn't made, including:
1. starting too late. I was only able to contribute to tax years 2007, 2008, and 2009 so far. I should have done it sooner.
2. imperfect asset allocation. In hindsight, I should have allocated more Roth IRA funds to low beta / high dividend stocks. Additionally, I should have placed some of my bond purchases in my Roth IRA rather than my regular brokerage account. In the future, when I perfect my forex trading strategy, I might also consider allocating a good amount of capital to a Roth IRA forex account.
3. not trading enough. I am a firm believer that the buy and hold strategy should not be applicable to an IRA account. Even with a low beta / high dividend strategy, I believe there are times when it makes total sense to rebalance the portfolio by cashing in on some investments and waiting for another buy opportunity.
4. not including CDs, Municipal Bonds, and Treasuries in my asset allocation. Though the yields are usually lower on CDs, Municipal Bonds, and Treasuries, due to the tax benefits, these asset classes could make a lot of sense in a Roth IRA at certain points in time. However, current fixed income yields at this point aren't at the irresistible levels they once were earlier on in the year. We're now looking at less than 7% yields on long term bonds, which to me isn't sufficient ROI - especially on corporate bonds, considering the higher default risks.
5. placing a junk bond in a Roth IRA. When I first started out in junk bond investing, I thought I did the right thing by placing Ambac bonds in my Roth IRA. Whilst I was able to collect some tax-free interest on this bond, due to Ambac's failure to pay interest on this bond issue, the cash is now not only idle, but I wouldn't be able to write it off as a loss and take a tax deduction on it. This is because it is much more difficult to take tax deductions on IRA accounts.
It might be wishful thinking, but I wish the government would get rid of social security for Gen X & Y and just enable us to contribute unlimited amounts of money to our Roth IRAs.
Tuesday, September 22, 2009
Cut Back or Make More Money?
I've been a fan of the Shopaholic book series for a few years and in the recent movie, the producers omitted a very important bit of financial advice that Becky's Dad always told her: "You know, there are two solutions to money troubles... Cut Back or Make More Money. Which is it to be?"
To which she replied, "Oh, both, I expect."
I rather like the idea of making more money better than cutting back, but have learned that indeed, Becky's actually right in that you need to both cut back and make more money.
This interesting article was a fun read, but having been on a very strict financial diet myself for a few weeks, I'll tell you cutting back is no fun and definitely unsustainable if you don't want to feel trapped in a boring, oppressive lifestyle.
Yet, if we allow ourselves to be undisciplined, no matter how much we make, we'll always have more month left at the end of our money. This I know too well. Once you start making more money, you'll want a different lifestyle and you'll have different standards of luxury as well. At least it was true for me. Did I always want an Hermes handbag? Or Bulgari watches? Or Harry Winston? Probably not always. But when you get close enough financially as to be able to afford luxury items, they will become somewhat of a necessity. It's kind of addictive, really and there's no point in being half-hearted about spending. If you're going to spend, then do it with some passion, right?
It's a very fine balancing act - cutting back vs. making more money.
Wednesday, September 2, 2009
I Can Stop Feeling Guilty Now?
At one point, I was contemplating completely getting out of distressed debt investing (i.e. junk bonds) because I was feeling so guilty about the potential karmic retribution that might result from bandaid ripping. I know it sounds crazy, but I'm convinced that people reap what they sow.
Now, I see Pfizer being fined $2.3 billion for what should be deemed broad-based bribery of medical professionals. How can this be called a marketing breach of conduct? This has nothing to do with marketing! It's pure, unadulterated bribery.
I swear... lawyers and marketing people get such bad reputations. It gets me so ticked off.
Anyway, I digress. My point is, after seeing this article, I felt less guilty because my bandaid ripping is clearly nothing compared to this.
I did not cause their financial mis-management. Plus, distressed debt investing can potentially yield lots and lots of ROI.
Imagine a distressed debt portfolio with a face value of $2,000,000. You could build a portfolio like this with just $0.01 on the dollar if you time it right. If you make just a $0.01 on the dollar return, that's already good enough for Hermes. A $0.10 on the dollar return puts you inside the Harry Winston on Fifth without the sales representative laughing at you and showing you the door.
Oh, maybe there's hope for me after all.
Sunday, August 30, 2009
Trust Fund Babies Are So Lucky...
Jealousies aside, trust fund babies must be the luckiest people on earth.
I wasn't born a trust fund baby - far from that. However, I have been strategising on how I can one day start having real financial freedom.
To me, freedom means having enough assets that will generate enough perpetual cash flow to cover all my living expenses for the rest of my years. I wouldn't owe anyone anything. I would be able to essentially do whatever, whenever by essentially resting on my laurels. LOL.
Depending on what sort of lifestyle you're actually aiming for, financial freedom could probably be achieved by most people.
As much as I enjoy working for my boss when he's in a good mood, I've been daydreaming about The London Luxury Lifestyle for a while now and since I don't want to be all talk and no action, I've been thinking about concrete ways to implement this over the next few years. My London Luxury Lifestyle would not only involve lots of Hermes, but also housing in a fashionable area of London, whatever I feel like eating, taxi rides everywhere, a good spa visit whenever I feel like it, and a holiday every two months if I wanted - basically a very OTT + diva type of lifestyle. Suffice to say, if everyone spent like me, we wouldn't ever be in a recession.
The good news is that I wouldn't need millions in my Freedom Fund in order to get to this lifestyle. If I increase my annual ROI target, a mid to high six figure sum would be sufficient. However, the key is to ensure that your ROI target remains consistent and achievable. In addition, it also involves intelligent use of leverage.
I feel adamantly about not using leverage if you are still learning the market. Leverage should only be used if you actually know what you're doing because it is very much a double edged sword. However, I'm admittedly conservative.
In addition, discipline plays such a key role. Remaining rational is so critical to success. So far, I've been taking time off from the markets whenever I want because I can. If I had to trade full time, would it be so easy to step away from the market?
Since I'm not getting any younger, the pressure's decidedly on.
Last Week's Trading Was A Disaster...
Not only did I let go of C at precisely the wrong time, I ended up doing the same with AIG. I believed in C more than AIG, but given my lack of conviction on where the market is actually headed, I had to make a choice and unfortunately, I made the wrong one. LOL. At a cost. COL. That's crying out loud.
It did make me realise how much I want to keep BAC, NYX, and HWD in my portfolio over the longer term.
I've always made it a point to invest in companies that mean more than shareholder profitability and with AIG and ABK, I really felt like I was getting off track.
Now that I know there are actually people reading my blog, I feel even more motivated to actually stick to my plan. It'll be like someone's indirectly auditing my trading and making sure I put my money where my mouth is.
Where did I go wrong with C? I got out with a limit sell rather than trailing my stop to exit the trade with a profit. If I had used a trailing stop, I could potentially have gained more on the trade.
Where did I go wrong with AIG? I bought it in the first place, which was against my overall trading philosophy. However, having bought it, I exited with a trailing stop that was much too tight. Whilst I kept moving my limits up on the trade once I saw the market offered potential for greater profits, the tight stop limited my profits significantly.
Overall lessons: I like moving my limit up according to market volatility and market potential. If the market's bullish, there's no reason we shouldn't keep raising our limits. I should also make the trailing stop my exit strategy more often and perfect it to maximise gains and minimise losses.
Hindsight is 20/20 and I'll try not to beat myself up about it too much. However, I reckon reminiscing on these two trades will be COL moments for some time to come.
I suppose the really good news is that once I get rid of ABK and AMD, I am well on my way to having a portfolio that I could be proud of in principle. This means that all the companies will be ones that I actually believe in. Whether they end up being profitable is another story.
It did make me realise how much I want to keep BAC, NYX, and HWD in my portfolio over the longer term.
