Time to Buy Stocks

I was training a class of new VectorVest users about 2 weeks ago.  Someone from the audience asked me if it was too late to short the market.  Surprised, I then took a poll of the audience that day if they felt bullish or bearish about the market.  Most of the raised hands were bearish.  With that I declared to them that it was time to buy stocks!

It was clear 2 weeks ago that the sentiment amongst retail crowd was bearish.  They do not want to buy stocks and are thinking of shorting.  In understanding that there are only 20% winners in trading, I knew that I have to be bullish.  Never take action, until there is a clear entry signal from the charts to signify that the demand fundamentals has changed.

You need 2 things to enter into a market:

1. Identify the Driver (Fundamentals or Sentiment)
2. Timing (Technical Analysis)

See below for the STI chart, and the S&P chart.  Green arrow for Buy signals, Red arrow for Sell signals.

It is now time to buy US and SG stocks.

How I got to speak at SGX

Tonight, I will be speaking in SGX at 6.30pm. I am writing to help to promote the event, and also to describe how I was invited by my brokerage.
My system (VectorVest) called for a sell on 2nd Aug.  All my human intelligence was telling me to continue to hold my stocks.  But after a tug o' war with myself, I decided to stay disciplined.  Hence I sold more than 20 stocks that I had long positions in.  Then, I also took a small short position.
Today, on looking back, I can say with conviction that Discipline is far more important than Intelligence in trading.
Here is the invite from my brokerage, Amfraser Securities.

Dear All
We are organizing a trading workshop for our client on 5th Sep, we have invited Mr. Ian Low from vector vest to share with us on the current market situation, should anyone be interested to join us, please feel free to email to us
Vector vest uses a combination of fundamental analysis and technical analysis to help better gauge the market and how to better your portfolio. As a personnel witness to the system, the vector vest system call for a SELL 3weeks ago, and it is a BIG SELL from vector vest. Mr. Ian Low sold his entire holdings that was under our holdings and even shorted stocks. I believe that the system is suitable for buzy people who does not have the time to monitor the market.
Thank you 

TITLE: TRADING WITH CLARITY
DATE: 5th Sep 2013
TIME: 1830 hrs to 2030 hrs (2hrs)
LOCATION: SGX Trading Room 2.
Address: 2 Shenton Way, SGX center 1, Level 2 training room

Should you have any queries, please feel free to contact us
Thank you
Warmest Regards

Chai Ming Hui, Augustine
Remisier, Amfraser Securities Pte Ltd
DID: 6236-2676 / 2677

Riding the Waves

My last entry in this blog was in early May this year.  Before I continue with the current market situation, let me give you a summary of my trades in the Singapore stock market.

See the chart of the STI below.  The Red/Green triangles are my entries and exits.  I have been riding the waves in both directions.

• Closing my longs in early June, and then initiating my shorts.
• Closing my shorts in early July, and initiating longs.
• Closing my longs in early July, and initiating my shorts.

At the current moment, I have closed half my short positions.....and waiting for the green arrow.

It has been about 4 months since I last wrote about the markets. There is a little story behind it.

Met a technopreneur, who has been on and off giving me free tips on life skills. He asked me what my end objective was for my blogs and websites. Reminded me the first 1st habit of successful people is "to begin with the end in mind". 

Since May, I have been stopped all my blogging.........till today.

These 4 months, I have been doing lots of self searching.......while trading.
And Yes, I am still trading!!

Expect to see lots of changes. I hope everyone benefits.

Sell in May and go away

I do not like to forecast......because I am often wrong.  My way of trading is to follow where trends may take me.

There is a pattern that is just to obvious too ignore.  See the STI chart below:

For the past 3 years, if you have shorted on the 1st of May and sold anytime in June, you have made a bundle. See the arrows.  The start of the arrows is on 1st May.

The STI price for past 3 years formed tripletop-like consolidation patterns in Mar to April time period.  Upon breaking the neckline, fierce downtrend ensued.

Now lets take a look at each of the swing low to see when we can take profit of the shorts.

• For 2010, it is 25th May
• For 2011, it is 17th June
• For 2012, it is 4th  June

There does not seem to be any pattern here that we can take advantage of.  We can only take reference that the downtrend lasted for about 1 month to 1.5 months, upon which we must be ready to take profit.

Now if most people are aware of this May Syndrome, 2 things are likely to happen.

1. The sell off may take place in April, as people fight to get in to short first.
2. The opposite may happen.  There may be a breakout failure to the downside.  The price may go up instead.

Play out the different possible scenarios that may happen to your portfolio.  Have a plan ready to react to each outcome.  Because, if you have no plan, the emotions will get to you when the price start moving, and you are setting yourself up for failure.

