"T+10 interest FREE margin trading account"

Maximize your profits through the power of T+10 interest FREE margin trading account, an account which gives you more time to ride the uptrend. Absolutely interest FREE. Attractive brokerage for online trading. Get Real-time guidance from Trend Master. Call +603-5192 7249 for more details.

Wednesday, April 30, 2008

Got Inspiration?

Many seasoned, profitable traders truly enjoy trading; they have a passion for understanding and mastering the markets. As one trader put it, "I find the game itself interesting. I enjoy watching how stocks react to news. It's always amazing to me how you can see small movements snowball into large herd mentality sorts of movements. A minor piece of news starts some selling, and then all of a sudden, there's more selling and more selling, and then there's a huge avalanche of selling. And it all started with just a minor piece of news...I find that very interesting." Another seasoned trader said, "I like the freedom trading gives you, the ability to earn a living while not having to have employees, the mental challenge, and the constantly changing environment." There are many reasons to pursue trading, and money is usually not the only reason. At the same time, even a thrilling activity like trading can become commonplace, and when you're in a slump, you can feel like giving up. At times like these, it is vital to find the inspiration you need to overcome obstacles and win.

In systematic studies, researchers have repeatedly discovered that peak performers have a true passion for what they do. Whether it's art, sports, or business, the folks at the top are not primarily motivated by fame, glory, respect, or status. They are driven by the inherent rewards of the creative endeavor itself. But even the most exciting job can become boring at times. Think of the hobbies, activities, and things that you once found exciting but no longer find interesting. It may be a sports car that you couldn't wait to drive but now view as a daily driver, or a favorite, expensive designer outfit that today you see as commonplace as a pair of jeans you bought on sale at Wal-Mart. Unfortunately, the initial shine seems to wear off.
What can you do when you lose your inspiration? It’s vital to rekindle your passion for the game. You may, for example, watch an exciting moving about trading, such as "Wall Street." If only we had so much wealth that we could change the course of a company, and profit it from it? Wow, it's fun just to be a small part of that, right? Or what about the commodities brokers in "Trading Places" who tried to corner the frozen concentrated orange juice market? These are romantic images that can inspire you. That said, if you are like most traders, you no longer see these romantic images as accurate. They may have motivated you when you first started trading the markets, but now that you've had some experience with trading, the tough realities of trading the markets may far outweigh the glorious images of amassing great quantities of wealth. But it's fun to take a break occasionally and daydream. It doesn't hurt as long as you can separate fantasy from reality.

Trading is a tough business. If you lose your passion for trading, all it means is that you are human. If you get bored, it's vital to remind yourself of the advantages of trading: You work for yourself (unless you are an institutional trader). You can work at your own pace, and feel that you have freedom. Remember what it was like to work a 9-to-5 job? Perhaps you don't. Well, that's an idea. "Absence makes the heart grow fonder." Maybe you could arrange to visit a friend for a day at a regular 9-to-5 job. It's not forever. It's just a way to rebuild your passion. Sometimes we forget why we trade. Again, like a thrilling sports car, we start to see the thrilling job of trading as mundane. Drive a compact car for a week and you'll see how great your sports car drives. Work at a regular 9-to-5 job for a few weeks, and you will find your passion for trading quickly. It may sound extreme, but it works. Maybe even after the first day, you'll think, "Oh, now I remember why I became a trader."

It's hard to trade successfully day in and day out. Some traders never lose their passion for the markets, but many forget just how exciting the markets can be. If you lose your passion, don't sit around sulking about how boring life can be. Go out and see how the other-half lives. You'll remember why trading is a great profession. And you will trade with renewed vigor and regain your mental edge.

By Michael S. Shopshire, PhD Mental Edge

Tuesday, April 29, 2008

Chart following Vs Rumours following

(Click to enlarge chart)
Two weeks ago, a friend came to see me in the office to discuss about "share" matters. I told him that some counters offer good trading opportunities, but he mentioned that he was told to sell everything before Parliament starts, so he would not buy anything. I did not insist, but I told him that trading is about following market trend, not about listening to unfounded rumours or comments. Of course he didn't buy those counters that I mentioned (he would now say aiyah! missed la! as usual). A week later, another guy (somebody high in position in my office) also mentioned that he was told to sell everything before Parliament starts, I laugh again. Today, the Parliament started, I didn't see our market disappearing or plunging to a new low, instead, many counters are doing well, and I have been locking in handsome profits. This is not to boast, but just to tell a fact that, following the chart is always wiser than listening to all kinds of advices from those commentators in the street (everyone has a mouth, they can say anything they like).