I've always made it a point to invest in companies that mean more than shareholder profitability and with AIG and ABK, I really felt like I was getting off track.
Now that I know there are actually people reading my blog, I feel even more motivated to actually stick to my plan. It'll be like someone's indirectly auditing my trading and making sure I put my money where my mouth is.
Where did I go wrong with C? I got out with a limit sell rather than trailing my stop to exit the trade with a profit. If I had used a trailing stop, I could potentially have gained more on the trade.
Where did I go wrong with AIG? I bought it in the first place, which was against my overall trading philosophy. However, having bought it, I exited with a trailing stop that was much too tight. Whilst I kept moving my limits up on the trade once I saw the market offered potential for greater profits, the tight stop limited my profits significantly.
Overall lessons: I like moving my limit up according to market volatility and market potential. If the market's bullish, there's no reason we shouldn't keep raising our limits. I should also make the trailing stop my exit strategy more often and perfect it to maximise gains and minimise losses.
Hindsight is 20/20 and I'll try not to beat myself up about it too much. However, I reckon reminiscing on these two trades will be COL moments for some time to come.
I suppose the really good news is that once I get rid of ABK and AMD, I am well on my way to having a portfolio that I could be proud of in principle. This means that all the companies will be ones that I actually believe in. Whether they end up being profitable is another story.
Sunday, July 26, 2009
What's Your Excuse?
Lately, I've been thinking more about my forex trading money management strategy. I have yet to implement my new money management strategy below, but was my old one a double edged sword? Is my new one better? Am I contradicting myself to my detriment?
I'm always getting out of the market with at best + 10 pips. This happens on the majority of my trades. I know the more serious traders out there probably think this is really bimbo and maybe it is. However, I've done much worse in the past. Before, I was one step forward, five steps back. Now, I'm one step forward, two steps back. Is that ideal? No, but it's an improvement - so one gold star for me, although I'll hold off on the couch-jumping until I actually start making serious profits.
My best win YTD was +249.08 pips. My worst loss YTD was -74.33 pips.
I haven't had a really good trade since January.
Technically, I'm losing 74.77 pips this year. Don't forget I also blew up my trading account about two years back and am still not breakeven.
There's no turning back now. I've got my work cut out for me. If I keep trading little black dress (bearish divergence) and little red dress (bullish divergence) and finetune my money management strategy, my strategy is going to be sustainable. I have stopped the downwards trajectory and that's a small victory.
I know I have to keep at it - it's boring and I'm going at the pace of a turtle, but turtles are known for their longevity.
I honestly asked myself, am I still making excuses for myself for not being a better trader and for not going faster?
Well, I've now got:
1. a better strategy than coin flipping
2. a much more level-headed perspective on the market
What have I got to improve?
1. continue to keep my discipline
2. do the analysis and trade my plan - don't get into any more impulse trades (what really killed me was trading FOMC and the stop & reverse & reverse thing I did back in May when I was experiencing total emotional volatility)
3. my money management - particularly where trailing stops is concerned (i.e. what is the best way to trail your stop whilst staying in the trade?)
4. figure out exactly when my strategies will work best - under what market conditions should I use little black dress (bearish divergence) vs. little red dress (bullish divergence)?
5. stop making excuses for myself. If I'm just scared of getting into a trade, I need to confront those fears. And if I'm going to condemn myself for not getting into the trade in the first place, at least I should make it a real learning opportunity.
This week, I'll be travelling, so I won't be trading or blogging all that much. Perhaps the extra time to reflect on my trading is just what's required at the moment.
I'm always getting out of the market with at best + 10 pips. This happens on the majority of my trades. I know the more serious traders out there probably think this is really bimbo and maybe it is. However, I've done much worse in the past. Before, I was one step forward, five steps back. Now, I'm one step forward, two steps back. Is that ideal? No, but it's an improvement - so one gold star for me, although I'll hold off on the couch-jumping until I actually start making serious profits.
My best win YTD was +249.08 pips. My worst loss YTD was -74.33 pips.
I haven't had a really good trade since January.
Technically, I'm losing 74.77 pips this year. Don't forget I also blew up my trading account about two years back and am still not breakeven.
There's no turning back now. I've got my work cut out for me. If I keep trading little black dress (bearish divergence) and little red dress (bullish divergence) and finetune my money management strategy, my strategy is going to be sustainable. I have stopped the downwards trajectory and that's a small victory.
I know I have to keep at it - it's boring and I'm going at the pace of a turtle, but turtles are known for their longevity.
I honestly asked myself, am I still making excuses for myself for not being a better trader and for not going faster?
Well, I've now got:
1. a better strategy than coin flipping
2. a much more level-headed perspective on the market
What have I got to improve?
1. continue to keep my discipline
2. do the analysis and trade my plan - don't get into any more impulse trades (what really killed me was trading FOMC and the stop & reverse & reverse thing I did back in May when I was experiencing total emotional volatility)
3. my money management - particularly where trailing stops is concerned (i.e. what is the best way to trail your stop whilst staying in the trade?)
4. figure out exactly when my strategies will work best - under what market conditions should I use little black dress (bearish divergence) vs. little red dress (bullish divergence)?
5. stop making excuses for myself. If I'm just scared of getting into a trade, I need to confront those fears. And if I'm going to condemn myself for not getting into the trade in the first place, at least I should make it a real learning opportunity.
This week, I'll be travelling, so I won't be trading or blogging all that much. Perhaps the extra time to reflect on my trading is just what's required at the moment.
Thursday, July 23, 2009
Bimbo In Bimbo Out: Risk to Reward Ratios
Since no one reads my blog, I have to be answering my own question here.
Our contingency plan has to be better than our original plan, right?
Why did I even make AIG my Plan B? Was I mesmerised by the glamour and glitz of a 1:23 risk:reward ratio? In trading, if you start out mesmerised, you will be tantalised by profits that seem to always elude you.
Risk:reward is only one component of trading. If we fail to get the analysis right, we are trading on emotion as much as if we were trading based on coin flipping.
Analysis trumps risk:reward in my diva opinion.
My AIG analysis was frankly bimbo. I had even failed to do my due diligence very well here. The reverse split had obviously been a public announcement. Yet, I was mesmerised and chasing the risk:reward.
1. Start with sound analysis. Bimbo In = Bimbo Out
2. Then, look at risk:reward.
3. Remember to trail your stops. Slippage is evil.
Now, if you'll excuse me, I have to get back to the drawing board. I've got some trading wounds that need to be nursed. No more excuses. No more bandaids on broken ankles!
Our contingency plan has to be better than our original plan, right?
Why did I even make AIG my Plan B? Was I mesmerised by the glamour and glitz of a 1:23 risk:reward ratio? In trading, if you start out mesmerised, you will be tantalised by profits that seem to always elude you.
Risk:reward is only one component of trading. If we fail to get the analysis right, we are trading on emotion as much as if we were trading based on coin flipping.
Analysis trumps risk:reward in my diva opinion.
My AIG analysis was frankly bimbo. I had even failed to do my due diligence very well here. The reverse split had obviously been a public announcement. Yet, I was mesmerised and chasing the risk:reward.
1. Start with sound analysis. Bimbo In = Bimbo Out
2. Then, look at risk:reward.
3. Remember to trail your stops. Slippage is evil.
Now, if you'll excuse me, I have to get back to the drawing board. I've got some trading wounds that need to be nursed. No more excuses. No more bandaids on broken ankles!
Plan C: A Contingency Plan for the Contingency Plan
I mentioned a while back that I had recently set up a portfolio targeting worksheet in Excel comprising of a scenario analysis that outlines my profit objectives at key market levels (52 week high, 50% of 52 week high, all-time high, etc). To alleviate my fears, I also calculated potential losses at the 52 week lows as a way of showing me that the worst is possibly over.
