What Causes Trends
March 06, 2008
An email in this morning:
"...but am basically trying to understand what creates a trend. My point is that deep fundamentals create a trend, as these guys are putting their capital to work. My grandfather ran a family farm in Louisiana for 60 yrs, and would take me to the Cotton Exchange in Memphis to trade cotton. He had a few guys he trusted over the years there. I always recall him asking what abc and xyz (large institutional cotton buyers) were doing every time we were there. I finally asked him why. He said that these guys get 500 calls a week from cotton detectives/analysts all over the U.S. and world, and therefore knew infinitely more about the demand and supply of cotton than he ever could sitting in Winnsboro, Louisiana reading the WSJ. and of course, he always traded along with the big guys. He knew to ride the wave, but the wave in his mind was created by deep fundamental research. Well, don't know if I have a point - maybe just an axiomatic observation that deep fundamental research causes trends. Fair?
I don't know that understanding what causes trends is important to making money from them. As to "what causes?", my best guess is that every link on this page goes a long way toward answering that question.
Tuesday, March 25, 2008
BURSA opening: KL shares higher in early trade
BURSA opening: KL shares higher in early trade
BERNAMA
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KUALA LUMPUR, Tue.:
Shares prices on Bursa Malaysia were higher in early trading today on continuous buying interest in selected blue chips, particularly finance-related stocks, dealers said.
At 9.35am, the benchmark Kuala Lumpur Composite Index (KLCI) rose 18.08 points to 1,219.10 after opening 6.27 points higher at 1,207.29.
A dealer said the uptrend was also supported by gains on Wall Street overnight.
He said the Invest Malaysia conference was also expected to provide a boost to the market especially to blue chips as investors are awaiting positive news from companies at the conference,” he added.
The Industrial Index advanced 30.50 points to 2,523.54 while the Finance Index gained 112.88 points to 9,636.19.
The FBMEmas rose 117.89 points to 8,242.01, FBM30 jumped 132.09 points to 8,111.90, FBM2BRD added 24.92 points to 5,709.83 and FBMMesdaq increased 16.85 points to 4,700.04.
Advancers led decliners 282 to 53 while 107 counters were unchanged, 986 untraded and 25 suspended.
Volume stood at 141.767 million shares worth RM157.604 million.
PECD, topped the actives list, advancing 5.5 sen to 12.5 sen.
Other actives were Liqua declined four sen to 21 sen and ASB added two sen to 13.5 sen.
Of the heavyweights, Maybank rose 15 sen to RM8.90, Sime Darby gained 20 sen to RM9.20, Telekom added 10 sen to RM11.00 and Tenaga advanced 15 sen to RM7.00.
BERNAMA
Email to friend Print article Share
KUALA LUMPUR, Tue.:
Shares prices on Bursa Malaysia were higher in early trading today on continuous buying interest in selected blue chips, particularly finance-related stocks, dealers said.
At 9.35am, the benchmark Kuala Lumpur Composite Index (KLCI) rose 18.08 points to 1,219.10 after opening 6.27 points higher at 1,207.29.
A dealer said the uptrend was also supported by gains on Wall Street overnight.
He said the Invest Malaysia conference was also expected to provide a boost to the market especially to blue chips as investors are awaiting positive news from companies at the conference,” he added.
The Industrial Index advanced 30.50 points to 2,523.54 while the Finance Index gained 112.88 points to 9,636.19.
The FBMEmas rose 117.89 points to 8,242.01, FBM30 jumped 132.09 points to 8,111.90, FBM2BRD added 24.92 points to 5,709.83 and FBMMesdaq increased 16.85 points to 4,700.04.
Advancers led decliners 282 to 53 while 107 counters were unchanged, 986 untraded and 25 suspended.
Volume stood at 141.767 million shares worth RM157.604 million.
PECD, topped the actives list, advancing 5.5 sen to 12.5 sen.
Other actives were Liqua declined four sen to 21 sen and ASB added two sen to 13.5 sen.
Of the heavyweights, Maybank rose 15 sen to RM8.90, Sime Darby gained 20 sen to RM9.20, Telekom added 10 sen to RM11.00 and Tenaga advanced 15 sen to RM7.00.
PITY DR BARDAI - MY SINCERE SYMPATHY
Economist-director Bardai fined RM100k for using unlicensed agents
By : Lydia Gomez
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KUALA LUMPUR, Tues:
An economist-cum-director was fined by the Sessions Court RM100,000 or eight months’ jail after he pleaded guilty to illegally allowing two people to act as representatives of his company's fund manager.
Dr Barjoyai Bardai, 55, as the director of Perdana Technology Venture Sdn Bhd (PTV), was charged in Sept 2002 with appointing Nublan Zaky Yusoff, 38, and Siti Mariam Berahim, 36, as agents although they did not have a licence from the Securities Commission.
Barjoyai who is also a part-time economics lecturer at a local university, allegedly committed the offence at the PTV office, D-2-1, 2nd Floor, Block D, The Mines Waterfront Business Park 3, Jalan Tasik, The Mines Resort City, Seri Kembangan, near here between April 14, 1997, and March 3, 1998.