Rules based trading - Taking profit on Ezion

Ezion hit my profit target of 50% yesterday.  I longed on 3rd Dec 2012.  See the Entry on my blog.

Based on rules, I sold this morning at $2.18.  I did feel the emotions of greed whispering to me to hold on further.  Managed to brushed off the temptations and focus on obeying rules.
Admittedly, it was helped by Ezion forming a shooting star yesterday on the daily chart.  In addition, the price is now at the top of 2 channels.
Will I be buying Ezion again?  Yes, I may.  It is still a fundamentally sound company, and rising in momentum.  Again, if ever I trade Ezion again, my job is to ensure that the entry will be based on rules.

Real Estate Relative Strength Analysis

Real Estate is a red hot topic in Singapore.  Many people have diverse opinion whether the government intervention in Jan 2013 will finally cool the industry, or will there be a further cooling measures if this segment continue to defy common sense.

Real Estate sector is very broad.  Note that I still quite heavily vested, both in reits as well as ordinary stocks.  I wanted to know if I was vested in the right segment, and if necessary, to switch my horses.

First I manually created indices from the real estate stocks available in Singapore.  Then I use traditional TA based on moving averages and MACD oscillator determine the relative strength of each segment of the real estate sector.

I shall start with the weak to the strongest.

As expected, the Singapore Residential segment is one of the weakess.  The strongest are the Commercial and Hotel segments.

I believe in getting rid of losers and investing in the strongest.  I will need to switch my horses.

China

SG, Residential

Asia

HK

Industrial

Retail

Hotel

Commercial

A look at the Construction Sector

I have been wanting to invest in Construction companies in Singapore.  Somehow, I missed the earlier boat.   All over the Singapore, including the public roads, there seem all kinds of construction and civil engineering works.  Morever, according to our government, there seems to be no end to improving our Singapore.
Below is attached is an index of 24 Contruction Stocks that I created.

It is consolidating now at the 55 SMA.
After studying the charts and fundamentals of the list of 24 stocks, I eyeing at the following 3 stocks:
1) KSH Holdings
2) Lum Chang
3) Low Keng Huat

Preparing to long China ETF

Since my last post on 21 Feb, both the China ETF and Shanghai Stock Exchange has retraced to its 61.8 fibo level.  If this week closes with a nice white candle, the idea is to look for opportunities to long next week.

Note that this is a counter-trend trade, and against the downward momentum.  The main reason to support this trade is the sexy story that with a new man in charge the strongest economy in the world, the downward spiral of SSE has ended.

No Short Cuts

The comment below is not to shame anyone but to express my feelings:
I received an email from a vectorvest user that made me very sad. The person subsribed to vectorvest about a month ago, started trading real money with it, and promptly lost a sum of money via cutting loss within contra period.
For anyone who wants to stand any chance of not losing money in the long run, the following is non-negotiable. With software tool or no software tool, anyone who is successful in the long run is doing the following, or something similar:

1. Follow timing signals. Most important rule.
2. Write down your trading plan. Fail to plan, plan to fail.
3. Define and follow money management rules....example : risk only 1% of your trading equity for each trade. Better to be rich slowly than poor fast.
4. Review past trades. do not make same mistakes again
5. Backtest, or/and forwardtest for a time period. Determine your probability of each trade, maximum drawdown, expected or average profit per trade, maximum loss, minimum loss
6. Adapt trading plan to changing market conditions when necessary
7. If buying, search for strong stocks. Least important rule.

There is no short cuts.

STI's ominous Shooting Star

The daily chart of the STI certainly looks bearish in the short term.  On Monday, there was a ominous shooting star. See the circled red color.  The pattern seems to be developing into a triple top, also a bearish formation.

What do I make of these developments?  I have chosen to let the market do what it does.  I will still stick to my trading plan.  I have not taken profits for my long position.

Backtesting

Yesterday, on a Sunday, I participated in the VectorVest Precision training workshop held in M Hotel.  About 150 people turned up, which was a full house, as the room that was booked was pretty small.  I was there, sharing on the topic of Backtesting.

I shall here put on this blog as an appetizer of what I shared during the event.

What is backtesting?  

To backtest, means to apply the trading signals of your trading system on past historical data. Most of the time, patterns repeat itself.  Past patterns that has worked in the past, may work in the future.

Backtesting forms an important part of my trading methodology. By knowing which strategies work well in the past, I will know which strategies have a higher likelyhood of working going forward.

What do we want to determine through backtesting?