The market was very slow and quiet today (Monday, 280408). KLCI was up 7.23 points, in which a last minute effort push the CI up by 3 points. Volume was very thin at 486 million shares traded. This shows the market lacks participations from the majority. Maybe the market is waiting to see any surprises after the Parliament starts. On the weekly chart, our market has actually ran up for three weeks since 7th Apr, and has touched the short term target of 1300, and maybe it is time to take a breather. The 60 days MA is posting some resistance to the CI, however, the short term 30 days MA has started to point northeast indicating short term up trend. The very short term 5 days MA is giving some support to the CI. If the CI is able to break through the 1300 psychological resistance, then it may test the next target area at 1340. On the other hand, if the market continue to stay weak, the CI may come down to close the gap at 1267.

Some of the stocks to watch are: Parkson, Puncak, Kinstel, Zelan, Kencana, Sapcres, Sunway and...

Disclaimer: The above is not a recommendation to buy or sell, all suggestions mentioned are purely for academic study purposes for our trend trader club members only, and the author may have personal interest and position in some of the examples mentioned. Any losses incurred if you were to trade base on the study examples above is solely your own responsibility. Do consult your dealer before taking any action.

Thursday, April 24, 2008

Profit Taking - Buying opportunity

As mentioned in the Wednesday's post, the KLCI tested the 1300 psychological resistance today, and after that the market went into a strong profit taking mood. Some went panic seeing the green color screen suddenly turned red, one or two called up and ask, "What's happening?" I just reply it's normal profit taking after three to four days of rise, and they feel a sense of relief. Trading is indeed stressful, and need full concentration. The market is full of opportunity now, but the opportunities belongs to those with a good command of trading knowledge and skills with a calm and clear mindset.

The following articles is good reading...

Stressed Out and Vulnerable

Ian wrote in and asked, “Over the past four months I have had a pretty rough time. I have had many medical issues...I don't get much sleep and I am constantly feeling run down. My symptoms have affected my life to such an extent that my long term girlfriend left me. I have gone bankrupt and folded the business I loved running. However, I do love to trade and when I devote myself to it, I can achieve consistent results. So my question is when all is falling apart, is it wise to tackle the markets?”

Thanks for sharing your circumstances with us. Many traders are under extreme amounts of stress these days and can relate to your predicament. For example, many traders have real estate investments in addition to their investments in the financial markets that may not be doing well. Also, many traders may feel stress from losses in the markets or from the generally unstable market conditions we have seen over the past few months. They may be hiding these feelings from their friends and family, and this may produce added stress. Stress levels may be higher than they have been in recent years.

Although generalizations may not apply to everyone, people in extremely stressful circumstances may want to avoid trading in earnest. A primary assumption I have made in my columns is that stress interferes with a trader's ability to maintain a proper mental edge. Here’s why: Trading requires risk, and tolerating risk is inherently stressful. Although people differ in terms of their ability to tolerate stress and to tolerate risk, humans have a limited amount of psychological energy when it comes to coping with stress and risk. It's hard enough to control impulses and emotions under ideal conditions, but when a trader is under a great deal of stress, trading becomes especially difficult.

You may be under a great deal of stress. To put it in perspective, consider your score on the Social Readjustment Rating Scale created by Thomas Holmes and Richard Rahe. Each life stressor has a stress score on the scale that can be summed to arrive at your total level of stress. In your case, your total stress score is moderate at slightly above 200.

  • Marital separation = 65
  • Personal injury or illness =53
  • Business readjustment = 39
  • Change in financial state = 38
  • Change in sleeping habits = 16

You may be under stress, but not everyone handles stressful events in the same way. Some people are “stress resilient” in that they can take stressful events in stride. But it is difficult to handle stressful events easily.