Barjoyai was charged under the Securities Industry Act 1983 (Act 280). The offence is punishable with a maximum RM1 million fine or five years' jail or both.
Siti Mariam who also pleaded guilty to acting as the company’s fund manager was fined RM50,000 or six months’ jail. Nublan Zaky was fined RM600,000 or a year's jail on Sept 23, 2004, after he pleaded guilty to an amended charge
Judge Akhtar Tahir, in delivering the sentence said the offence involved the interest of investors who were members of the public. “At one glance, this does not seem serious, but on a closer look, it is serious as the court must protect the interest of the public, who in this case are the investors,” he said.
Share
By : Lydia Gomez
Email to friend Print article Share
KUALA LUMPUR, Tues:
An economist-cum-director was fined by the Sessions Court RM100,000 or eight months’ jail after he pleaded guilty to illegally allowing two people to act as representatives of his company's fund manager.
Dr Barjoyai Bardai, 55, as the director of Perdana Technology Venture Sdn Bhd (PTV), was charged in Sept 2002 with appointing Nublan Zaky Yusoff, 38, and Siti Mariam Berahim, 36, as agents although they did not have a licence from the Securities Commission.
Barjoyai who is also a part-time economics lecturer at a local university, allegedly committed the offence at the PTV office, D-2-1, 2nd Floor, Block D, The Mines Waterfront Business Park 3, Jalan Tasik, The Mines Resort City, Seri Kembangan, near here between April 14, 1997, and March 3, 1998.
Barjoyai was charged under the Securities Industry Act 1983 (Act 280). The offence is punishable with a maximum RM1 million fine or five years' jail or both.
Siti Mariam who also pleaded guilty to acting as the company’s fund manager was fined RM50,000 or six months’ jail. Nublan Zaky was fined RM600,000 or a year's jail on Sept 23, 2004, after he pleaded guilty to an amended charge
Judge Akhtar Tahir, in delivering the sentence said the offence involved the interest of investors who were members of the public. “At one glance, this does not seem serious, but on a closer look, it is serious as the court must protect the interest of the public, who in this case are the investors,” he said.
Share
Saturday, March 22, 2008
THE COMPLETE TURTLETRADER - TREND FOLLOWING
ook Review: The Complete TurtleTrader
Fri, 03/21/2008 - 16:21 — manystrom
by Michael Nystrom | Friday March 21, 2008
The Complete Turtle Trader - Michael CovelBuy and hold is dead! The extreme market volatility over the last decade should make this abundantly clear to even casual market watchers, but it is something that good traders have known all along: You trade securities, you don't marry them. Buying a stock is not a commitment "until death do you part." A friend once told me the story of a man he knew who worked at Worldcom during the go-go 90's and had his entire 401(k) invested in the company stock. He was waiting for his account to hit $2 million, and then he was going to cash out. It was almost there - $1.8m, $1.9m - something like that when the stock began its terminal decline. Instead of selling, he held on until the bitter end, until all was lost. Moral of the story: The market is the utlimate authority. It does not listen to you, nor care about your dreams & desires, so you had best learn to listen to it.
Stories like the above are not uncommon - just ask the employees of Bear Stearns. These days buy and hold may as well be called buy and hope, which is definitely not a sound strategy. And while there are a near infinite variety of potentially successful trading strategies (as the book Market Wizards shows), some of the most successful strategies have been mechanical trend following systems. You've no doubt heard a bit about Richard Dennis, the trend trading pioneer who discussed his mid-1980's Turtles experiment in Market Wizards. Now, thanks to Michael Covel, we are lucky enough to have access to the whole story.
Covel's latest book, The Complete TurtleTrader, is a wonderful chronicle of the entire Turtle story, starting with Richard Dennis's humble beginnings as a 19-year old kid in the early 1970's trading on the MidAmerican Exchange, a now defunct regional commodity exchange that traded mini-sized agricultural contracts. Dennis was a trading genius and a quick study. Most traders try to apply the old adage, "buy low and sell high," which is why most traders fail. How low is low? How high is high? There are no definitive answers to these questions. But Dennis intuitively grasped the concept of doing the opposite: buying strength and selling weakness. "Buy high and sell higher," and "sell low and buy lower," are the fundamental, but counterintuitive concepts of trend trading. Dennis got rich - as in running an intial stake of a few hundred dollars into tens of millions! - trading in the pits this way. By 1983, he had moved off the floor to trade multiple markets for his own account from an office. This is where we get to the heart of the Turtles story. To settle a bet with his business partner about whether traders could be taught or were simply "born," the an experiment was conceived.
Imagine this: You see an ad in the Wall Street Journal: "[Super famous trader] Richard Dennis seeks commodity futures traders. No experience necessary, will train." This is the ad that actually ran:
Richard Dennis Turtles Ad
Even though you don't know a stock from a bond from a futures contract, you apply and get the job! You move to Chicago, get two weeks of training and then you're set loose with hundreds of thousands of dollars to trade for Dennis's account. There are twenty more like you, just starting out in commodities, all sitting around trading these huge sums of money. In addition to your salary, you get a cut of the action! The only condition is that you have to follow the trading rules exactly as they were taught in the first two-week training session. The rules are not difficult to grasp - in fact, in the program's second year, the training for the new recruits was cut down to just one week! Can you imagine it? What would it be like to experience something like that?
