HSI 2011/04/21

HSI graph, last week digest

Trading business

by ckchoy
Stock trading is about probability, but
How to determine the probability in trading? It is only a rough guide:

The most popular tools are TA ( Technical analysis using charts ) - there are plenty of TA charts, just google.
1) TA may increase your probability to another 5%
2) watching market full time and have a feel of the market sense will increase your probability to another 5%
3) homework will increase your probability to another 7%
4) trading experience will increase your probability to another 10-20%
5) stick to discipline consistently will increase your probability to another 40%

So if trading with 1) to 5) together, will increase your probability to another 67-77%

It is common for beginner to lose money in trading because lack of experience. However, if a beginner is disciplined, using TA and doing homework, he will have a probability of 52% to make money consistently

Well, some may ask, if all the people can trade with 1) to 5), then wouldn't be all the people can succeed in trading? Yes sound easy. But easier say than done. How many people can consistently do these all the time? I won't say must do 1) to 5) consistently, as long as you can make up > 50%, it is good enough.

90% of the people will drop out some of the points, especially point 5), how many people can be so discipline all the time? Only robot can, because human have emotion.

Don't forget market is dynamic, traders need to consistently review the TA tools. Today's tool that let you make money doesn't guarantee it will do the same for tomorrow.

How many people can watch market full time? Only day traders/stock broker can.
How many will do homework consistently? Once a while will take for granted not to do homework and just place a trade.
And what is trading experience? You may have 20 years trading experience but those experience may not be applicable to today's market as market is dynamic.

Consistent, persistent -> easy? Perhaps only interest and passion can help.

Education time - How to overcome setbacks in losing trades 如何克服挫折，失败的交易

How to overcome setbacks in losing trades
Setbacks are the rule rather than the exception when it comes to trading.
Discovering reliable trading strategies is a challenge, and frequently, a promising strategy produces a loss. Losses and other setbacks can be frustrating and anxiety provoking. The winning trader isn’t fazed by these setbacks, however.
Winning traders welcome challenges rather than hide from them. Your ability to tolerate frustration is essential. It is vital to have a specific and active plan for coping with setbacks; otherwise they can build up psychologically and produce chronic stress problems. Your mind and body have limited resources, and unless you cope with frustration and anxiety effectively, you’ll eventually become exhausted. You’ll lose your ability to focus and process information objectively. By taking a few specific preventative measures, though, you can build up your frustration tolerance so that you can handle a torrent of trading setbacks.
People with low frustration tolerance tend to believe that they should experience absolutely no setbacks. But setbacks are a natural part of life. Indeed, if you are trying to succeed at a challenging profession, such as trading, you should expect setbacks. Instead of dreaded events, challenges and setbacks can be viewed as part of the excitement and stimulation of living. When you face a setback while trading, you should view it as an opportunity to learn and develop your trading skills rather than a discouraging impediment. Merely changing your viewpoint regarding potentially frustrating events can change your ability to tolerate them. If you expect them and accept them as natural and not as a disaster, you’ll feel less frustrated. And rather than passively feeling paralyzed by them, you’ll try to creatively think of ways you can use the setbacks as a new starting point than can lead to a higher level of trading skills. View setbacks as ways for you to gain more experiences with the markets and hone your trading skills.
In addition to a general attitude change, it is also essential to take additional preventative measures to tolerate frustration. The most important steps concern building up physiological defences. It is difficult to cope with frustration when we are tired and worn out. By getting plenty of rest, and especially sleep, we can cope with frustration more easily. Regular exercise and proper nutrition can help your body create a natural defence against frustration.
Once you are properly rested and nourished, you can also make a specific plan for coping with setbacks when they occur. In addition to accepting uncertainty and setbacks as part of your life, you should think in terms of the big picture. “Rome wasn’t built in a day” and you shouldn’t expect to hone your trading skills without extensive practice and experience. That can take time. Traders are frustrated when they set unrealistic expectations for themselves and fail to meet them. By realizing that it will take time to trade profitably, you’ll feel more relieved, and you will anticipate setbacks. You won’t be caught off guard, and you will be ready to deal with them. It may be discouraging at times to continually face setbacks. To cope with them, you may want to make a list of successful trades and recall them when you are feeling especially beaten. The key to frustration tolerance is to realize that although external circumstances can interfere with your plans, you have the freedom to decide whether they will impact your mood. You can choose to feel beaten, angry and frustrated, or you can anticipate setbacks, view them as challenges and growing experiences, and as exciting ways to hone your trading skills. The more you can acknowledge that setbacks are a necessary part of trading, the more easily you’ll cope with them, and be able to use them as stepping stones to higher levels of trading success.