The most important data that we need to know about our trading system are: 

1. the total gains vs total loss %
2. the number of of winners vs losers
3. the total number of trades
4. the maximum drawdown
5. Largest win vs largest loss

If you were to have the above information about your system, you will have a pretty good idea

1. of the expected annualized return of your trading activites
2. of the probability of winning for each trade you take
3. of the estimated number of trades you will be taking for the coming day/ week /month/ year, matches your trading psychology
4. of the downside risk to your total equity in trading the system
5. if your system is able to ride winning trades, and cut losers short 

Overcoming fear of pulling the trigger
I recalled, that there was once a time where I could not pull the trigger.  As I think back, there were many reasons for it.  Many trading psychology books has written about it.  I was a classic case of someone suffering from fear of losses.  It drove me nuts for a while.

Reading trading books, trading courses, were unable to help me.  Most of them do not reveal their backtest data.  The problem, I realized, was within me.  I got over that stage by doing extensive backtesting.  Eventually through backtesting, I became confidant in the eventual success of my trading systems.  This enabled me take every trade, knowing that even if I were to suffer consecutive losses, profitability will likely return in the long run.

Most trading software and systems sold do not have a backtest feature.  Even if it has, it is extremely difficult to use for a typical retail trader as they will likely require programming skills.

How do I backtest nowadays?

I am using VectorVest to backtest.  The great thing about it is that it is really just pointing and clicking through a wizard to generate the backtest that I want.  I can even test stops such as trialing stops, which is a pain to backtest via visual or manual backtesting through excel. See screenshot of the possible stops for backtesting.

Note : I am not paid for recommending VectorVest, nor am I earning any commission from their sales.

Mutiple Stocks (Industry) Analysis

Both Charles Dow and Jesse Livermore observed herd behavior in markets.  On the charts, this can be seen  the broad market pulling individual stocks in the same direction.  A large portion of an individual stock's direction is attributed to the market's action, and only lesser fraction is attributed to the stock itself.
For the past year, I have been timing my trades based on a larger group of stocks.  The advantage of timing my trades in such a way has the following advantages:

1. A chart of a group of stocks is often less choppy.  Basing my actions on a less choppy chart reduces the whipsaws that I that may encounter had I chosen to trade based on a single stock chart.
2. Timing my trades based on a group often result in the trade responding rapidly to the changing market conditions.  This is because a group of stocks is basically, an asset class, a sector, an industry, or even a country.
3. Basing my trades based on an external, broader, market gives me a stronger mental justification for holding a position.  My belief in the stock is complemented by other stocks moving in the same direction.  That means that multiple stocks in the same industry is being bought, thereby increasing the momentum of the move.

Lets take a look at 2 examples.
I have a created a chart based on the arithmetic average of DBS, OCBC, and UOB.

The banking stocks have broken out and are making new highs.  I am happy to hold my positions, and will not be taking any profits yet.  As a trend follower, I must not put a cap on how high it can go.

Now, let look at a chart of 6 stocks: Golden Agri, Olam, Noble, First Res, Wilma, Indofood.

As a trend follower, I will stay away from buy any of these stocks until it break out of its trading range.

Vectorvest Composite Singapore

As some of you may know, I have been a subsriber of (VectorVest) software for about a year.  I honestly think they it is an extremely powerful tool for any stock investor.  My involvement with Vectorvest has got to a point where I am now helping them to conduct free product training for new users of Vectorvest.

This coming Saturday, 2nd March, I will be conducting such as training at Bras Basah Complex at 2pm.  If you want a free look at the features of Vectorvest, do contact me, as the room size is limited.

I shall now leave you with the slowest timing signal given by Vectorvest - the Confirmed Calls.  One of my Singapore stock portfolio is based on this market timing signal for entries and exits.  This chart is based on Vectorvest Singapore Composite, an arithmetic average of 756 Singapore stocks.  Vectorvest believes this chart gives a more accurate picture of Singapore Stock market, compared with the STI.  12 stocks were bought on 30 Nov 2012 (green arrow), and still holding.

Hero with pop star wife to move markets?

No, I am definitely not talking about our home-grown Singapore pastor.

I am talking about Mr Xi Jinping, the leader of China's ruling communist party.  Since Mr Xi Jinping  was elevated to the general secretary in 2012, the Shanghai stock exchange rocketed from its low of 1900s to 2400s - an increase of 25% over less than 3 months!

The above is a SSE50 China ETF weekly chart.  Since breaking out from the double-bottom pattern, and with MACD divergence, its strength has also caused it to break out of the raff regression downward channel.  I can safely say that the intermediate trend is no longer bearish.  Have we seen the low?  Is this the start of China's super-bull run?

Mr Xi is known as a reformist.  He has called for strong economic reforms in his first speech outside china in Dec 2012.  Can he come to the rescue of the china stock market, where today, 95% of stock account holders has given up and stopped investing?  Going the market movements since his inauguration, that maybe a strong possibility.  I know for a fact that the market likes to go against the general consensus.  Mr Xi has 10 years to do it, starting from next month, where he will be installed as the China's President.