Michael Covel's writing allows you to live it. Anyone interested in the Turtles story, in the psychology of trading, or just a great American story period should read this book. If you're looking for the Turtle's trading rules, of course those are there too in Chapter 4: The Philosopy, and Chapter 5: The Rules. Everything the Turtles learned is there. If you are only interested in making a ton of money trading, you might think that all you need to do is read these two chapters, that the secret to successful trading can be found in those few pages. But if you believed that, you would be mistaken.
In his Market Wizards interview, Dennis famously declared, "I always say that you could publish trading rules in the newspaper and no one would follow them." For the Turtles as a group, it was easy to follow the rules, because it was a matter of social pressure as well as keeping their jobs! In a bizarre twist to the story, in spite of how rigid the trading rules were, Dennis's allocation of capital to the Turtles themselves was not uniform. In some respects, it appeared almost random. He played favorites, giving some millions while others only thousands. This created tension, rivalries and confusion among the group, a fascinating story in and of itself. There was also competition among the Turtles in terms of performance. Even though they followed the same rules, there was a wide variation of in each individual's performance.
The turtles were wildly successful, grossing over $150 million in four years. By 1988 in addition to the Turtles, Dennis himself was managing two big funds at Drexel Burnham Lambert for outside clients. At the time he believed that collecting fee income was an "easy" way to supplement his profitability while lowering his risk, but his performance suffered. As with anyone who has to deal with clients, Dennis later changed his mind saying, "I found out that it was more trouble than it was worth. The costs were not financial; they were psychological." His trading had grown erratic:
...the Turtles couldn't figure out why Dennis was overtrading when he had stressed time and again that overtrading would kill you: "We calculated one day that his risk was probably one hundred times greater than the risk we were taking."
That Dennis was possibly taking risks over and above his Turtles by a factor of 100 simply made no sense. He knew enough to make his students do the right thing, but had a difficult time disciplining himself."
He was also trading against the Turtles at times, something that made absolutely no sense from the standpoint of the rules. Ironically, as he was losing in his own account, the Turtles were keeping him afloat. But when his hedge funds at Drexel went under in April 1988, Dennis suddenly pulled the plug on the Turtles as well, in dramatic fashion:
Jim Dimaria (one of the Turtle traders) was bewildered at the Turtle program's abrupt ending: "All of a sudden, its over. That's how fast it was. They came in Monday morning and said, 'Friday we're done.' I was like, 'Oh, better get a job.'"
This was probably the worst trade of Dennis's entire career. The Turtles were profitable, having grossed $150 million for him in four years! They were still floating his boat as he was going to pieces. The program was a cash cow, and in spite of the rivalries, overall they were happy with their jobs, and they did it well. More importantly, they were under contract - they couldn't just up and go work for a competitor. Dennis could have retired himself and let the Turtles keep raking in the dough. But instead he cut them all loose, just as the interview in Market Wizards (1989) was giving them ultra high profiles and putting them into tremendous demand on Wall Street for their knowledge. Dennis's secret was out and multiplying, but Dennis himself had nothing to show for it.
No one ever said trading was easy. Most trading books and software programs try to make it look so simple. "Just do A-B-C; buy on the green arrow, sell at the red triangle; 90% winning trades!" they claim. Covel has done an excellent job of revealing the complexities, not only in the trading itself, but the complexities inherent in human nature that form the context in which the trading takes place. Richard Dennis had the secret, but ended up taking a nearly a round trip. He made a few attempts at trading comebacks, but nothing that approached his former trading glory days. Even more telling is what happened to the Turtles after being let loose in the world. Covel follows this thread as well:
The Turtle story breaks down into two parts. Part one takes place during the experiment, when the Turtles are on the relatively level playing field designed by Richard Dennis. His experiment proves nurture trumps nature. Part two take place after the experiment, when the Turtles have to face the real world as individuals and human nature reenters the picture.
Some of the Turtles did great, continuing on in the tradition of successful trend traders, others gave trading a shot but failed to repeat their prior performance, and still others became near total losers. What was the difference? The ongoing experiment shows that there is more to it than just following mechanical trading rules. The true secret is more fundamental and like human nature itself is neither simple nor easy to define. The answer takes wisdom and solemn reflection but clues are sprinkled copiously throughout the book.
This is a fascinating book. Not only is it well written and easy and exiting to read, but I learned a tremendous amount. For those who like inspiring books about successful trading, this one is as good as they come. But beyond the cheer leading, it examines the darker and more complex side of what winning means and how to keep what you've made for the long run. For these reasons this book is an easy pick for my list of top ten trading books of all time.
Excellent work. Thank you, Michael Covel.
Comments and insight welcome If you would like to be notified of future book reviews, please sign up to my low volume e-mail announcement list.