Some people cope with stress by engaging in creative endeavors they love and trading surely falls under that category. So if you love trading, focusing on the markets may help you cope with stress. That said, you must be extremely careful. If you merely paper trade or study the markets for interest, you may be able to relieve stress. But there is a “sunk cost” in studying the markets and not trading. There’s a natural tendency to think, “Why am I studying the markets and not making a profit?” That’s when you might be in trouble. You may make risky trades while in a vulnerable, stressful state of mind, which may lead to losses and further increase your levels of stress. In the final analysis, it is better to stay away from the markets until you fully recover from the major life events that have happened in your life.

Many traders underestimate the influence of stress. Stress is not only a psychological reaction, but also a biological response. When you are stressed, your body reacts instinctively. You are agitated, on edge, and ready to lash out. Your attention is restricted. Your mind is closed and inflexible. The stress response has a specific biological, adaptive function: Your energy is channeled into making the simple response of fighting an opponent or running away to flee to safety. Not only is your energy channeled, but your perceptions are limited. Trading requires a more complicated skill set, though, and when you feel stressed out, you are bound to make a trading error. For example, you can have a very complete trading plan, where every aspect is spelled out clearly, and you may have a wealth of experience executing such plans, but when you are stressed out, even the simplest task can be difficult to complete. You may not see an obvious signal to take action. And even when you see the signal, you can make a small mistake when you're stressed. Again, when under extreme stress you are agitated and your psychological perceptions and intuition are restricted and closed off. You miss little things and have a tendency to respond quickly without thinking. While trading, we often do things automatically, without thinking, but stress can cause us to act so quickly that we miss something. We may forget to place an order according to plan or we may misread a signal and close out a position too early.

Don't underestimate the impact stress can have on your ability to trade with the proper mental edge. It is useful to practice stress prevention. Try to minimize the impact of stressors as much as possible. Stressful emotions can build up, and if not released occasionally, one can be overloaded by stress. You can't completely remove stress from the trading environment, but you can prevent the stressful aspects of trading from making you feel overly anxious and fearful by developing a stress management plan and following it. Some useful ways to manage stress include (a) avoiding caffeine, (b) exercising regularly, (c) minimizing daily hassles, and (d) seeking out social support. Caffeine helps many people wake up in the morning, but it may often elevate your nervous system to the point of making you hyper-alert to the slightest form of stress. Trading is stressful enough; it's not useful to pre-elevate your nervous system and feel a heightened sense of anxiety. Tension can also be reduced with regular exercise. Tension builds up during the trading day, and a regular exercise program ensures that pent-up frustration and tension are released, and do not build up to influence subsequent trading decisions unexpectedly. It's also important to reduce stressors in your environment. Daily hassles, such as time pressure, traffic congestion, or feeling over-extended can build up psychological tension and loiter in the back of your mind. Try to minimize these hassles and relieve the pent-up tension. But however you cope with daily hassles, don't ignore them; don't try to pretend they aren't important enough to deal with immediately. They can accrue and cause you great strain in the long run. Seeking out supportive friends can also be useful when managing stress. Friends can provide you with a sounding board, an alternative perspective, or even creative solutions to your problems that may have eluded you.

Trading requires an optimal mindset. When you are upset, tired, and emotionally distracted, you will have trouble following your trading plan. It's vital to return to a calm, focused mindset, a mindset where you are attentive and alert, and can trade like a winner. Don’t underestimate the impact of stress. Trading is very stressful. When you have stressors to mange outside the trading realm, you may be especially prone to making trading errors, taking unnecessary risks, and possibly increasing your dept. There’s plenty of time to trade the markets across your life. It’s better to patiently stand aside for the moment, wait for your “traumas” and feelings of stress to dissipate, and when you are rested, relaxed, and relatively stress-free, you can resume your trading endeavors with the proper mental edge.

By Michael S. Shopsire, PhD. Mental Edge

Wednesday, April 23, 2008

The gap is closed

On Monday, the KLCI gap up open at 1278.25, right above the resistance at 1277.69 and hit the intraday high 1288.14 due to the spilled over effect of DJIA's gain of 228 points on last Friday's close. CI was trading downward the whole of Monday due to profit taking activities. Yesterday, the CI started the day with a bit of panic selling as usual because DJIA was down 24 points on Monday's close, however, the CI was gradually trading upward and turn positive at about 4.15 pm. Volume has gradually pick up, in the region of around 600 million shares. This shows the majority public has not regain confidence yet, and the smart-money has been actively accumulating. As Monday was a gap up open, CI may correct downward the re-test the resistance which now turned support at 1268 before it pick up steam to challenge the 1300 points.