The more I think about it, the more I feel it is an over-simplified view of equity trading. With so many factors beyond our control, we really should be thinking of a contingency plan for the contingency plan.
I laugh about it now, but AIG was part of my portfolio recovery plan. I added a 300 share position in AIG right prior to its recent reverse split fiasco. From a position worth three figures, I was hoping to grow to a profit objective approaching five figures.
So was this realistic? At the time, it truly was. I could see AIG going to $32.25 from my $1.41 entry level. Now, after its reverse split, who would ever buy AIG at $621.80?
I'm definitely not an expert and you'll notice that with my bimbo posts here. But if we look at risk:reward from this perspective, shouldn't we be asking ourselves one critical question: if we set ourselves a risk:reward ratio of 1:10 or 1:5 or even 1:3, are we realistically going to achieve our target limit?
So how do we factor that into the equation? And if there are no guarantees in trading, how do we create a Plan B or a Plan C?
Because after all is said and done, our well-thought out plans could still end up being up in the air.
This AIG position is so small that I shouldn't lose any sleep over it. But then I would rather have placed this money in my Hermes Kelly/Birkin/Lindy Fund.
Tuesday, July 21, 2009
Not So Smart Afterall, ForexDiva! Trailing the Stops...
Rather than laughing at the GBP/JPY nervous breakdown, the smarter thing to do would have been to join in the downtrend. Hindsight is always 20/20 and it wasn't like I saw my classic bearish divergence little black dress setup.
Right now, I've got two trade setups I can trade with a fair amount of confidence - little black dress (bearish divergence) and little red dress (bullish divergence).
So, I'm going to do what Warren Buffett advises and just stick to what I know.
It did get me thinking though. I'm always trailing my stops haphazardly, doing this pretty much on a whim. I'm going to start experimenting with moving my stop in a more consistent way. What I'm thinking of is moving it based on a percentage of risk, which would also be linked to the probability of the trade.
Getting into the trade, I would need to set an initial fixed stop. Once the trade starts moving in my favour, I'll start trailing the stop.
I'll calculate my trailing stops as follows:
x = Initial Fixed Stop expressed in pips
y = Probability of trade
Trailing Stop = xy
So, if my initial risk is 50 pips, and I feel that this trade has a 70% probability, then my trailing stop would be 35 pips. If my initial risk is 50 pips, and the trade has a 45% probability, then my trailing stop would be 22.5 pips.
I would only start moving my stop when my profit level is equal to my trailing stop.
Essentially, the more confident you are on the trade, the less you'll move your stop.
I'll experiment with this for a while and see how that works with live trading. The question remains: how fast can I move my stops?
Right now, I've got two trade setups I can trade with a fair amount of confidence - little black dress (bearish divergence) and little red dress (bullish divergence).
So, I'm going to do what Warren Buffett advises and just stick to what I know.
It did get me thinking though. I'm always trailing my stops haphazardly, doing this pretty much on a whim. I'm going to start experimenting with moving my stop in a more consistent way. What I'm thinking of is moving it based on a percentage of risk, which would also be linked to the probability of the trade.
Getting into the trade, I would need to set an initial fixed stop. Once the trade starts moving in my favour, I'll start trailing the stop.
I'll calculate my trailing stops as follows:
x = Initial Fixed Stop expressed in pips
y = Probability of trade
Trailing Stop = xy
So, if my initial risk is 50 pips, and I feel that this trade has a 70% probability, then my trailing stop would be 35 pips. If my initial risk is 50 pips, and the trade has a 45% probability, then my trailing stop would be 22.5 pips.
I would only start moving my stop when my profit level is equal to my trailing stop.
Essentially, the more confident you are on the trade, the less you'll move your stop.
I'll experiment with this for a while and see how that works with live trading. The question remains: how fast can I move my stops?
Blessing In Disguise of the Day: Bernanke & Moving My Stop
Hahaha... I can't stop laughing at the downwards trajectory GBP/JPY has been on since I got out of my long GBP/JPY trade.
Clearly, there's a benefit in moving your stop - especially where Bernanke is involved!
Even if I end up with lots of 10 pip gains the majority of the time, that one time you don't move your stop could end up killing you.
Still, I need to now figure out which trades I can actually get more than 10 pips and stick to my limits as well.
In this case, discipline trumps greed! <3
And unfortunately, it's only ever funny when you're not the one in the trade...
Slippage Is So Evil...
The trend is my friend?
Did anyone think I would ever get out of a trade with more than +10 pips?
Finally, it's happened.
I was targeting anywhere from +100 to +300 pips on a long GBP/JPY trade about an hour back, but slippage is just so evil. This is why I think when setting your target, you should always account for 3x current spread and consider it as part of your risk:reward ratio prior to trading. So, if the spread is 10 pips and you want to target 100 pips, if you can only get 70 pips out of the trade due to slippage, would your risk:reward ratio still be good? If you're really conservative, I would even go for 5x current spread - whatever you fancy, really. We always need to have a good margin of error in our trading.
This trade was one where I noticed my other favourite setup - the classic bullish divergence. This one I'll call the little red dress - silk, of course!
I was so tempted to Stop & Reverse when the trade initially was about -20 pips against me. But I told myself to take the disciplined approach and honour my stop for once.
I knew sentiment was working in my favour on this long GBP/JPY trade. Equities futures were bullish at the time I made the trade. I also had a divergence on hand. I had to control my self-sabotaging behaviour.
So, I stuck to my trade and was rewarded with double my usual profit - exactly +20.67 pips. One cannot even buy a bottle of good champagne with this and you may find this funny that I would be couch-jumping at such a small profit, but I was at one point about +38 pips. Slippage and retrace risk are evil, I reiterate.
I would like to thank my forex broker (who else can patiently put up with my trading tantrums in such a gentlemanly fashion?) and also that inspiring video from Boris Schlossberg.
Wow, I can actually do this!
I'm going to now start daydreaming about more and more profits! : )
Did anyone think I would ever get out of a trade with more than +10 pips?
Finally, it's happened.
I was targeting anywhere from +100 to +300 pips on a long GBP/JPY trade about an hour back, but slippage is just so evil. This is why I think when setting your target, you should always account for 3x current spread and consider it as part of your risk:reward ratio prior to trading. So, if the spread is 10 pips and you want to target 100 pips, if you can only get 70 pips out of the trade due to slippage, would your risk:reward ratio still be good? If you're really conservative, I would even go for 5x current spread - whatever you fancy, really. We always need to have a good margin of error in our trading.
This trade was one where I noticed my other favourite setup - the classic bullish divergence. This one I'll call the little red dress - silk, of course!
I was so tempted to Stop & Reverse when the trade initially was about -20 pips against me. But I told myself to take the disciplined approach and honour my stop for once.
I knew sentiment was working in my favour on this long GBP/JPY trade. Equities futures were bullish at the time I made the trade. I also had a divergence on hand. I had to control my self-sabotaging behaviour.
So, I stuck to my trade and was rewarded with double my usual profit - exactly +20.67 pips. One cannot even buy a bottle of good champagne with this and you may find this funny that I would be couch-jumping at such a small profit, but I was at one point about +38 pips. Slippage and retrace risk are evil, I reiterate.
I would like to thank my forex broker (who else can patiently put up with my trading tantrums in such a gentlemanly fashion?) and also that inspiring video from Boris Schlossberg.
Wow, I can actually do this!
I'm going to now start daydreaming about more and more profits! : )
Sunday, July 19, 2009
OTT Defensive Money Management
Lately, I've perhaps been comforting myself a little bit too much with all the couch-jumping and boundless enthusiasm. So, it's time for a bit of self-reflection and condemnation.