Fri, 03/21/2008 - 16:21 — manystrom
by Michael Nystrom | Friday March 21, 2008
The Complete Turtle Trader - Michael CovelBuy and hold is dead! The extreme market volatility over the last decade should make this abundantly clear to even casual market watchers, but it is something that good traders have known all along: You trade securities, you don't marry them. Buying a stock is not a commitment "until death do you part." A friend once told me the story of a man he knew who worked at Worldcom during the go-go 90's and had his entire 401(k) invested in the company stock. He was waiting for his account to hit $2 million, and then he was going to cash out. It was almost there - $1.8m, $1.9m - something like that when the stock began its terminal decline. Instead of selling, he held on until the bitter end, until all was lost. Moral of the story: The market is the utlimate authority. It does not listen to you, nor care about your dreams & desires, so you had best learn to listen to it.
Stories like the above are not uncommon - just ask the employees of Bear Stearns. These days buy and hold may as well be called buy and hope, which is definitely not a sound strategy. And while there are a near infinite variety of potentially successful trading strategies (as the book Market Wizards shows), some of the most successful strategies have been mechanical trend following systems. You've no doubt heard a bit about Richard Dennis, the trend trading pioneer who discussed his mid-1980's Turtles experiment in Market Wizards. Now, thanks to Michael Covel, we are lucky enough to have access to the whole story.
Covel's latest book, The Complete TurtleTrader, is a wonderful chronicle of the entire Turtle story, starting with Richard Dennis's humble beginnings as a 19-year old kid in the early 1970's trading on the MidAmerican Exchange, a now defunct regional commodity exchange that traded mini-sized agricultural contracts. Dennis was a trading genius and a quick study. Most traders try to apply the old adage, "buy low and sell high," which is why most traders fail. How low is low? How high is high? There are no definitive answers to these questions. But Dennis intuitively grasped the concept of doing the opposite: buying strength and selling weakness. "Buy high and sell higher," and "sell low and buy lower," are the fundamental, but counterintuitive concepts of trend trading. Dennis got rich - as in running an intial stake of a few hundred dollars into tens of millions! - trading in the pits this way. By 1983, he had moved off the floor to trade multiple markets for his own account from an office. This is where we get to the heart of the Turtles story. To settle a bet with his business partner about whether traders could be taught or were simply "born," the an experiment was conceived.
Imagine this: You see an ad in the Wall Street Journal: "[Super famous trader] Richard Dennis seeks commodity futures traders. No experience necessary, will train." This is the ad that actually ran:
Richard Dennis Turtles Ad
Even though you don't know a stock from a bond from a futures contract, you apply and get the job! You move to Chicago, get two weeks of training and then you're set loose with hundreds of thousands of dollars to trade for Dennis's account. There are twenty more like you, just starting out in commodities, all sitting around trading these huge sums of money. In addition to your salary, you get a cut of the action! The only condition is that you have to follow the trading rules exactly as they were taught in the first two-week training session. The rules are not difficult to grasp - in fact, in the program's second year, the training for the new recruits was cut down to just one week! Can you imagine it? What would it be like to experience something like that?
Michael Covel's writing allows you to live it. Anyone interested in the Turtles story, in the psychology of trading, or just a great American story period should read this book. If you're looking for the Turtle's trading rules, of course those are there too in Chapter 4: The Philosopy, and Chapter 5: The Rules. Everything the Turtles learned is there. If you are only interested in making a ton of money trading, you might think that all you need to do is read these two chapters, that the secret to successful trading can be found in those few pages. But if you believed that, you would be mistaken.
In his Market Wizards interview, Dennis famously declared, "I always say that you could publish trading rules in the newspaper and no one would follow them." For the Turtles as a group, it was easy to follow the rules, because it was a matter of social pressure as well as keeping their jobs! In a bizarre twist to the story, in spite of how rigid the trading rules were, Dennis's allocation of capital to the Turtles themselves was not uniform. In some respects, it appeared almost random. He played favorites, giving some millions while others only thousands. This created tension, rivalries and confusion among the group, a fascinating story in and of itself. There was also competition among the Turtles in terms of performance. Even though they followed the same rules, there was a wide variation of in each individual's performance.
The turtles were wildly successful, grossing over $150 million in four years. By 1988 in addition to the Turtles, Dennis himself was managing two big funds at Drexel Burnham Lambert for outside clients. At the time he believed that collecting fee income was an "easy" way to supplement his profitability while lowering his risk, but his performance suffered. As with anyone who has to deal with clients, Dennis later changed his mind saying, "I found out that it was more trouble than it was worth. The costs were not financial; they were psychological." His trading had grown erratic:
...the Turtles couldn't figure out why Dennis was overtrading when he had stressed time and again that overtrading would kill you: "We calculated one day that his risk was probably one hundred times greater than the risk we were taking."
That Dennis was possibly taking risks over and above his Turtles by a factor of 100 simply made no sense. He knew enough to make his students do the right thing, but had a difficult time disciplining himself."