What can we do to profit from this?  Look at the Shanghai SSE weekly chart.  I suggest waiting for the current retracement to end before buying.  How do we know the retracement is likely to end? After a series of black candles, wait for the first white weekly candle.  Two consecutive weekly white candles will be a double confirmation to enter.

Which industry will do well in 2013?

At the moment, the strongest industries are:

1. Energy (eg. Ezion, Keppel Corp)
2. Real Estate (eg. Ho Bee, Keppel Land)
3. Food (eg. Super, Petra )
4. Telecom (eg. Singtel, Starhub)

It is always tough trying to predict the year's top industry.  I do not have a crystal ball.  But I am a believer of holding the strongest stocks in the strongest industries.
It is always prudent to re-assess your portfolio at least three times a year.  If you are holding stocks in the above industries, you are on the right path. These stocks have been consistently making new highs.
However, if you are holding stocks in underperforming industries, I seriously suggest that you start planning on liquidating and holding stocks in the above four industries

With exception of real the estate industry, these industries will likely to continue to do well.  I will be very careful with real estate stocks.  Although I am still holding them, I am ready to let go when the uptrend ends. Although the property Jan sales was healthy, it was likely due to the saavy buyers locking in their orders before the Jan 12 2013 dateline.  I expect Feb and Mar property sales to be poor for the mass market real estate players.  I favour construction related real estate stocks.

A few days ago, OCBC released a report favoring infrastructure plays (eg Tat Hong). That will be something to consider as I consider them the dark horse for the year.

In my decision making, I try not to make predictions, such as where Shanghai market will be, or where the USD will go.  But I do try to make sensible decisions to follow the strongest (or the weakest for shorts).

When in doubt, go with the strongest.  I end with two wise quotes:

• trade with the trend till it ends.
• dont fix it unless it is broken

4 stocks with strong fundamentals and technicals

For those who would very much prefer to buy rather than short, I am recommending 4 stocks to hold for the medium term (about 6 months).  They have strong fundamentals and their prices are making higher highs nicely.

Boustead is now making 3 year highs.  I know, most people will say "how to buy when the price is so high".  That is precisely the point.  I was a poor trader in the past, trying to buy low sell high.  Most of the time now, I buy high, and sell higher.

The 3 other stocks (other than those I have recommended in the past year) that are strong in both fundamentals and technicals are:

1. Great Eastern Holdings
2. Dairy Farm
3. CWT

These 4 stocks have 2 things in common : they are making 3 year highs, and they are fundamentally safe, and undervalued stocks.  If you think we are in a bullish market, you should buy them.

My recommendation is that these stocks are definitely worth buying, but buying right now is risky.  The market timing is not optimum.  Waiting for the correction to be over before buying is more prudent.  Of course, with high risk comes higher rewards.

Here are their charts, note that the prices are making higher highs.

Hedging Long Position

Happy and Healthy Lunar New Year to all.  After taking a festive break, I am resuming my blogging, although I have not been feeling too good lately.  Must have eaten too much junk food and drank too little water.

Now back to the market:

A few weeks ago, I increased my long positions.  As it was not a prudent to invest at high prices, I did not want to mislead my readers, so I did not put them up on my blog.

Over the last 2 weeks, the STI has been a bearish candle and a doji, signifying uncertainty.  I am preparing myself mentally and psychologically for a possible retracement.  I consider mental strength and strategic planning as the 2 most critical factors to my success in trading.

What is my plan if it happens? My plan is not to take profits, and to hedge my long positions.  The idea is this: I believe that I am holding on to strong stocks.  Instead of selling them, the idea is to short other weak stocks.

In SGX, it is slightly difficult to short stocks.  The 2 easiest ways are through Contract for Difference (CFD), and Extended Settlements (ES).  Even then, the number of stocks available are quite pathetic.  One of my brokers has about 100 CFD stocks.  From this list of 100, I have shortlisted the following for short positions:

The following are some of the stocks that I am eyeing for shorting (not in any preferred order):

1. Asia Enterprise
2. Gallant
3. Fragrance
4. Banyan Tree
5. Hi-P
6. Datapulse
7. CSE Global
8. Rotary
9. Stamford Land
10. Stats ChipPAC
11. STATSchp
12. Hwa Hong Corporation
13. Genting
14. Singtel
15. SembMar

Note that I will not be shorting all 15 stocks!  My plan is to short 5 stocks out of this list of 15.