I took some time to really look at the extent of my past financial mismanagement more closely this weekend. I asked myself, if someone else who was serious about financial management was managing my finances, would I be in a better position today? I can't be sure, but I looked at some examples of investors who have consistently gotten everything right the majority of the time - Warren Buffett, George Soros, Carl Icahn, Bill Gates, etc.
What I realised was that if we manage to steer clear of financial mistakes, this ends up putting us in a much stronger financial position over the longer term. Keeping in mind that the historical annual return from the stock market is only 10%, what we stand to gain is small in comparison to what we stand to lose.
Defensive money management is much more important than we give it credit for.
1. Guard what we have. I think this is so important that I'm going to put my money where my mouth is and be 70% cash and 30% investments all the time. Now, I need to find a safe way that I can grow that 70% cash position whilst safeguarding against inflation.
2. Establish a long term investing philosophy. Laugh all you want, but I've always wanted to have my own mini fashion and luxury conglomerate. I only realised recently that I'm already on my way. So far, I've only got Bulgari and Harry Winston in my portfolio, but I'm going to add others as well. By owning small shares in great companies that I really believe in, I am essentially building up the mini fashion and luxury conglomerate I've always dreamed of. My shares may be small, but I'm realising my dream.
3. Don't be afraid to start small. If you're investing in a new financial vehicle you haven't traded before, start with a small amount of capital. Do not invest too much too soon. This will give you time to learn the particulars of that market. One of the reasons I blew up my forex account so soon was because I hadn't learned all there was to know about the market. Whilst it is something to regret, I think I've learned my lesson now.
4. The same thing goes with trading a new currency pair or a new sector. If you usually trade GBP/USD and would like to switch to another pair, or if you're usually in energy stocks but would like to switch to financials, then test the water first.
5. Know what your mistakes are and learn from them. Don't beat yourself up though. Just do everything you can to prevent similar future mistakes.
6. Always go couture. You need to have a strategy that is custom-tailored to the individual that you are. If you try to take someone else's strategy and make it work, it might not necessarily fit you so well. I'm always trying to contradict people, myself included. My boss once told me that to get me to do something, he has to tell me to do the opposite of what he wants me to do. LOL. So that's why contrarian / counter-trend strategies seem to work well for me. But if you like to follow the trend and are good with that, there's nothing wrong with that.
7. Ultimately, the perfect trader will probably be one who can master both trend-following and contrarian investing. They would have the logic to see when it is most profitable to follow the trend and when it might be a better idea to take the opposite side of the trade.
8. Always take an OTT view. Once you have a strategy you're confident with, continue trading and finetuning it. However, don't forget that you have to look at the broader picture as well. (OTT = over the top).
Now, I hope I follow my own advice!
I took some time to really look at the extent of my past financial mismanagement more closely this weekend. I asked myself, if someone else who was serious about financial management was managing my finances, would I be in a better position today? I can't be sure, but I looked at some examples of investors who have consistently gotten everything right the majority of the time - Warren Buffett, George Soros, Carl Icahn, Bill Gates, etc.
What I realised was that if we manage to steer clear of financial mistakes, this ends up putting us in a much stronger financial position over the longer term. Keeping in mind that the historical annual return from the stock market is only 10%, what we stand to gain is small in comparison to what we stand to lose.
Defensive money management is much more important than we give it credit for.
1. Guard what we have. I think this is so important that I'm going to put my money where my mouth is and be 70% cash and 30% investments all the time. Now, I need to find a safe way that I can grow that 70% cash position whilst safeguarding against inflation.
2. Establish a long term investing philosophy. Laugh all you want, but I've always wanted to have my own mini fashion and luxury conglomerate. I only realised recently that I'm already on my way. So far, I've only got Bulgari and Harry Winston in my portfolio, but I'm going to add others as well. By owning small shares in great companies that I really believe in, I am essentially building up the mini fashion and luxury conglomerate I've always dreamed of. My shares may be small, but I'm realising my dream.
3. Don't be afraid to start small. If you're investing in a new financial vehicle you haven't traded before, start with a small amount of capital. Do not invest too much too soon. This will give you time to learn the particulars of that market. One of the reasons I blew up my forex account so soon was because I hadn't learned all there was to know about the market. Whilst it is something to regret, I think I've learned my lesson now.
4. The same thing goes with trading a new currency pair or a new sector. If you usually trade GBP/USD and would like to switch to another pair, or if you're usually in energy stocks but would like to switch to financials, then test the water first.
5. Know what your mistakes are and learn from them. Don't beat yourself up though. Just do everything you can to prevent similar future mistakes.
6. Always go couture. You need to have a strategy that is custom-tailored to the individual that you are. If you try to take someone else's strategy and make it work, it might not necessarily fit you so well. I'm always trying to contradict people, myself included. My boss once told me that to get me to do something, he has to tell me to do the opposite of what he wants me to do. LOL. So that's why contrarian / counter-trend strategies seem to work well for me. But if you like to follow the trend and are good with that, there's nothing wrong with that.
7. Ultimately, the perfect trader will probably be one who can master both trend-following and contrarian investing. They would have the logic to see when it is most profitable to follow the trend and when it might be a better idea to take the opposite side of the trade.
8. Always take an OTT view. Once you have a strategy you're confident with, continue trading and finetuning it. However, don't forget that you have to look at the broader picture as well. (OTT = over the top).
Now, I hope I follow my own advice!
Tuesday, July 7, 2009
A Look Back: Investing vs. Debt Obliteration
Warning: some more rambling ahead...
I'm not exactly in an enviable financial position at the very moment, although I definitely won't complain either. I'm the first woman in my family earning the amount of money I do and I'll definitely be the first woman in my family with either a self-financed Hermes Kelly, Birkin, or Lindy - or all three.
People might be wondering why it has taken me over eight years to be on the precipice of obliterating my debt once and for all. Eight years is a long time, but I think part of the reason it's taken this long aside from my constant obssession with shopping is I had been investing and at the same time focused on debt obliteration most of the time. Now that my portfolio is down in the double digits, I wonder all the time whether I've taken the wrong path.
But at the time, given the benefits of compounding and low interest rates, I chose to invest and at the same time pay off my debt. Now, I know compounding can work against you too - especially when you're just starting out and don't know what you're doing. The blessing in disguise is that when I do finally become financially free, I won't be starting out from zero again. However much my portfolio will be worth then, at least I'll have relatively liquid assets.
Anyway, I do want to point out that one's mindset when investing with debt vs. investing when you're fully financially free will probably be very different. I've definitely committed some financially suicidal moves over the past few years, which if I had been fully financially free, would probably not have made.
So, looking back, did I take the wrong financial path? Maybe I shouldn't even look at it that way. All I know is I've taken all these steps to financial freedom. I had to work really, really hard, but that actually made me feel like I deserve financial freedom. Being who I am, I probably wouldn't have wanted it any other way. So, I should now focus on what I could be doing next to make my portfolio better than ever before.
It was quite interesting when Hillary Clinton was running for President (and I insist to this day that she should have been elected), she had suggested that home economics, including financial budgeting, be reintroduced into the education system. I'm all for it. I had to read a ton of books and do a lot of research to learn basic financial management skills. Even if you study at a university that is supposed to be specialised in finance, they won't teach you the basics - which is what's most important. For some people, this stuff might come naturally, but judging from the state of our economy, it's definitely not the case for the majority of people. So for anyone feeling terrible / lost / hopeless about their financial situation, you need to keep your hope up and know you can get out of it even if you're a chronic shopaholic like myself.
Anyway, back to the subject of investing vs. debt obliteration... if you're in a similar situation, do you choose investing or fast-track debt obliteration?