He was also trading against the Turtles at times, something that made absolutely no sense from the standpoint of the rules. Ironically, as he was losing in his own account, the Turtles were keeping him afloat. But when his hedge funds at Drexel went under in April 1988, Dennis suddenly pulled the plug on the Turtles as well, in dramatic fashion:
Jim Dimaria (one of the Turtle traders) was bewildered at the Turtle program's abrupt ending: "All of a sudden, its over. That's how fast it was. They came in Monday morning and said, 'Friday we're done.' I was like, 'Oh, better get a job.'"
This was probably the worst trade of Dennis's entire career. The Turtles were profitable, having grossed $150 million for him in four years! They were still floating his boat as he was going to pieces. The program was a cash cow, and in spite of the rivalries, overall they were happy with their jobs, and they did it well. More importantly, they were under contract - they couldn't just up and go work for a competitor. Dennis could have retired himself and let the Turtles keep raking in the dough. But instead he cut them all loose, just as the interview in Market Wizards (1989) was giving them ultra high profiles and putting them into tremendous demand on Wall Street for their knowledge. Dennis's secret was out and multiplying, but Dennis himself had nothing to show for it.
No one ever said trading was easy. Most trading books and software programs try to make it look so simple. "Just do A-B-C; buy on the green arrow, sell at the red triangle; 90% winning trades!" they claim. Covel has done an excellent job of revealing the complexities, not only in the trading itself, but the complexities inherent in human nature that form the context in which the trading takes place. Richard Dennis had the secret, but ended up taking a nearly a round trip. He made a few attempts at trading comebacks, but nothing that approached his former trading glory days. Even more telling is what happened to the Turtles after being let loose in the world. Covel follows this thread as well:
The Turtle story breaks down into two parts. Part one takes place during the experiment, when the Turtles are on the relatively level playing field designed by Richard Dennis. His experiment proves nurture trumps nature. Part two take place after the experiment, when the Turtles have to face the real world as individuals and human nature reenters the picture.
Some of the Turtles did great, continuing on in the tradition of successful trend traders, others gave trading a shot but failed to repeat their prior performance, and still others became near total losers. What was the difference? The ongoing experiment shows that there is more to it than just following mechanical trading rules. The true secret is more fundamental and like human nature itself is neither simple nor easy to define. The answer takes wisdom and solemn reflection but clues are sprinkled copiously throughout the book.
This is a fascinating book. Not only is it well written and easy and exiting to read, but I learned a tremendous amount. For those who like inspiring books about successful trading, this one is as good as they come. But beyond the cheer leading, it examines the darker and more complex side of what winning means and how to keep what you've made for the long run. For these reasons this book is an easy pick for my list of top ten trading books of all time.
Excellent work. Thank you, Michael Covel.
Comments and insight welcome If you would like to be notified of future book reviews, please sign up to my low volume e-mail announcement list.
BUY AND HOLD IS DEAD - Sr ROSLI HUSSIN
Michael Nystrom Review of "The Complete TurtleTrader"
March 21, 2008
An excerpt from Michael Nystrom's review of "The Complete TurtleTrader":
"Buy and hold is dead! The extreme market volatility over the last decade should make this abundantly clear to even casual market watchers, but it is something that good traders have known all along: You trade securities, you don't marry them. Buying a stock is not a commitment "until death do you part." A friend once told me the story of a man he knew who worked at Worldcom during the go-go 90's and had his entire 401(k) invested in the company stock. He was waiting for his account to hit $2 million, and then he was going to cash out. It was almost there - $1.8m, $1.9m - something like that when the stock began its terminal decline. Instead of selling, he held on until the bitter end, until all was lost. Moral of the story: The market is the utlimate authority. It does not listen to you, nor care about your dreams & desires, so you had best learn to listen to it. Stories like the above are not uncommon - just ask the employees of Bear Stearns. These days buy and hold may as well be called buy and hope, which is definitely not a sound strategy. And while there are a near infinite variety of potentially successful trading strategies (as the book Market Wizards shows), some of the most successful strategies have been mechanical trend following systems. You've no doubt heard a bit about Richard Dennis, the trend trading pioneer who discussed his mid-1980's Turtles experiment in Market Wizards. Now, thanks to Michael Covel, we are lucky enough to have access to the whole story. Continue...
March 21, 2008
An excerpt from Michael Nystrom's review of "The Complete TurtleTrader":
"Buy and hold is dead! The extreme market volatility over the last decade should make this abundantly clear to even casual market watchers, but it is something that good traders have known all along: You trade securities, you don't marry them. Buying a stock is not a commitment "until death do you part." A friend once told me the story of a man he knew who worked at Worldcom during the go-go 90's and had his entire 401(k) invested in the company stock. He was waiting for his account to hit $2 million, and then he was going to cash out. It was almost there - $1.8m, $1.9m - something like that when the stock began its terminal decline. Instead of selling, he held on until the bitter end, until all was lost. Moral of the story: The market is the utlimate authority. It does not listen to you, nor care about your dreams & desires, so you had best learn to listen to it. Stories like the above are not uncommon - just ask the employees of Bear Stearns. These days buy and hold may as well be called buy and hope, which is definitely not a sound strategy. And while there are a near infinite variety of potentially successful trading strategies (as the book Market Wizards shows), some of the most successful strategies have been mechanical trend following systems. You've no doubt heard a bit about Richard Dennis, the trend trading pioneer who discussed his mid-1980's Turtles experiment in Market Wizards. Now, thanks to Michael Covel, we are lucky enough to have access to the whole story. Continue...