Current Market Situation, from an ex-colleague

I have a special contribution today from my ex-colleague, Song Koon, who has been trading/investing full time for about 3 years.  Here is his reading of the current market with some minor edits from me:

"The weather is getting hot and so is the market. I guess those who have positioned themselves in Dec and early Jan are having a roaring good time.
The bull is real, keep cheonging, with more and more positive news and earnings. There is also Jan effect and end of month window dressings. Although minor pull-backs are expected, all the major crisis have been kicked down the road beyond middle of March. With still low valuation and regional play such as emerging Myanmar and China recovery, there is still lots of stamina going forward for Feb and early Mar. Just remember sell in May and go away, which I find holding true time and again
For STI, the upside is getting compressed. However, penny stocks with potential expansion in emerging markets seem having good time, especially those cash rich and having good fundamentals.
What's important now is that the stock picks in your portfolio are rising due to strong fundamentals, good earnings and giving regular high yield.  Apart from this, it is highly recommended to watch the news of stocks in your portfolio. Remember to take profit along the way, leaving some stocks to extend their run to juice the final drop."

Possible Retracement for Shanghai Index

If anyone is looking to invest in China related stocks, I suggest that waiting for Shanghai to complete its retracement first.  Lets look at the weekly chart of Shanghai index.  I am assuming that today's closing of Shanghai to be lower than today's open.

Shanghai is likely to form a bearish weekly candle today.  This may signal a short term retracement. From the chart, it is clear that the long term trend is still down.  Shanghai needs to break above 2330 convincingly, to assure me that the trend may be changing.  Even then, the uptrend may not take place immediately.  The most likely scenario is for it to establish a trading range first, before breaking above 2656 to start its uptrend.
How does this affect me?  I will wait for it to complete its retracement, or break above 2330 before investing in China related Singapore stocks.

S&P 500 making new 5 year highs

I realized that updating my blog is not easy. It is taking time from my actual trading.  Analyzing the markets for opportunities also takes time.
There are two major news recently:

• S&P 500 made a new 5 year high (This ties in with the current level of VIX)
• Japanese government intervention in financial markets.

I am long in both Singapore and US equities.  As some may already know, I am a subsriber to VectorVest.  There are plenty of tools in Vectorvest.  One of my favorite for long term trading is called "Confirned Calls".

This is a daily chart of the arithmetic average of 7951 US Stocks.  I feel that it gives a slightly more accurate picture of the US market than the Dow, Nasdaq or the S&P500.  The green and red arrows are the "Confirmed Calls".  This is a long term trend following system.  It helps me to plan my trades based on the long term direction.  Notice that the US market has broken out of the resistance and is making new highs.

In the same way, above is a daily chart of the arithmetic average of 756 Singapore Stocks.  I am still holding on to my portfolio and is in fact looking to add to my positions.
The above 2 charts are perfect examples of prices making higher highs and higher lows.  As the saying goes:
"The trend is your friend until it ends".
The US market is heading towards it 6 year highs, while the Singapore market is heading towards its 3 year highs.  While my direction is still up, but I will be very cautious with my positions, taking profits with trailing stops.  No shorts for the time being.

For those who are unaware, there has been a fundamental change in the Japanese financial markets.  This can be clearly seen in the weekly charts of the Nikkei and the USD/YEN.

DollarYen has broken out of the classic head and shoulders neckline.  With the Yen weakening, the export oriented Japanese market should get a much needed boost.

The Nikkei has been on downtrend for decades.  It has now clearly broken out of the downtrend channel.  If the Japanese economy indeed rises, will it help to drive the Asian economy?

Good Investment - OCBC Preference Shares

OCBC 5.1% NCPS is a good investment at its current price. It is suitable for investors who want to beat inflation and the current pathetic bank's interest rates.  At yesterday's closing price of S$102.5, I have calculated the YTM (yield to maturity) to be 4.66%.  This means that of you invest S$102.5 in this preference share, and hold it till maturity on 20 Sept 2018, you will earn for yourself 4.66% annually.

I have about half of my savings invested in strong singapore preference shares and bonds.  I like to invest in this asset class for the following reasons:

1. Stable returns - Bonds have outperformed the equity market since 1997. (See above)
2. No currency risk - Strong Sing dollar
3. Little credit risk - Well managed economy with strong corporate governance
4. Better yields than savings and fixed deposits
5. Reasonable yields compared with property yield without hassles, fees.

Note : This is not a trade for capital gains.  It is a long term investment for fixed income gains.

If you like to get know more about corporate bonds and preference shares, drop me a line.  I will be happy to share what I know, I have nothing to gain and I will not be selling you anything!