The short answer is if you know what you're doing with investing and if you could get very low interest rates, then investing whilst carrying debt makes sense. I was able to get interest rates of 3% or less about 50-60% of the time I was carrying a lot of debt. Back when I could get a 5.5% APY on a savings account, keeping the cash in my account made a lot of sense. Not anymore.
If, however, you've got astronomical interest rates, then investing with debt is financially sinful in my diva opinion. The historical rate of return on stocks is about 10% annually. Factoring in taxes and inflation, your expected rate of return on your portfolio must be much higher than your APR in order for investing to make sense.
Now, what can you do to get out of debt?
1. It may sound simple and it's going to be a bit of do as I say not as I do, but the first step is to ensure that what you do earn is greater than what you spend. Many people will look at their gross salary and think it's a lot and go out and basically spend it all and wonder why they have nothing left. Been there, done that. Looking at your net salary is what matters most in budgeting.
2. Be strategic and map out all your debt in Excel. List out any and all debt you have along with APR rates so that you're never in denial. Pay off the highest interest debt first.
3. Renegotiate your APR. Even if your credit score is not ideal, don't let it stop you from calling your bank and at least attempting to renegotiate your APR on any of your loans or credit cards. I do it all the time and banks are usually responsive as I have a good credit score. Even if you save 1 or 2% a year, your savings will add up.
3. What has helped me a lot during the past year is paying cash or using my debit card for every purchase. With cash, you can implement the envelope method, which is splitting your cash up into envelopes with labels such as utilities bills, rent, spa, dinner, etc. I know it sounds elementary, but it works!
4. Freeze your debt. Don't add to it. I put myself on a two-week financial diet last month, living on only 15 Euros a day. It was torture, but at the same time, I didn't feel any more or less happy. I did have to go to the spa much less, but when I did go, I ended up appreciating it more. To accelerate my debt obliteration, I may have to do this more often this year. For some more ideas, refer to The Motley Fool.
5. Perhaps most importantly, try to increase your cash flow. If you get a large tax refund every year, you can request to lower the amount of taxes deducted from your paycheck so that you don't give Uncle Sam an interest-free loan. And if you're really a workaholic, then you can get a second job.
Once you're financially free, congratulate yourself and never backtrack.
To stand on your own financially must be the most amazing feeling ever! Just a few more months to go...
I'm not exactly in an enviable financial position at the very moment, although I definitely won't complain either. I'm the first woman in my family earning the amount of money I do and I'll definitely be the first woman in my family with either a self-financed Hermes Kelly, Birkin, or Lindy - or all three.
People might be wondering why it has taken me over eight years to be on the precipice of obliterating my debt once and for all. Eight years is a long time, but I think part of the reason it's taken this long aside from my constant obssession with shopping is I had been investing and at the same time focused on debt obliteration most of the time. Now that my portfolio is down in the double digits, I wonder all the time whether I've taken the wrong path.
But at the time, given the benefits of compounding and low interest rates, I chose to invest and at the same time pay off my debt. Now, I know compounding can work against you too - especially when you're just starting out and don't know what you're doing. The blessing in disguise is that when I do finally become financially free, I won't be starting out from zero again. However much my portfolio will be worth then, at least I'll have relatively liquid assets.
Anyway, I do want to point out that one's mindset when investing with debt vs. investing when you're fully financially free will probably be very different. I've definitely committed some financially suicidal moves over the past few years, which if I had been fully financially free, would probably not have made.
So, looking back, did I take the wrong financial path? Maybe I shouldn't even look at it that way. All I know is I've taken all these steps to financial freedom. I had to work really, really hard, but that actually made me feel like I deserve financial freedom. Being who I am, I probably wouldn't have wanted it any other way. So, I should now focus on what I could be doing next to make my portfolio better than ever before.
It was quite interesting when Hillary Clinton was running for President (and I insist to this day that she should have been elected), she had suggested that home economics, including financial budgeting, be reintroduced into the education system. I'm all for it. I had to read a ton of books and do a lot of research to learn basic financial management skills. Even if you study at a university that is supposed to be specialised in finance, they won't teach you the basics - which is what's most important. For some people, this stuff might come naturally, but judging from the state of our economy, it's definitely not the case for the majority of people. So for anyone feeling terrible / lost / hopeless about their financial situation, you need to keep your hope up and know you can get out of it even if you're a chronic shopaholic like myself.
Anyway, back to the subject of investing vs. debt obliteration... if you're in a similar situation, do you choose investing or fast-track debt obliteration?
The short answer is if you know what you're doing with investing and if you could get very low interest rates, then investing whilst carrying debt makes sense. I was able to get interest rates of 3% or less about 50-60% of the time I was carrying a lot of debt. Back when I could get a 5.5% APY on a savings account, keeping the cash in my account made a lot of sense. Not anymore.
If, however, you've got astronomical interest rates, then investing with debt is financially sinful in my diva opinion. The historical rate of return on stocks is about 10% annually. Factoring in taxes and inflation, your expected rate of return on your portfolio must be much higher than your APR in order for investing to make sense.
Now, what can you do to get out of debt?
1. It may sound simple and it's going to be a bit of do as I say not as I do, but the first step is to ensure that what you do earn is greater than what you spend. Many people will look at their gross salary and think it's a lot and go out and basically spend it all and wonder why they have nothing left. Been there, done that. Looking at your net salary is what matters most in budgeting.
2. Be strategic and map out all your debt in Excel. List out any and all debt you have along with APR rates so that you're never in denial. Pay off the highest interest debt first.
3. Renegotiate your APR. Even if your credit score is not ideal, don't let it stop you from calling your bank and at least attempting to renegotiate your APR on any of your loans or credit cards. I do it all the time and banks are usually responsive as I have a good credit score. Even if you save 1 or 2% a year, your savings will add up.
3. What has helped me a lot during the past year is paying cash or using my debit card for every purchase. With cash, you can implement the envelope method, which is splitting your cash up into envelopes with labels such as utilities bills, rent, spa, dinner, etc. I know it sounds elementary, but it works!
4. Freeze your debt. Don't add to it. I put myself on a two-week financial diet last month, living on only 15 Euros a day. It was torture, but at the same time, I didn't feel any more or less happy. I did have to go to the spa much less, but when I did go, I ended up appreciating it more. To accelerate my debt obliteration, I may have to do this more often this year. For some more ideas, refer to The Motley Fool.
5. Perhaps most importantly, try to increase your cash flow. If you get a large tax refund every year, you can request to lower the amount of taxes deducted from your paycheck so that you don't give Uncle Sam an interest-free loan. And if you're really a workaholic, then you can get a second job.
Once you're financially free, congratulate yourself and never backtrack.
To stand on your own financially must be the most amazing feeling ever! Just a few more months to go...
Thursday, July 2, 2009
Ultimately, We Are Responsible... AIG Holds First Shareholder Meeting Since Collapse
Oh, this story is just so heartwrenching. I finally understand the mistake I've made in purchasing AIG shares.
Rather than contending with institutional shareholders on what's considered fair to all shareholders of the company on any future issues, individual shareholders will need to battle the complacent U.S. government - far worse, in my opinion. As individual shareholders, our voice is only 20% of votes - which is a no-win situation. Even if all 20% of us agree, we're still only a minority. No wonder that horrendous reverse split scenario was approved.
One of the shareholders at the AIG meeting asked a very poignant question: "We don't see anybody being held accountable. Who's responsible? And who is going to be held accountable?"
The short answer is: ultimately, we as individual shareholders are the ones responsible. No one else will ever be able to safeguard our portfolios better than we will. So, we've got to be the ones doing the due diligence and creating a contingency plan.