The short term trend of CI has gradually turn positive as the 30 days MA has already starts to hook up. The 60 days MA which represents medium term trend is starting to go sideway and so is the 120 days longer term MA. So, the short term is up and the medium to longer term perspective is sideway with a trading range of 1250 - 1300.

On March 17, I mentioned opportunity in disguised, some were doubtful and some were opportunistic. Those opportunistic fellows who called me got on to the boat of Kencana, Sapcres, KPS, Zelan, Huaan, Hubline etc. However, there are also those who say they missed the boat, but the fact is when the boat was there, they didn't recognized it or don't believe that it is a boat, probably due to their lack of knowledge or lack of confidence. So, better revise what you have learned before. Do pay attention to those educational articles that I post here.

Disclaimer: The above is not a recommendation to buy or sell, all suggestions mentioned are purely for academic study purposes for our trend trader club members only, and the author may have personal interest and position in some of the examples mentioned. Any losses incurred if you were to trade base on the study examples above is solely your own responsibility. Do consult your dealer before taking any action.

Thursday, April 17, 2008

Trading with a Gambling Mindset

Trading should not be approached with the mindset of a recreational or a pathological gambler. Trading lore is replete with tales of traders who took big risks and paid a huge price for it. Professional trading as well as professional gambling is about risk management. One trade or a series of trades should not wipe out most of your account balance, yet many traders find themselves in dire straits. Do you trade like a pathological gambler?

The Diagnostic and Statistical Manual of Mental Disorders, published by the American Psychiatric Association, contains a pathological gambling diagnostic category. Just like alcohol use, gambling is not necessarily a “psychiatric disorder,” but when a pattern of behavior develops that causes emotional distress, interpersonal conflict, or work difficulties, a common everyday behavior like alcohol use or recreational gambling can turn into a psychological problem that may require treatment. Pathological gambling is a lot like alcohol or drug dependence in that the person cannot stop and the behavior causes impairment. For example, a pathological gambler can’t stop thinking about gambling experiences, requires larger or more frequent wagers to get the same rush, feels irritable when trying to stop, uses gambling to cope with negative moods, is consumed with recouping losses through gambling, tries to hide gambling behaviors, cannot stop gambling, and may engage in illegal acts to continue gambling. Does any of this sound familiar?

Unfortunately, many traders have made bad decisions trading and have paid the price. They may not have had a “gambling problem” in the strict clinical sense, but face a great deal of emotional turmoil as a result of their past trading. Many traders may hide their financial difficulties from family and friends, while other traders may find themselves in such as deep financial hole that they cannot climb out of.
It may be interesting to consider the extent to which you approach trading in the same way a pathological gambler approaches gambling. I adapted the South Oaks Gambling Screen to pertain to trading. It’s important to note that if you get a high score on this quiz, you may not have a psychological problem with trading, but it may suggest that your approach to trading is similar to a problem gambler and that you might want to change your approach to trading.

Answer True or False

1. It seems like I’m constantly trying to win back losses.
2. I frequently claim I’ve been making profits when, in fact, I have lost.
3. I sometimes feel as if I’m risking too much money on trades that I can’t afford to lose.
4. I risk more money on a trade or series of trades than my account size warrants.
5. I have felt guilty about the way I trade, as if I’m risking too much money on bad trades.
6. I want to control my risk (or frequent losses) but I can’t.
7. I’ve frequently tried to hide my losses from my family or friends.
8. I have had arguments about my trading losses with loved ones.
9. I have borrowed money from people to feed my account and not paid them back.
10. I have lost money trading that I can’t afford to lose (such as household money or credit cards).

If you received a score of 3 or above, you may have a problem with your trading. You may not be a “pathological gambler,” but it is worth seeking professional help to confirm that you don’t have a problem. Perhaps it is the nature of trading that those outside the profession do not understand the risk involved, but if trading impacts your emotions in a negative way or leads to problems with family and friends, it will impact your ability to trade with the proper mental edge and succeed. To trade at your best, it’s vital to manage risk, trade with money you can afford to lose if necessary, and trade high probability setups.

By Michael S.Shopshire, PhD, Mental Edge

Tuesday, April 15, 2008

Dull market.