MONEY MANAGEMENT - ROSLI HUSSIN
Money Management
Michael Covel (March 25, 2005)
Money Management or
Position Sizing or Bet Size...
No Matter What You Call It, Better Know It
Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find.
Gibbons Burke
Resources for Money Management or Bet Sizing
1. Bet Sizing Article by Ed Seykota and David Druz
2. Gibbons Burke Article on Money Management (PDF)
3. Seykota Risk Management Resource
4. Kelly Formula and Data Transmission
5. White Paper by Johan Ginyard (PDF)
6. Johan Ginyard Position Sizing Interview
7. Frequency v. Magnitude White Paper
8. Web Resource for Math, Black Jack, Kelly, etc.
9. Edward O. Thorp: Beat the Dealer (PDF)
10. Kelly's Original paper, March 21, 1956 (PDF)
11. The Sharpe Ratio
12. Tutorial Risk-adjusted Return
Another resource to add? Send us an email!
Money Management FAQ
In the twenty-first century it has become fashionable to manage one's own investments, yet few traders implement disciplined, professional money management strategies. During the stock market bubble, limiting risk was an afterthought, but given the recent price action, it’s time to get serious about management of money and risk. Professional risk and money management strategies are the foundation for success. Essentially, money management tells you how many shares or contracts to trade at a given point.
Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.
Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management, a fact that most people want to avoid or don't understand. Once you have the money management down though, your discipline and psychology is 100% of your success.
Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital. Trend Following risk management formulas and philosophies are key to increasing profits while controlling risk.
Q. What are some issues addressed by money management or bet sizing?
A. For example:
* How much capital do you place on each trade.
* What is the heat of your trading.
* Capital preservation v. capital appreciation.
* When do you experience expectation of success.
* When must you take a loss to avoid larger losses.
* If you are on a losing streak do you trade the same.
* How must you prepare if trading both long and short positions.
* Does a portfolio of long and short allow one to trade more positions.
* How is your trading adjusted with accumulated new profits.
* How is volatility handled.
* How do you prepare yourself psychologically.
* Have you tested your bet sizing.
* More Money Management FAQ
Q. Does money management impact a decision to trade the same number of contracts or shares in all markets?
A. Yes. Money and portfolio management rules dictate the number of contracts or shares. Precise formulas set forth size. A trader who uses a constant trading size gives up an important edge in much the same way a blackjack player does when always betting the same regardless of what cards are on the table. Common single contract/share measures of trading system performance such as win/loss ratio, percent winning trades, etc. are of little value to decision-making when using Trend Following systems (and the Turtle system). Often the best trading approach, when tested on a single contract/share basis, will turn out not to be the best approach when money management strategies are incorporated.
Q. What about short term trading? Isn't short term less risky, and therefore you don’t need money management strategies?
A. Short term trading is not, by definition, less risky. Some people may mistakenly apply a cause and effect relationship between using a long term strategy and the potential of incurring large loss. They forget profit and loss are proportional. A short term system will never allow you to be in the trend long enough to achieve large profits. You end up with small losses but also small profits. Added together, numerous small losses equal a big loss. When you trade for the long term, you have a more positive expectation in terms of the size of the move. In the big picture, the larger the move, the larger the validation of the move. If you were trading some short term pattern predictive system you would never be able to participate fully in the big trends. Big trends make the big profits.
Q. How does money management impact drawdowns?
A. All systems have drawdowns. You can't have a profitable methodology, without taking some calculated risks as well as some losses. Trend Following drawdowns are a function of the risk level desired. Risk level among Trend Followers varies depending upon the size of the profit they seek. For example, if you sought 100%+ a year gains you must be prepared for the possibility of a 30% drawdown. Anyone who promises you can make 100%+ with only the possibility of a 5% drawdown is lying. More on Volatility.
Q. Can you manage margin issues?
A. Required margin has little to do with money management considerations. For example, if the margin was dropped from $5000 to $2500 on a particular stock or commodity, must you trade twice as many shares or contracts? Of course not. Margin issues are not money management.
Q. Is slippage a concern with money management?
A. No one wants bad fills. But Trend Following for the long term places far less emphasis on perfect fills for success. In contrast, short term traders' transaction costs and skids on their fills affect their bottom line to a much greater degree.
Q. What is the win/loss ratio of Trend Following management? Can it experience many losses in a row?
A. Trend Following systems (and the Turtle system) trade for the outsized large move. Several big trends a year are your key to success. The strategy cuts your losing positions quickly. Consequently, a few big trades will make up the bulk of your profits and many small trades will make up your losses. Winning trades can range from 35-50%, but that percentage reveals little information since we expect more losses (of smaller value) than winners (of much larger value). Win/loss ratio, while a favorite of the novice trader, has limited use in terms of Trend Following analysis.