Right now, I've only got a very small amount of money to invest, but I've got to maximise the effectiveness of this capital on all future trades. To start with, I recently created an asset allocation plan to determine the amount of capital I would invest every year in each market that I trade, including equities, forex, corporate bonds, and cash reserves. As my knowledge on investing expands, I plan to add other investment vehicles to my overall asset allocation plan. I intend to evaluate the performance of each investment vehicle on a bi-annual basis to determine if I need to rebalance my portfolio. By adhering to this plan, I will continue to ensure that my portfolio is well-diversified. I will also be able to quickly take action in case there's a once-in-a-lifetime opportunity presenting itself in Market A relative to Market B. Opportunity costs are often overlooked in my portfolio planning, so I've got to account for this in the future.
Secondly, I also created a portfolio targeting plan for my equities. This is basically a scenario analysis that enables me to forecast potential profit on positions by targeting the 52 week high and the all-time high. Other potential price targets could be 50% of 52 week high or 50% of all-time high, depending on your time horizon. The really good thing about this scenario analysis is that I started plugging in different numbers of shares - essentially playing around with the position sizes to see how that would affect P/L. This is very enlightening. On some positions, if you add more shares, you get a much better profit. Obviously, it's better to do the scenario analysis prior to buying any shares. Right now, I've done the opposite, which is buying the shares prior to the analysis. In the future, this will change. I will not only do this scenario analysis, but will also look at it from an OTT view - that is, I'll compare a few different stocks at once and choose the one that yields the best reward with the least risk.
Finally, I've got to make up for lost time. I've been financially irresponsible in the past, so now I've got to be much more careful and diligent. Rather than jumping in head first, I've got to first test the water a bit. After all, ultimately, we are the ones responsible.
Rather than contending with institutional shareholders on what's considered fair to all shareholders of the company on any future issues, individual shareholders will need to battle the complacent U.S. government - far worse, in my opinion. As individual shareholders, our voice is only 20% of votes - which is a no-win situation. Even if all 20% of us agree, we're still only a minority. No wonder that horrendous reverse split scenario was approved.
One of the shareholders at the AIG meeting asked a very poignant question: "We don't see anybody being held accountable. Who's responsible? And who is going to be held accountable?"
The short answer is: ultimately, we as individual shareholders are the ones responsible. No one else will ever be able to safeguard our portfolios better than we will. So, we've got to be the ones doing the due diligence and creating a contingency plan.
Right now, I've only got a very small amount of money to invest, but I've got to maximise the effectiveness of this capital on all future trades. To start with, I recently created an asset allocation plan to determine the amount of capital I would invest every year in each market that I trade, including equities, forex, corporate bonds, and cash reserves. As my knowledge on investing expands, I plan to add other investment vehicles to my overall asset allocation plan. I intend to evaluate the performance of each investment vehicle on a bi-annual basis to determine if I need to rebalance my portfolio. By adhering to this plan, I will continue to ensure that my portfolio is well-diversified. I will also be able to quickly take action in case there's a once-in-a-lifetime opportunity presenting itself in Market A relative to Market B. Opportunity costs are often overlooked in my portfolio planning, so I've got to account for this in the future.
Secondly, I also created a portfolio targeting plan for my equities. This is basically a scenario analysis that enables me to forecast potential profit on positions by targeting the 52 week high and the all-time high. Other potential price targets could be 50% of 52 week high or 50% of all-time high, depending on your time horizon. The really good thing about this scenario analysis is that I started plugging in different numbers of shares - essentially playing around with the position sizes to see how that would affect P/L. This is very enlightening. On some positions, if you add more shares, you get a much better profit. Obviously, it's better to do the scenario analysis prior to buying any shares. Right now, I've done the opposite, which is buying the shares prior to the analysis. In the future, this will change. I will not only do this scenario analysis, but will also look at it from an OTT view - that is, I'll compare a few different stocks at once and choose the one that yields the best reward with the least risk.
Finally, I've got to make up for lost time. I've been financially irresponsible in the past, so now I've got to be much more careful and diligent. Rather than jumping in head first, I've got to first test the water a bit. After all, ultimately, we are the ones responsible.
Sunday, June 14, 2009
Originality vs. Fakin' It
I’m a real diva when it comes to authenticity, but I recently contradicted myself and purchased a replica canvas print of Van Gogh’s Starry Night from the Van Gogh Museum online (seems I've purchased the last canvas replica as there aren't any more available online). When I received it, I was really disappointed that the replica lacked any of the vividly gorgeous details of the real painting and realised that the artist’s bold brush strokes are what give the painting definition and value. How could I have expected it to be as good as the original painting when I clearly knew it was fake?
Prior to this, I had purchased a replica canvas print of Van Gogh’s Almond Blossoms, which is now hanging on my bedroom wall. Whilst this also lacks detail, it is definitely better than a simple print. So, I was really expecting the Starry Night canvas replica to be similar.
The fact is that with art in general there’s only one original in the entire world. This is what makes the original so valuable. But since MoMA’s clearly not going to sell the Starry Night any time soon, nor would I at this point be able to afford it even if they did decide to auction it off, I figured why not just settle for the replica (i.e. the fake)?
Throughout my earlier adult years, I’ve been settling and essentially leading a fake lifestyle that on the surface appeared every bit as rich and vibrant as an original Van Gogh. In hindsight, I was just mortgaging my future for the present – I was living a replica lifestyle. It started when I was at university. Being one of the unfortunate few at my university who wasn’t a trust fund baby or daughter-of-somebody, I knew what it meant to struggle financially – working my way through college and not knowing if I could make next semester’s tuition. The journey has nonetheless made me see I have financial survival skills and on the whole, I’ve been able to do it ethically. At the same time, that uncertainty is still embedded in my mindset even though I’m clearly not that girl any more.
I went from having a seriously negative net worth to a pretty positive albeit illiquid net worth. By next spring, all of my salary will be going towards my savings account rather than to my student loans, which have thus far made me an unwilling and unhappy indentured servant to the bank with no financial freedom. No matter how much you love your job and other aspects of your life, if there’s a financial sandbag tying you down, how can you actually and realistically be able to give life your all? You’ll feel the strain and it’ll reflect in all your interactions. I think it’s the same with a mortgage – as long as you owe someone somewhere something, you’ll never actually be financially free.
I reckon I’ll be able to save at least 63% of my salary after expenses and taxes every year thereafter. I know I’m going to be one of those people who are 70% cash and 30% investments all the time even though I’ve still got decades before retirement. I’ll get laughed at, but I don’t care. It took me almost eight years to be on the verge of actually claiming my financial freedom, but I’m totally doing it. As much as I wanted to prove myself to people around me, I proved myself to myself more than anything by finally knuckling down and making the right financial choices.
I had an interesting conversation with my forex broker recently during which he yawned and subtly indicated that I probably should deposit more money into my account in the same breath (nice touch, isn’t it, but I just couldn't bring myself to tell him off. This guy deserves a special mention in my trading journal for showing me the importance of asset protection...). He also mentioned that I was always looking to be right on the majority of my trades, which is causing me to miss a lot of opportunities. He may have a point there, but at the same time, I don’t want to just settle for any trade. I want to make sure I get the details of every trade right and that probability is in my favour with every trade.
There’s the expectation that you need to sacrifice your percentage of wins in order to profit in the forex market. That could be true for a lot of other traders. However, I don’t necessarily agree that that is the only way to improve. Suppose I’m a selective trader and I end up making very small gains on a lot of trades. The key for me is actually not to become less selective and sacrifice my wins.
What I need to actually work on now is to let myself take more profits on an increasing number of trades that I am right. I am finding it possible to limit losses with a stop. However, with my take-profit points, it seems to be like a box of chocolates in that you never know what you’re going to get.