The market was really dull yesterday. Regional markets was down due to the poor performance of DJIA on Friday, and KLCI was down 13.36 points to close at 1233.43, volume traded was only 355 million shares, one of the lowest volume day in recent months. This indicates a lack of interest. External factors and internal political uncertainties will continue to affect the performance of the KLCI. CI may continue to go sideway within the range of 1200 - 1265, if 1215 is broken CI may go further down to test 1200.

In a dull market like this, perhaps this is the best time to do more reading to enrich ourself. Below is a good article by Michael S. Shopshire, PhD, of Mental Edge.

The Obsessive Compulsive Trader

Careful analysis of all possible alternatives and all possible consequences of one's decisions is the hallmark of good decision-making. Amateur traders approach their decisions like recreational gamblers, but professional traders make a careful analysis of their options and act decisively. It's important to avoid impulsive decisions. It's vital to have a clearly defined trading plan, and to manage risk so that a single trade or series of trades will not have the potential to completely wipe out your trading account. It's also imperative when making a trading plan to define up front the signs and signals that indicate your trading plan has gone awry. It's useful to conduct a thorough analysis before making a decision, but some traders have difficulty making prudent decisions. Rather than act decisively, they become completely paralyzed by it.

At the outset, it's vital to point out that not all traders suffer from psychological ailments. When it comes to hesitation, for example, some traders have good reasons for waiting. Experience may have shown that it was worth waiting before making a trade, or novice traders may be risking too much capital on a trade and be legitimately afraid of digging themselves into a deep financial hole. That said, other traders act like they have obsessive-compulsive personality disorder. In other words, they hesitate too long and the reasons for their hesitation reflect personality characteristics.

Traders with a pathological variant of what traders usually refer to as analysis-paralysis are afflicted with an insatiable need to seek out certainty and security. For these individuals, uncertainty represents insecurity. It's not merely that they have a pessimistic outlook, although they have one. They equate money with psychological security; losing money represents not only a loss of financial security, but also a loss of basic emotional security and well being. How does such an affliction develop? For many it is rooted in early childhood. Parents often impose rules for their children to follow and punish them when the rules are broken. Young children are on the lookout for what rules to follow so as to avoid punishment and the unpleasant feelings associated with it. As adults, we make our own rules and decide to follow them or not; we no longer act as children searching for the "right" rules to follow in order to avoid punishment. People with extreme analysis paralysis, in contrast, tend to search for the "right rules." They continuously search for rules to follow, and when no clear rules exist, they simply make them up. It's as if their parents have followed them into adulthood. They are always there next to them nagging and threatening punishment when the "right" rules are not identified and followed unconditionally. For traders with a pathological variant of analysis-paralysis, this past childhood conflict manifests itself as searching for the "right" indicator or the "right" trade setup. And even when they see it, they have a strong need to want everything to be perfect. Because if they don't, they are certain that some form of unspecified punishment will follow.

Do you have an extreme form of analysis-paralysis? If you do have a pathological form of analysis paralysis, it may be difficult to overcome, but it is not impossible. The main thing is to take realistic action. If have a dire need to be perfect, you may want to minimize risk so that you can convince yourself that you can handle the worst-case scenario. Taking big risks will drive you to obsess about possible “disasters.”

Don’t be such a perfectionist. It’s not as bad to make mistakes as you think it is. "The harder you strive for perfectionism, the worse your disappointment will become," according to Dr. David Burns. Perfectionism has more disadvantages than advantages. Trading is a profession where you must take risks and explore new market opportunities. If you continuously strive for perfectionism, you'll never feel satisfied. You'll always think, "I could have done better."

Based on theories of Dr. Albert Ellis, a more adaptive approach is to realize that it's impossible as a trader to be thoroughly competent, adequate, and achieving all the time. Certainly, you should develop an extremely detailed trading plan and try to account for all adverse events that may go against your plan, but there are limits to what you can do. For your long term enduring success, it is vital that you learn to ease up. You don't have to be perfect. You are bound to make mistakes occasionally. Dr. Burns suggests that lowering your personal standards may be helpful. Rather than strive for high levels of performance, feel what it is like to be average. For example, instead of searching for the ideal setup, you may want to just find a profitable setup. You may not make as much profit, but you will feel more relaxed. If you compare what it feels like to strive for high standards, moderate standards, and low standards, you may find that merely going for moderate standards makes you feel better. You may also find that you put on more trades, and achieve greater levels of profitability. You may also want to change your self-talk. In her book, Overcoming the 7 Deadly Sins of Trading, Ruth Barrons Roosevelt lists some supportive beliefs that may help you control your need for extreme perfectionism: "I do my best and my best is enough. Trading is an imperfect art and science. The future is unknowable, so I don't have to accurately predict it. I can forgive myself and still improve."