如何克服挫折，失败的交易挫折是规则而不是例外，当谈到交易。发现可靠的交易策略是一种挑战，并经常，一个很有前途的战略产生的损失。损失和其他挫折令人沮丧和焦虑发人深省。获奖的交易者搞得狼狈这些挫折，但是。获奖商人欢迎的挑战，而不是隐藏它们。您是否能够容忍挫折是必不可少的。至关重要的是要与挫折应对有具体和积极的计划，否则他们可以建立心理和产生慢性压力的问题。你的头脑和身体资源有限，除非你应付挫折和焦虑有效，你最终会耗尽。你会失去你的能力和处理信息的集中客观。通过采取一些具体的预防性措施，但是，你可以建立你的挫折承受力，使自己能够处理的交易挫折洪流。挫折容忍度低的人往往认为他们应该体验绝对没有挫折。但是，挫折是生活的自然组成部分。事实上，如果你想成为成功的一个具有挑战性的行业，如贸易，你应该预料的挫折。的可怕事件，挑战和挫折反而会被看作是生活的兴奋和刺激的一部分。当你面对挫折时的交易，你应该把为契机，学习和发展的障碍，而不是一个令人沮丧的是你的交易技巧。仅仅改变你的观点可能令人沮丧的事件就可以改变你的能力，容忍他们。如果你希望他们和接受，而不是作为一个自然灾害，你会觉得少使他们感到灰心丧气。的，而不是被动地感受到了他们犹豫不决，你会尽量想办法，创造性，你可以使用它作为一个新的起点比可导致交易技巧更高层次的挫折。作为方法，供您获得与市场更多的经验和磨练自己的交易技巧查看挫折。除了一般的态度的转变，也必须采取额外的预防措施，忍受挫折。关注最重要的步骤建立的生理防御能力。这是难以应付挫折，当我们累了，破旧不堪。通过得到足够的休息，特别是睡眠，我们可以更容易地应付挫折。经常运动和适当的营养可以帮助你的身体建立一个反对挫折自然防御。一旦你得到适当休息和营养，你也可以与挫折应对的具体计划时发生。除了接受的不确定性，并作为你生活的一部分挫折，你应该考虑在大画面上。 “罗马不是一天建成的”，你不应该指望没有广泛的实践磨练和经验，您的交易技巧。这可能需要一段时间。交易商感到沮丧时，他们为自己设定不切实际的期望，无法满足他们。由意识到它需要一定的时间进行交易获利，你会觉得更放心，你会预期挫折。你会不会措手不及，并要准备好对付他们。这可能是沮丧，有时要不断面对挫折。为了应付他们，你可能需要做一个成功的交易清单并召回当你感到特别殴打。对挫折的承受力的关键是要认识到，尽管外部干扰的情况下可以与你的计划，你可以自由决定他们是否会影响你的情绪。你可以选择感到殴打，愤怒和沮丧，或者可以预见的挫折，认为他们的挑战和成长经历，和令人振奋的方式来磨练自己的交易技巧。越多，您可以承认，挫折是必要的交易的一部分，你会更容易对付他们，并能用作垫脚石更高的交易成功的水平。

Education time - buy-cut-buy vs buy-and-hold strategy

by ckchoy
When stock prices are in uptrend, investors can make profit easily. One may set a target price using TA or FA. It is either making more or making less. For example, one might have taken profit at 10% - 20% gain but upon sold, seeing the share price kept rising and hit 100% gain, he may curse himself not able to ride the bigger gain. Whatever, the heart inside still smiling as he is still making profit, he will not have hard feeling on it.  Everyone can handle profit well.

How about losses?  A lot of investors and people cannot handle losses well including me. But small losses vs big losses do make a different. And many of us can have a control of our losses.
Let's look at these strategies
buy-cut-buy vs buy-and-hold

When market started to move weird, example, small drops bit by bit now and then.  These losses started to accumulate, this may give hints that market is in downtrend. And upon market started to have panic selling and in big plunge, then market may have chance to reach bottom.
As market is dynamic, past history only  good enough for reference, hence the so called percentage drop amount analysis and time period analysis to judge a bottom is not always accurate. For example is it a 40%, 50%, or 80% drop mark a bottom? A 10 years, 8 years or a 4 years mark a economy cycle? For the past economy ran itself going thru the peak, recession and recovered on its own. But nowadays there are interventions like fund injections, bailout and many more steps to shorten the recession but this will make the market reaching its peak fast and slump back to down again in shorter period.

Let's say stock abc dropped from 12 to 10 and an investor decided to buy in, but then stock abc continue sliding to 5  before it hit the rock bottom and climb back to 14.