What I want to experiment with is to turn my trailing stop into my exit strategy on a number of trades in the future. I will only do this with a percentage of my trades and experiment with multiple entries / multiple exits, single entry / single exit, multiple entries / single exit to see which turns out to be the most profitable.
Continue to keep your discipline and let the losers chip away at your account with the least possible impact. But also allow yourself to incrementally improve your gains on your high probability trade setups.
There was a guy on ForexFactory that posted his story about turning a low four figure sum into a six figure sum in two weeks. Everyone was laughing at him. In fact, we should examine what he’s doing right. That guy put himself out there and shared what he was doing right, but we instead turned around and laughed at him.
There’s a tendency for people to misjudge others who seem to be the odd one out. But if we look at the ones we’re laughing at in hindsight, they often turn out to be the Vincent Van Goghs of the world – the ones who are bold enough to go against the trend and end up producing masterpieces; the ones who end up being like Warren Buffett, George Soros, Carl Icahn, or Bill Gross. They are the ones who actually have the edge and aren’t fakin’ it because they see the world differently and are not afraid to implement their strategies accordingly.
I totally agree with Warren Buffett that “the first rule of investing is don’t lose money; the second rule is don’t forget rule # 1.”
I do over-analyse every trade. I want to make sure I’m accountable to myself first and foremost and that I’m really not just fakin’ it anymore. There’s just so much hypocrisy out there and I don’t want to be a part of it. I really want to keep it sincere.
Now, it is highly liberating to be able to say to myself: “I’ve actually got cash to pay for that.”
So saving’s my new mantra.
Hermes, here I come!
Or am I contradicting myself again?
Whatever… once a shopaholic – always a shopaholic.
Prior to this, I had purchased a replica canvas print of Van Gogh’s Almond Blossoms, which is now hanging on my bedroom wall. Whilst this also lacks detail, it is definitely better than a simple print. So, I was really expecting the Starry Night canvas replica to be similar.
The fact is that with art in general there’s only one original in the entire world. This is what makes the original so valuable. But since MoMA’s clearly not going to sell the Starry Night any time soon, nor would I at this point be able to afford it even if they did decide to auction it off, I figured why not just settle for the replica (i.e. the fake)?
Throughout my earlier adult years, I’ve been settling and essentially leading a fake lifestyle that on the surface appeared every bit as rich and vibrant as an original Van Gogh. In hindsight, I was just mortgaging my future for the present – I was living a replica lifestyle. It started when I was at university. Being one of the unfortunate few at my university who wasn’t a trust fund baby or daughter-of-somebody, I knew what it meant to struggle financially – working my way through college and not knowing if I could make next semester’s tuition. The journey has nonetheless made me see I have financial survival skills and on the whole, I’ve been able to do it ethically. At the same time, that uncertainty is still embedded in my mindset even though I’m clearly not that girl any more.
I went from having a seriously negative net worth to a pretty positive albeit illiquid net worth. By next spring, all of my salary will be going towards my savings account rather than to my student loans, which have thus far made me an unwilling and unhappy indentured servant to the bank with no financial freedom. No matter how much you love your job and other aspects of your life, if there’s a financial sandbag tying you down, how can you actually and realistically be able to give life your all? You’ll feel the strain and it’ll reflect in all your interactions. I think it’s the same with a mortgage – as long as you owe someone somewhere something, you’ll never actually be financially free.
I reckon I’ll be able to save at least 63% of my salary after expenses and taxes every year thereafter. I know I’m going to be one of those people who are 70% cash and 30% investments all the time even though I’ve still got decades before retirement. I’ll get laughed at, but I don’t care. It took me almost eight years to be on the verge of actually claiming my financial freedom, but I’m totally doing it. As much as I wanted to prove myself to people around me, I proved myself to myself more than anything by finally knuckling down and making the right financial choices.
I had an interesting conversation with my forex broker recently during which he yawned and subtly indicated that I probably should deposit more money into my account in the same breath (nice touch, isn’t it, but I just couldn't bring myself to tell him off. This guy deserves a special mention in my trading journal for showing me the importance of asset protection...). He also mentioned that I was always looking to be right on the majority of my trades, which is causing me to miss a lot of opportunities. He may have a point there, but at the same time, I don’t want to just settle for any trade. I want to make sure I get the details of every trade right and that probability is in my favour with every trade.
There’s the expectation that you need to sacrifice your percentage of wins in order to profit in the forex market. That could be true for a lot of other traders. However, I don’t necessarily agree that that is the only way to improve. Suppose I’m a selective trader and I end up making very small gains on a lot of trades. The key for me is actually not to become less selective and sacrifice my wins.
What I need to actually work on now is to let myself take more profits on an increasing number of trades that I am right. I am finding it possible to limit losses with a stop. However, with my take-profit points, it seems to be like a box of chocolates in that you never know what you’re going to get.
What I want to experiment with is to turn my trailing stop into my exit strategy on a number of trades in the future. I will only do this with a percentage of my trades and experiment with multiple entries / multiple exits, single entry / single exit, multiple entries / single exit to see which turns out to be the most profitable.
Continue to keep your discipline and let the losers chip away at your account with the least possible impact. But also allow yourself to incrementally improve your gains on your high probability trade setups.
There was a guy on ForexFactory that posted his story about turning a low four figure sum into a six figure sum in two weeks. Everyone was laughing at him. In fact, we should examine what he’s doing right. That guy put himself out there and shared what he was doing right, but we instead turned around and laughed at him.
There’s a tendency for people to misjudge others who seem to be the odd one out. But if we look at the ones we’re laughing at in hindsight, they often turn out to be the Vincent Van Goghs of the world – the ones who are bold enough to go against the trend and end up producing masterpieces; the ones who end up being like Warren Buffett, George Soros, Carl Icahn, or Bill Gross. They are the ones who actually have the edge and aren’t fakin’ it because they see the world differently and are not afraid to implement their strategies accordingly.
I totally agree with Warren Buffett that “the first rule of investing is don’t lose money; the second rule is don’t forget rule # 1.”
I do over-analyse every trade. I want to make sure I’m accountable to myself first and foremost and that I’m really not just fakin’ it anymore. There’s just so much hypocrisy out there and I don’t want to be a part of it. I really want to keep it sincere.
Now, it is highly liberating to be able to say to myself: “I’ve actually got cash to pay for that.”
So saving’s my new mantra.
Hermes, here I come!
Or am I contradicting myself again?
Whatever… once a shopaholic – always a shopaholic.
Sunday, May 24, 2009
Equities: Keeping A Long Term Perspective
Effective cost-averaging seems to be a key element to long term equities trading success. A cost-averaging strategy may not necessarily be suitable for forex trading depending on the technical pattern you're trading, but I've found more often than not, in equities trading, it is more critical than what it's currently being given credit for.
During the whole equities market meltdown, I basically watched my stock portfolio - along with my self-confidence levels - dwindle to very scary levels. But as I have a cash account and I believe in the long term potential of the majority of stocks in my portfolio, I held onto all my positions, adding to positions that were trading well below their book value.
I respect Warren Buffett - who doesn't - but I have to agree more with Carl Icahn's strategy on buying up companies priced below book value. The reason I like this strategy more is that it inherently takes into consideration the debt a company is carrying already. So, if you're buying up a company way below book value, the probability of its stock price gravitating towards book value or slightly above book value is much greater. This often means fast money.
I'm the type of investor who is not embarrassed of buying only 48 shares in a company. So, I had a few very small positions right before the escalation of the global credit crisis. When stock prices fell below book value for a number of these companies, I added a few hundred shares of this and a few hundred shares of that at bargain prices.
I was not smart enough to buy at the absolute bottom, but at the least, I'm not completely out of the game yet. I plan on adding more shares for a few positions at Fibonacci retracement levels providing that it won't ruin the average cost of my shares.