The VIX (CBOE Options Volatility Index)

I am not smarter than the market.  I am not Warren Buffet.  I am just an ordinary person like most of you.  I did not go to business school, or work in Raffles Place.  As an american investor, Martin Zweig, once said:
"I measure what is going on, and I adapt to it.  I try to put my ego out of the way.  The market is smarter than I am, so I bend."

To know what is happening in the financial world, most people read financial news, investment magazines, newsletters, financial shows.  I am not discouraging this.  But I feel that they transmit market hype.  These spin stories are very misleading if you read it at face value.  It is very important to come to your own conclusions.  There are however, ways to measure objectively what exactly is the sentiment at ground zero level.

Practically every major indices such as S&P and STI is hitting resistance.  Most of them shows bearish divergence - meaning price is going up while technical indicators are coming down - indicating likely retracement.  But will there be a change in direction?
No one can determine exactly when or where the market will change direction.  However, it is possible to determine if the market is healthy or sickly.
I like to use the VIX as a confirmation of what the market is doing.  I do not use it to predict the direction.  The definition and charts of VIX can be found in www.cboe.com
Currently, the market is moving up, and I would like to know if the VIX confirms this upside move.
VIX measures the expectations of options traders of stocks traded on the NYSE and Nasdaq.  It is frequently called the Fear Index.  It moves inversely with the market.  I have 2 horizontal lines drawn.  At 49, and at 20. This is the monthly VIX chart over the past 10 years.  Circled are the years 2005, 2006, and 2013.

Currently, the VIX is as low as it has ever been for a long time.  I interprete this to mean that the level of fear in the market is now very low.  As long as it stays low, my bias is upside.  The last time the VIX was this low was in the years 2005, and 2006, where the stock market crept up to approach the 2007 highs.  See S&P monthly chart below.

Remember, VIX is used as a confirmation of direction.  I do not use it to predict.  From my experience, the VIX is more reactive than predictive in nature.  It simply tells me the level of fear sentiment at the ground zero.
Is the market going to do the same - to continue creeping up to its previous highs?

Portfolio increased by 6.8% since 1 Dec.

On Monday 14 Jan 2013, I sold all my property stocks, most of them at the opening price.  The reason for exiting these was due to the government new rules on property.  These exits were not part of my original trading plan.  However, the risks in trading property stocks are known in advance.  I knew the industry risks involved when I bought the stocks in beginning Dec.  It was a matter of time that our government stepped in to further cool the property market.  I knew I had to be fast in exiting in exceptional circumstances.  The stocks sold were

• Ho Bee
• Far East Orchard
• Bukit Sembawang
• KepLand
• Wing Tai
• Guocoland

Below is a chart of FTSE Real Estate.  The green arrow was my entry beginning Dec.  I did not buy at the low, nor did I sell at the high.  But I did get quite a bit of the chunk in the middle.

Yesterday, SuperGroup hit my cut loss level of 10%.  Today, I got out at $2.95.  SuperGroup is a strong company based on its fundamentals.  However, I always trade according to my written trading plan.  As the saying goes "If you fail to plan, you plan to fail".
My portfolio strategy calls for buying the strongest stocks in Singapore.  A stock that drops 10% relative to other stocks is no longer a strong stock.  Thus, it should be sold.  My measurement of trading success is the portfolio gain or loss.  Not any single individual stock performance.

I am pleased to report that since the 1st Dec, my portfolio  is now up 6.8%.
What is my current plan?  For sure, in the next couple of months, I think the direction is still up.  For the next few blog updates, I shall share my reasons, beginning with the VIX.

Making Difficult Decisions

I apologise for not been updating my blog as my mind has been on chess.  I have been meeting friends from the chess community, researching the current chess scene from the internet, watching chess internet videos, and just reading lots of websites of chess players and coaches.  I was also in a reflecting mood for most of this week.

More than 20 years ago, I had the fortune of being trained by Soviet Chess Grandmaster Eduard Gufeld (http://en.wikipedia.org/wiki/Eduard_Gufeld).  He has since passed away.  I was then already representing Singapore, but up till this day, I will always remember and am grateful to him for his influence on my chess and on my life.  I am quite unsure if he actually improved my playing strength, but I am very sure his impact on me went beyond the boundaries of chess.  Much what I learnt from him was on principles of engaging an enemy, and the human decision making process.

Tomorrow, Monday, I will be selling on the opening bell, the following stocks that I am holding.  These stocks are very much in the property sector:
Ho Bee
Far East Orchard
Wing Tai
Kepland
Bukit Sembawang
Guocoland

Of the batch of stocks that I bought in end Nov/early Dec, I will be holding on to only:
Semb Corp
OCBC
SuperGroup
Ezion
Tat Hong

When I bought these stocks in end Nov, the plan then was to get out only when  one the the following scenarios take place:
1) Stop Loss of 10% or
2) Profit target of 50% or
3) Profit taking when the market turns down based on charts

However, look at the front page news on Saturday.