Michael Covel (March 25, 2005)
Money Management or
Position Sizing or Bet Size...
No Matter What You Call It, Better Know It
Money management is like sex: Everyone does it, one way or another, but not many like to talk about it and some do it better than others. But there's a big difference: Sex sites on the Web proliferate, while sites devoted to the art and science of money management are somewhat difficult to find.
Gibbons Burke
Resources for Money Management or Bet Sizing
1. Bet Sizing Article by Ed Seykota and David Druz
2. Gibbons Burke Article on Money Management (PDF)
3. Seykota Risk Management Resource
4. Kelly Formula and Data Transmission
5. White Paper by Johan Ginyard (PDF)
6. Johan Ginyard Position Sizing Interview
7. Frequency v. Magnitude White Paper
8. Web Resource for Math, Black Jack, Kelly, etc.
9. Edward O. Thorp: Beat the Dealer (PDF)
10. Kelly's Original paper, March 21, 1956 (PDF)
11. The Sharpe Ratio
12. Tutorial Risk-adjusted Return
Another resource to add? Send us an email!
Money Management FAQ
In the twenty-first century it has become fashionable to manage one's own investments, yet few traders implement disciplined, professional money management strategies. During the stock market bubble, limiting risk was an afterthought, but given the recent price action, it’s time to get serious about management of money and risk. Professional risk and money management strategies are the foundation for success. Essentially, money management tells you how many shares or contracts to trade at a given point.
Money management is a defensive concept. It keeps you in the game to play another day. For example, money management tells you whether you have enough new money to trade additional positions. Don’t confuse money management with stop placement. Stop placement does not address the how much question.
Money management is risk management. Risk management is the difference between success or failure in trading. Trading correctly is 90% money and portfolio management, a fact that most people want to avoid or don't understand. Once you have the money management down though, your discipline and psychology is 100% of your success.
Money management optimizes capital usage. Few have the ability to view their portfolios as a whole. Even fewer traders and investors make the move from a defensive or reactive view of risk, in which they measure risk to avoid losses, to an offensive or proactive posture in which risks are actively managed for a more efficient use of capital. Trend Following risk management formulas and philosophies are key to increasing profits while controlling risk.
Q. What are some issues addressed by money management or bet sizing?
A. For example:
* How much capital do you place on each trade.
* What is the heat of your trading.
* Capital preservation v. capital appreciation.
* When do you experience expectation of success.
* When must you take a loss to avoid larger losses.
* If you are on a losing streak do you trade the same.
* How must you prepare if trading both long and short positions.
* Does a portfolio of long and short allow one to trade more positions.
* How is your trading adjusted with accumulated new profits.
* How is volatility handled.
* How do you prepare yourself psychologically.
* Have you tested your bet sizing.
* More Money Management FAQ
Q. Does money management impact a decision to trade the same number of contracts or shares in all markets?
A. Yes. Money and portfolio management rules dictate the number of contracts or shares. Precise formulas set forth size. A trader who uses a constant trading size gives up an important edge in much the same way a blackjack player does when always betting the same regardless of what cards are on the table. Common single contract/share measures of trading system performance such as win/loss ratio, percent winning trades, etc. are of little value to decision-making when using Trend Following systems (and the Turtle system). Often the best trading approach, when tested on a single contract/share basis, will turn out not to be the best approach when money management strategies are incorporated.
Q. What about short term trading? Isn't short term less risky, and therefore you don’t need money management strategies?
A. Short term trading is not, by definition, less risky. Some people may mistakenly apply a cause and effect relationship between using a long term strategy and the potential of incurring large loss. They forget profit and loss are proportional. A short term system will never allow you to be in the trend long enough to achieve large profits. You end up with small losses but also small profits. Added together, numerous small losses equal a big loss. When you trade for the long term, you have a more positive expectation in terms of the size of the move. In the big picture, the larger the move, the larger the validation of the move. If you were trading some short term pattern predictive system you would never be able to participate fully in the big trends. Big trends make the big profits.
Q. How does money management impact drawdowns?
A. All systems have drawdowns. You can't have a profitable methodology, without taking some calculated risks as well as some losses. Trend Following drawdowns are a function of the risk level desired. Risk level among Trend Followers varies depending upon the size of the profit they seek. For example, if you sought 100%+ a year gains you must be prepared for the possibility of a 30% drawdown. Anyone who promises you can make 100%+ with only the possibility of a 5% drawdown is lying. More on Volatility.
Q. Can you manage margin issues?
A. Required margin has little to do with money management considerations. For example, if the margin was dropped from $5000 to $2500 on a particular stock or commodity, must you trade twice as many shares or contracts? Of course not. Margin issues are not money management.
Q. Is slippage a concern with money management?
A. No one wants bad fills. But Trend Following for the long term places far less emphasis on perfect fills for success. In contrast, short term traders' transaction costs and skids on their fills affect their bottom line to a much greater degree.