Even if I don't get to add more shares, if my market theory is correct, I'll still be able to make a five figure profit on my full portfolio once the economic recovery accelerates.
Here's why:
During the whole equities market meltdown, I basically watched my stock portfolio - along with my self-confidence levels - dwindle to very scary levels. But as I have a cash account and I believe in the long term potential of the majority of stocks in my portfolio, I held onto all my positions, adding to positions that were trading well below their book value.
I respect Warren Buffett - who doesn't - but I have to agree more with Carl Icahn's strategy on buying up companies priced below book value. The reason I like this strategy more is that it inherently takes into consideration the debt a company is carrying already. So, if you're buying up a company way below book value, the probability of its stock price gravitating towards book value or slightly above book value is much greater. This often means fast money.
I'm the type of investor who is not embarrassed of buying only 48 shares in a company. So, I had a few very small positions right before the escalation of the global credit crisis. When stock prices fell below book value for a number of these companies, I added a few hundred shares of this and a few hundred shares of that at bargain prices.
I was not smart enough to buy at the absolute bottom, but at the least, I'm not completely out of the game yet. I plan on adding more shares for a few positions at Fibonacci retracement levels providing that it won't ruin the average cost of my shares.
Even if I don't get to add more shares, if my market theory is correct, I'll still be able to make a five figure profit on my full portfolio once the economic recovery accelerates.
Here's why:
- Stock prices tend to test 52 week highs and if the fundamentals are sound, they'll break these levels.
- Currently, my average price for each position is well below the 52 week high.
- Once the economic recovery takes place, which I am confident it will despite what everyone says, the only direction most stocks can go is up.
- Had I just left my portfolio alone without adding to positions, the economy would recover, but my stock portfolio would probably take years longer to recover.
- I'm therefore quite confident that at the least, I've put myself in a better position to recover my stock portfolio faster. And I am in a position to profit!
If you somehow feel anxious about your stock portfolio, I'd recommend constructing an Excel spreadsheet with the following information:
- Company Name
- Number of shares owned
- Average cost price
- 52 week high
- Potential profit if you sell at 52 week high
- 52 week low
- Potential loss if you sell at 52 week low
- Potential courses of action for each position
You will most likely notice that your portfolio is not as bad as it currently seems.
I'd also recommend moving your stops to lock in profits in this trading environment. If your position is already down by over 50%, that is not the right time to use a fixed stop. Instead, I would either look to reduce the position at retracements, or adding to the position if the downwards momentum seems to be turning around. If you add to your position, ensure that you're doing it in an advantageous way. This means:
- you should not be adding to your position if you're trading on margin
- you need to know when to stop adding to your positions
- you should have more shares at lower prices
- your average cost needs to be at a realistic level and below key technical levels (i.e. targeting 52 week high, targeting the share price's return to book value, or even targeting a Fibonacci retracement of the 52 week high)
Like always, do your own homework and do not take this to be investment advice.
I'm working on a similar money management strategy for forex trading and when I have any new breakthroughs, I'll post it here.
Sunday, November 23, 2008
Bondholders Unite: Trust Indenture Act of 1939
Through my recent experiences with junk bond trading, I've started to realise there can be a whole lot of fine print associated with bonds. It is definitely becoming more complex than I'd intended. My broker does not offer a very advanced bond trading platform, so I've had to scour the Internet for whatever's publicly available on bond issues I might be interested in.
I sometimes find this information on the SEC Web site, but more often than not, a search on the specific CUSIP of the particular issue will show you which hedge funds or mutual funds are bondholders.
I urge anyone who is interested in junk bond trading to do further research to find out what are the terms and conditions associated with the indenture. Probably the best way to do this is to contact the bond issuer and request a copy of all the indenture terms as well as find out who the Indenture Trustee is.
Many of this fine print will preclude certain aspects of the Trust Indenture Act of 1939. I do believe that all this fine print is a bit like a back door exit, which then enables the bond issuer to take at times unfair and coercive action against minority bondholders in debt restructuring initiatives that do not take into consideration the best interests of all bondholders.
I have noticed that with certain debt restructuring initiatives, such as the Metaldyne bond tender offer, a certain percentage of bondholders is required to agree to the bond tender offer terms in order for it to go through. Technically a bondholder is a creditor to the bond issuer. What right does one bondholder have to vote on the rights of another bondholder? What right does one bondholder have to effectively say to another bondholder: Well I lent this company $1000, but I'm willing to accept $270.018 to cash out these bonds and so should you!'? But this is exactly what is happening with these bond tender offers. These bond issuers are setting us up to accept less than what we are owed.
Suppose we are both bondholders of Metaldyne. If I agree to Metaldyne's bond tender offer and vote accordingly, my vote actually indirectly affects the terms of the bonds that you hold if you do not agree with the bond tender offer. Now is this fair? Bondholders are not shareholders. We are simply separate creditors to the same company. We have no further relationship. It should remain like that. This means if I would like to do something as stupid as cashing out my bonds at 72.982% below par, I should be the only one to live with such a mistake.
My goal with this post is to get minority bondholders to unite and become self-activists - which means basically to look after your own best interests when purchasing a bond. Under the current economic conditions, it is my philosophy to treat even all investment grade bonds as junk bonds regardless of their ratings - especially since we have imperfect information transparency here.
For anyone wishing to do more about reforming regulation related to debt restructuring initiatives, please post a comment to get in touch.
Mind you, there's still time to refuse the Metaldyne bond tender offer at this time. If you are one of the few bondholders bold enough to do this, please feel free to post a comment to get in touch.
I sometimes find this information on the SEC Web site, but more often than not, a search on the specific CUSIP of the particular issue will show you which hedge funds or mutual funds are bondholders.
I urge anyone who is interested in junk bond trading to do further research to find out what are the terms and conditions associated with the indenture. Probably the best way to do this is to contact the bond issuer and request a copy of all the indenture terms as well as find out who the Indenture Trustee is.
Many of this fine print will preclude certain aspects of the Trust Indenture Act of 1939. I do believe that all this fine print is a bit like a back door exit, which then enables the bond issuer to take at times unfair and coercive action against minority bondholders in debt restructuring initiatives that do not take into consideration the best interests of all bondholders.
I have noticed that with certain debt restructuring initiatives, such as the Metaldyne bond tender offer, a certain percentage of bondholders is required to agree to the bond tender offer terms in order for it to go through. Technically a bondholder is a creditor to the bond issuer. What right does one bondholder have to vote on the rights of another bondholder? What right does one bondholder have to effectively say to another bondholder: Well I lent this company $1000, but I'm willing to accept $270.018 to cash out these bonds and so should you!'? But this is exactly what is happening with these bond tender offers. These bond issuers are setting us up to accept less than what we are owed.
Suppose we are both bondholders of Metaldyne. If I agree to Metaldyne's bond tender offer and vote accordingly, my vote actually indirectly affects the terms of the bonds that you hold if you do not agree with the bond tender offer. Now is this fair? Bondholders are not shareholders. We are simply separate creditors to the same company. We have no further relationship. It should remain like that. This means if I would like to do something as stupid as cashing out my bonds at 72.982% below par, I should be the only one to live with such a mistake.
My goal with this post is to get minority bondholders to unite and become self-activists - which means basically to look after your own best interests when purchasing a bond. Under the current economic conditions, it is my philosophy to treat even all investment grade bonds as junk bonds regardless of their ratings - especially since we have imperfect information transparency here.
For anyone wishing to do more about reforming regulation related to debt restructuring initiatives, please post a comment to get in touch.
Mind you, there's still time to refuse the Metaldyne bond tender offer at this time. If you are one of the few bondholders bold enough to do this, please feel free to post a comment to get in touch.
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