I am unsure whether measures will dampen the market in the short term, or in the long term.  Admittedly, I can feel the emotions of greed and fear.  What if I sell and they continue to go up?  What if I hold and they slam down?

Should I still stick to my original plan, or take profit based on news, which was not in my original plans?

One of the rules of decision making that GM Gufeld taught me was this:
"If you opponent makes a move that is unexpected that do not follow classical rules, you may either reply a move that is based on classical rules, or you may react in kind and make an unexpected move that do not make follow classical rules."

After thinking through, my response to our government's move is to deviate from my original plan, and to get out immediately.  The new plan now is to try to enter again later at a lower price, but it depends very much on what my opponent/market is going to do. One thing I know, however, is that when I do choose to enter again, there may be better and stronger stocks to invest than the above stocks.

There is no love between me and my stocks.  They are just my chess pieces.  They can be sacrificed and traded for something better.  The objective is to win in the long run.

Is beating the market as easy as it sounds?

A chess board has 8 by 8 squares, while there are just 6 different kinds of "soldiers".  Yet, after hundreds of years of thought by the smartest players in this world, there is not a single sure way to play.  There are no best styles or best strategy.  There are no sure-fire recipe to success.

If we cannot forecast accurately the course of a simple chess game, what makes some people think that they can do it for something as complex as the financial markets with millions of participants instead of just 2 players?

Look at the books and courses that are being sold.  You will see some preaching value investing, right next to one insisting on price action.  There are manuals on asset allocation and portfolio management.  Here is one demanding that their trend following system surely works and that you only need to spend 2 hours a day.  Another one saying its easy to turn $1,000 to $72,000.  Some call for trading futures intra-day as a source of income, while some advise long term investing in high yield instruments.

The usual formula is this.  Follow the methods of author or trainer, and you will achieve similar success.  This is a fundamentally flawed methodology, because thousands of other traders and investors has tried to follow and lost money.  They forget that the market is not dead, it is alive.  As in chess, you make a move, and someone is there playing the Black pieces.  When you enter into a trade, thousands of people are reacting to your entry.  And a strategy that worked in the past may not always work again in the future.

Attend their seminars or read their books, many of them are very impressive and persuasive.  Apparently, each of these contradictory formulas is the key to success.  And some people believe it!  Err, I was one of them.  Now I know better.

Why I prefer to trade Ordinary Stocks

Many people have asked me what I trade.  I have traded ordinary stocks, CFDs, index futures, forex futures, spot forex, and even commodity futures. I am vested in bonds, ETFs, and ordinary stocks.
What is my preferred instrument? Well, Spot Forex is sexy and cool.  Everyone seems to be trading it.  Index Futures is the most volatile, and the fastest, and it is here that I have my biggest gains and losses in a single day/hour/minute.
Although I see trade all of the above, my preferred instrument is actually the plain old ordinary stocks.  Compared to forex and equity indices, the "boring" stocks offers me the following advantages, which forex and indices do not have.

1. It is possible to determine the fair value of each stock.  Most people call it intrinsic value.  From this value, I will know subjectively what my stock is worth.  It is very much more difficult to determine the value of a currency.
2. It is possible to quantitatively determine the relative safety and growth potential of each stock.  To determine how safe is your stock, there are plenty of financial ratios to select from.  How do I quantitatively gauge the growth potential and safety of a currency?
3. My preferred trading method is trend following.  It is much, much, and much easier to find trending stocks as there are thousands of stocks to choose from.  Compare the number of stocks in this world to the number of currencies.  Which currency pair is now trending on the daily chart?
4. Human nature, emotions of greed, fear, hope, ignorance, are more evident in the stock market.  The stock market has plenty of investors.  These investors are mainly uni-directional, they buy only.  This makes the stock market to be mainly influenced by human nature, human opinions, and expectation of future profit potential.  With regards to forex, because they trade in pairs, human emotions in forex trading is bi-directional.  It is not clear at all which direction is there more greed, or fear.  (Forex and index traders like to use "risk on/off" to determine the sentiment of the market.)

The above 4 points are very much part of my considerations when I trade stocks.  With due respect to my fellow traders, I humbly think that these 4 "tools" gives me an edge over my competitors in the market.

In my humble opinion, the most important is point 4 - the human nature.  Gauging the sentiment of traders allows me to decide which strategy to use: to follow the trend, or to be a contrarian.  I believe that mastering the human nature element separates the minority of people who are successful, and the vast majority of unsuccessful traders.

Personality Plays

The following is actually from my broker.  I thought that it is an interesting list of local personalities of the rich.  I have put it up here to share with you.