For a buy-and-hold strategy the investors will going thru the cycle seeing his portfolio in 50% loss, (stock abc moved from 10 to 5) and he needs a 100% gain (stock abc to climb from 5 to 10) and then see a 40% gain finally from 10 to 14.

For a buy-cut-buy strategy, one can buy a stock and then set a stop loss let's say 2%, but must remember to buy back after cut. Usually when market started to move down fast substantially, it may take about 1 to 5 times before we catch in the right rock bottom price. And remember market will not move down in straight line to hit it's bottom, there will be rebounds in between, hence we may even make small profit even though we caught a wrong bottom by using buy-cut-buy strategy. So we can estimate we may need to endure only 6 to 8% loss before we catch the rock bottom price, compared to a 50% loss if using buy-and-hold strategy. And then when the stock price move up to 14, The buy-cut-buy strategy will make 180% gain vs 40% gain of buy-and-hold . The 6 to 8% loss incurred compared to 180% gain will be nothing.

What about if stock abc never recovers and trades around 5 for a very long time? Then for the buy-and-hold strategy can almost say the 50% loss is realized, but for the buy-cut-buy strategy, he only will lose about 6% to 8%

We can apply these strategy to blue chip stocks and non-blue chip stocks. Of course blue chip stocks tend to be lower risk and have higher chance to bounce back and hit even higher price. Non-blue chips on one hand can surge few folds but on the other hand it also can be a forgotten stock and still stagnant at a low price for a very long time.

It depends on your risk profile.

当股票价格上升趋势是，投资者可以赚钱容易。人们可以设定一个目标价格使用TA或FA。这是不是去制造更多或更少。例如，一个可能采取利润在10％ - 20％的涨幅，但根据出售，看到股价不断上升，达到100％的涨幅，他可能会骂自己不能骑更大收益。不管结果如何，心里面依然微笑，因为他仍然是赚钱，他不会对难的感觉。每个人都可以处理好利润。 怎么样的损失？一个投资者和很多人不能处理好包括我在内的损失。但小的损失比重大损失之间确有不同。而我们很多人可以有我们的损失控制。 让我们来看看这些战略 买停产的购买与买入并持有 当市场开始有点怪异举动，例如，有点小滴，然后现在。这些损失就开始积累，这可能会暗示市场跌势的。并开始对市场有出现恐慌性抛售，并在大暴跌，那么市场可能有机会达到底部。 由于市场是动态的，过去的历史中，只有很好的参考，因此所谓的百分比下降值分析和时间周期分析，以判断一个底部并不总是不够准确。例如是40％，50％，或80％下降标志着底部？一个10年，8年或四年标志着一个经济周期？在过去的经济运行本身通过的高峰期，经济衰退和自身的恢复。但现在也有像基金注资，救市，更多的步骤，以缩短衰退，但这种干预将使市场在较短的时期达到了顶峰快速下滑回下来了。 比方说，美国广播公司股价下跌至12至10及投资者决定购买，但后来美国广播公司股票继续下滑至5在要撞上岩石底部回升至14条。
  对于买入并持有策略的投资者将通过看到他的投资组合中50％的亏损周期中，（美国广播公司股票已从10日至5），他需要一个100％的涨幅（美国广播公司股票从5个上升到10）和然后看到一个40％的涨幅终于从10至14岁。
  对于购买切后买的策略，可以买入股票，然后设置一个止损比方说2％，但必须记得买后削减。通常，当市场开始快速大幅向下移动，可能需要1至5次，我们在正确的最低价赶上。并记住市场不会朝直线下降到打它的底部，会有个篮板之间，因此，我们甚至可能使小的利润，即使我们通过购买陷入停产的购买策略是错误的底部。因此，我们可以估算，我们可能需要忍受只有6至8％的损失，才赶压价，而50％的亏损，如果使用买入并持有策略。然后当股价上升到14，买停产的购买战略将作180％的涨幅比40％的购买和持有收益。 6至8％的损失承担180％的涨幅相比，将是什么。 那么如果股市复苏，美国广播公司从未在5行业在很长的时间？那么对于买入并持有策略几乎可以说是50％的亏损实现，但对于购买停产的购买策略，他不仅会损失约6％至8％
  我们可以将这些策略，以绩优股和非绩优股。当然，绩优股往往是低风险，具有较高的机会反弹，甚至达到更高的价格。一方面非蓝筹股会突然上升几个褶皱，但另一方面它也可以在一个被遗忘的股票价格低，仍然停滞了很长的时间。 这取决于你的风险状况。