Don’t let an extreme form of analysis paralysis get the better of you: Ease up. Remember, you don't have to be perfect. You are bound to make mistakes occasionally, and that’s all right. No one is perfect. A mistake does not mean that you should be punished, it just means that you are human.

Friday, April 11, 2008

Don't Gamble: Trade Like a Professional

I grew up in a small town outside of Las Vegas. One summer a group of teachers decided to get jobs in one of the casinos during their summer vacation. For fun, they pooled their resources to see what would happen if they continuously played a single slot machine until it hit the jackpot. They lost about a fourth of their money. This story shows what we all know: Casinos don't let recreational gamblers break even. The free drinks, the entertainment, and hotel rooms have the sole purpose of getting recreational gamblers into the casinos to gamble, and lose. Casinos make sure the odds are in their favor. All they have to do is wait, let people gamble, and watch their coffers overflow with profits. Recreational gambling can be fun as long as you limit your losses and know when to quit. That said, if you don't manage risks, trade with a reliable trading strategy, and trade your plan, trading can be seen as every bit as reckless as recreational gambling.
Perhaps one can argue that any form of financial risk is a gamble, but surely some risks are more of a gamble than others, and some people approach trading with the mindset of a recreational gambler whereas seasoned, winning traders view trading as a profession.
To the general public, gambling has many negative connotations. When professional gambling is mentioned, most people immediately think of compulsive gamblers who seek out high levels of unpredictable risk and impulsively lose their paychecks, and money that is crucial to their basic survival. But gambling is not necessarily "bad" or "evil." Indeed, professional gamblers make a good living by taking the right kind of risk. It's all a matter of cultivating the right mindset. It is vital to make a clear distinction among compulsive, amateur traders and professional traders. Trading should not be approached as a form of recreation. Amateur gamblers, or social gamblers, are interested solely in enjoyment and entertainment. Smart recreational gamblers budget a fixed amount of money for gambling entertainment and spend it as they would for a movie, concert, sporting event or some other fun activity. Part of the fun of social gambling is getting a thrill, and the hope of finding Lady Luck on one's side and winning a big jackpot.
Traders who put on trades to get a rush and a feeling of euphoria act like compulsive gamblers. Impulsive traders have absolutely no discipline. Obviously, trading is no place for the trader with a need for shear excitement and risk. But many novice traders, unfortunately, make the mistake of applying the amateur, social gambling mindset to trading. They view trading as entertainment. If you've got money to burn, there's no harm in taking this attitude toward trading, but most of us want to make profits. And a social gambling mindset can quickly wipe out your trading account. If you are serious about trading professionally, changing this mindset is vital. You may find trading enjoyable, but the main objective of professional trading is making profits. Not only does that mean building winning trading skills, but careful risk management, discipline, emotion control, and executing trading strategies in a peak performance mental state.
Do you trade like a professional? It is vital to examine your risk-to-reward ratio before making a trade. It's also essential to trade with money you can afford to lose, and to limit the amount of risk you take on each trade. Make sure you can survive a drawdown, and avoid wasting your precious capital on low probability setups. Don't put on trades just to get a rush of excitement. Make sure you have a detailed trading plan and trade the plan. Be careful. Seek out high probability trade setups, and stand aside until you find a setup where you can win. In gambler's parlance, "you've got to know when to fold 'em." It's impossible to make money without risking it, but there is a huge difference between reasonable risk and recklessness. Winning traders know the difference and don't take unnecessary chances.