Personality plays : 

1. Peter Lim : Rowsley, UPP & Informatic 
2. Jim Rogers : Geo Energy, took up Olam rights offer on dec 28
3. Sam Gooi : GSH; formerly was JEL, recently proposed acquisition of ChongQing based property development Etika; Tee Yih Jia (Sam Gooi) took 75m new shares placement @ 0.2132 on Dec 26
4. OOI Hong Leong : IPC corp
5. Chew Hua Seng : Raffles Education
6. Chew Hua Kwang : Midas
7. Stephen Riady : Lippo & OUE
8. Francis Yeoh : Starhill Global 
9. Henry Ng & family : Pan United
10. Koh Wee Meng & Koh Wee Seng: Fragrance group, GP Hotel, Aspial, Maxi-cash
11. Kuok Khoon hong: Wilmar
12. Quek Leng Chan: Guocoland & Guocoleisure
13. Kwek Leng Beng (Quek Leng Chan's cousin) : City Development

One way to use it is to buying up the laggards when the driver stock moves.  For example, Peter Lim's Rowsley often is the first the move.  When it moves in large volume, buy up UPP and Informatics.  Very often, UPP and Informatics will subsequently move.
Disclaimer: I do not trade this way as it is not my style.  It would also mean the full time trader has to be alert and staring at the screen the whole day and every day.

Outperforming the STI

About 1 month ago, I longed a basket of 11 stocks.  Read 1st Post and 2nd Post for the entries.  There was an update about 2 weeks ago Update.

I am underwater for 3 of my stocks.  The truth is that I am slightly disappointed.  I like the fundamentals of these 3 stocks.  If you have followed my calls, apologies.

• Tat Hong,     down -1.64%
• SuperGroup, down -1.70%
• GuoccoLand down -1.85%

However, I am, very pleased to report that as a portfolio of 11 stocks, I am up........9%.  Not bad for a month's holdings, huh?  This time round, my percentage of picking winning stocks is more than 70%. ( if I sell the entire portfolio today ;-)

In spite of the above positive results, what pleases me most is that the re-affirmation of the strategy of trading a portfolio.
For example, the outstanding performers are:

• Far East Orchard,   up 23.77%
• Ho Bee,                  up 19.77%
• Ezion,                     up 16.32%
• Bukit Sembawang, up 13%
• Keppel Land,         up 12%

Of course one can argue that if I had put all my money on Far East Orchard, I would be up 23.77% instead of 9%.  But this is on benefit of hindsight.  Do I know on 3rd Dec 2012, which stock would be going up?  What if I put all my money on Guoccoland?

As my own fund manager, one of my objectives is to outperform the STI..  Did this portfolio outperform the STI during this time period?  I am very pleased to report........a resounding YES.  The STI grew only 3.7% during this period.  But be warned that my portfolio is very heavily weighted towards the Real Estate Industry.

Diversification, or spreading the risk, is a good strategy  to increase expectancy of my trades.  In the long run, the probability of winning consistently is increased.

2013 : To be Disciplined

I want to be disciplined in 2013 in my trading.  How do I measure discipline and how do I increase it?  I think one the ways is to keep good trading records.

Traders look at charts, but I feel that it is more important to look at myself, as personality is very important to trading.  I believe that when I analyse my trading records, I will improve myself.  This is very similar to Chess.  When I was a serious chess player, I analyzed a lot of my own games, especially my losses, as I believe that it helps to improve my play more than analyzing other peoples' games.

According to Alexander Elder, there are 5 types of records that a trader needs.  

1. Trade Spreadsheet

I have a spreadsheet that list all my trades, including entries and exits, profits/losses, commission paid etc.  I plan to add columns to grade each entry, each exit, and each trade.

2. Portfolio Spreadsheet

Portfolio curve tracks each portfolio that I have.  Measures the % gains/losses, % winners/loses, % annualized rate of returns, % maximum drawdowns.  I already keep this, but I have to be more diligent to review it.

3 Equity Curve

Equity curve tracks the account equity, and monthly, quarterly, and yearly.  Again, the tough part is to keep updating and reviewing.  

4. Trading Diary

Visual and written records of trades, noting reasons for entering the trade, feelings, and unusual factors.  I started this some time ago, but have since stopped.  I must be more diligent to record and review past trades.

5. Weekly Action Plan

An excel to record trading opportunities so as to know each new day, how I will trade.  Very important for me to be organized so as to be ready for any new opportunity.

That's it.  My main focus in 2013 is to be disciplined to keep good trading records and to review them regularly.  Any other accomplishment will be secondary.  I quote Alexander Elder in the book "Trading for a Living", 'a person with good trading records is either a successful trader or soon became one.'