By Michael S. Shopshire, Ph.D; Mental Edge

Wednesday, April 9, 2008

Trade Like a Professional: Manage Risk

What’s the difference between reckless gambling and professional trading? For many, the answer is risk management. Many traders view risk management as critical to long-term success. Consider what a couple seasoned traders have told me about risk management when I’ve interviewed them. Mark said, "You can have a crummy trading strategy, but if you have good money management, you can make money. If you have poor money management, it doesn't matter how good the trading strategy is. You're going to lose in the end." Similarly, Chris observes, "You must have a survivability element so that if you literally wished to select stocks by throwing darts at a board, you would continue to survive market to market."

Risk management is viewed by many as important, but what's the best way to manage risk? Some traders use very specific rules for managing risk, such as risking a small percentage of capital on each trade. Other traders don't seem to have any specific rules, but may look at past performance as a key. (What is the volatility? What was the previous day's low?)

As important as risk management is, not all successful traders always manage risk. Some successful traders put on big positions when they believe they see a chance to make a huge, substantial win. When they believe they are right, they just take a chance. Doing so may lead to big losses when they are wrong, but they do it when they need to.

Is taking big risks a good idea? When it comes to trading, there is no one "right" way to trade. All you can do is consider the advantages and disadvantages of each approach and decide which approach you want to take. Whether you want to take big risks may depend on your experience and trading skills. If you are a novice trader, you have not yet learned how to use a set of methods that will reliably ensure that you will make back losses. In this case, it may not be a good idea to take big risks. For novice traders, it is often vital that they control their risk (for example, risking a small percentage on each trade) so that they could survive long enough to gain mastery as a trader. One reason trading coaches preach the virtues of careful risk management is that a common mistake among novice traders is wanting to "get rich quick" and putting on big trades to make big wins. The methods and skills of a novice trader, however, do not warrant taking such huge risks. What often happens is that they lose all of their capital on a few big trades and need to rebuild their capital before trading again. Rather than gaining mastery as a trader, they fruitlessly go through cycles of risking a lot, losing it all, quitting trading to rebuild capital, and so on. These novice traders never give themselves a realistic chance of learning how to trade consistently. In contrast, the novice traders who manage their risk can trade longer, and hopefully learn how to trade consistently before their capital runs out.

Once a trader becomes seasoned, he or she may want to "reach the next level" and make a lot more profit. Seasoned traders often reach an asymptote, at which point a self-imposed cap limits their profits. It's hard to break through this barrier, and no one really seems to know why. Very experienced traders who want to make greater profits need to start bending or breaking the rules a little to see if they can make greater profits and break through the barrier. This is risky, but some seasoned traders are willing to take the risk in order to make huge yearly profits. That said, they also can afford to take more risks. As seasoned traders, they have the methods and experience to take risks, but a novice trader does not. So even though there is no right or wrong way to trade, if you are new to the trading field, risk management has the advantage of allowing you to "survive the learning curve" until you find the once-in-a-lifetime opportunities to make you wealthy beyond your wildest dreams.

By Michael S.Shopshire, Ph.D, Mental Edge

Monday, April 7, 2008

Profit taking and consolidation

Last week, the KLCI entered into a profit taking week after a continuous 8 sessions of run up from 1166 on 180308. The profit taking is considered healthy. As mentioned in previous post, it was foresee that the CI will correct downward to the 1230 -1205 level. The CI has indeed did so and tested the 50% retracement level of 1215 for the run up. Now the CI is trying to find a footing at the 1220 level, in fact the small hammer like candlestick that formed on Monday, 070408 plus the very low volume of 428 million shares traded tells a clue that the selling pressure is waning.

For this week, the CI may continue to consolidate and move in range of 1205 - 1264. Internal political developments and external factors, especially the performance of the Dow will continue to have influence on the direction of KLCI.

As for the DJIA, it has gone through an almost three months of consolidation since January '08. From the chart, we can see that the DJIA is gradually moving upwards to test the resistance at 12760, if it is successfully broken, the Dow may continue to challenge the 13,000 level, otherwise, it may continue its sideway consolidation in the current range of the 12000 level.

For the medium to longer term players, the KLSE offers good opportunity to accumulate quality stocks that has corrected substantially; for the short term players, there are some trading opportunities too.

Disclaimer: The above is not a recommendation to buy or sell, all suggestions mentioned are purely for academic study purposes for our trend trader club members only, and the author may have personal interest and position in some of the examples mentioned. Any losses incurred if you were to trade base on the study examples above is solely your own responsibility. Do consult your dealer before taking any action.