Q. What is the win/loss ratio of Trend Following management? Can it experience many losses in a row?
A. Trend Following systems (and the Turtle system) trade for the outsized large move. Several big trends a year are your key to success. The strategy cuts your losing positions quickly. Consequently, a few big trades will make up the bulk of your profits and many small trades will make up your losses. Winning trades can range from 35-50%, but that percentage reveals little information since we expect more losses (of smaller value) than winners (of much larger value). Win/loss ratio, while a favorite of the novice trader, has limited use in terms of Trend Following analysis.
Friday, March 21, 2008
OUTLOOK - NEXT WEEK 24 TO 29 MARCH 2008
BURSA MALAYSIA
Share prices on Bursa Malaysia are expected to stage a better performance next week on increased follow-through buying especially in the plantation, banking and oil & gas related stocks.
An analyst said there was an upside potential for the broader market with support level for the Kuala Lumpur Composite Index (KLCI) ranging from 1,242.64 to 1,296.33 points and resistence at either 1,141.5 or 1,090 points level.
He said the market is likely to start off the week on a choppy note on some profit taking, but would eventually move up by mid-week on follow-through support.
Some speculative interests, mostly on plantation sector will receive further boost on expectations of better crude palm oil (CPO) prices, he said.
“This (higher CPO prices) would initially provide strong support and drive players to enter the market in full force,” the analyst said.
On Friday, CPO price on the physical market stood at RM3,370 per tonne.
The analyst said rotational play, particularly on small-and-mid cap stocks, would also continue to lend support to the market.
He said the KLCI, which had been underperforming in recent days due to the slowdown in the US economy and the uncertain local political landscape, could also make a positive comeback as investors set aside worries about the US
economy following the Federal Reserve’s decision to cut its rates by another 75 basis points to 2.25 per cent early this week.
In the local front, the announcement of a new Cabinet line-up by Prime Minister Datuk Seri Abdullah Ahmad Badawi on Tuesday had also somewhat brought cheers and a breath of fresh air to the market.
In the new line-up, seven ministers who won in the recent general election were dropped while two corporate figures appointed as ministers.
“It is a good line-up and it will strengthen his position in the country’s political arena.
“We can expect good governance coming into the new administration and we can also expect good economic performance in the long term,” the analyst said.
Abdullah announced the appointment of Maybank group president and chief executive officer Amirsham as Minister in the Prime Minister’s Department heading the Economic Planning Unit.
During the shortened trading week with the market closing for Prophet Muhammad’s birthday on Thursday, the KLCI ended Friday’s trade 2.52 points higher at 1,189.06 after opening 3.25 points higher at 1,189.79.
On a week-to-week basis, the KLCI went down 5.78 points to 1,189.06, the Industrial Index lost 46.80 points to 2,479.01, but the Finance Index added 33.47 points to 9,392.74 and the Plantation Index lost 199.76 points to 7,123.28.
Of the FTSE-BM Index series, the FBMEmas fell 107.73 points to 8,036.72 and the FBM30 decreased 52.39 points to 7,907.96.
The FBM2BRD fell 30.25 points to 4,629.32 and the FBM-MDQ was 124.23 points lower at 5,598.30.
Total volume for the week depreciated to 2.331 billion shares valued at RM4.773 billion from 4.361 billion shares valued at RM11.115 billion last week.
Volume on the Main Board declined to 1.719 billion shares worth RM4.628 billion from 3.382 billion shares worth RM10.807 billion the week before.
Second Board volume for the week fell to 140.278 million shares worth RM77.738 million from 266.291 million shares valued at RM155.334 million.
The Mesdaq market’s volume eased to 225.296 million valued at RM58.902 million from 316.157 million shares valued at RM85.165 million previously.
Call warrants went down to 245.875 million shares worth RM8.754 million from 398.289 billion shares valued at RM22.048 million a week ago.
Direct business deals declined to 107.944 million shares valued at RM144.199 million from 233.585 million shares worth RM257.713 million previously. — BERNAMA
Share prices on Bursa Malaysia are expected to stage a better performance next week on increased follow-through buying especially in the plantation, banking and oil & gas related stocks.
An analyst said there was an upside potential for the broader market with support level for the Kuala Lumpur Composite Index (KLCI) ranging from 1,242.64 to 1,296.33 points and resistence at either 1,141.5 or 1,090 points level.
He said the market is likely to start off the week on a choppy note on some profit taking, but would eventually move up by mid-week on follow-through support.
Some speculative interests, mostly on plantation sector will receive further boost on expectations of better crude palm oil (CPO) prices, he said.
“This (higher CPO prices) would initially provide strong support and drive players to enter the market in full force,” the analyst said.
On Friday, CPO price on the physical market stood at RM3,370 per tonne.
The analyst said rotational play, particularly on small-and-mid cap stocks, would also continue to lend support to the market.
He said the KLCI, which had been underperforming in recent days due to the slowdown in the US economy and the uncertain local political landscape, could also make a positive comeback as investors set aside worries about the US
economy following the Federal Reserve’s decision to cut its rates by another 75 basis points to 2.25 per cent early this week.
In the local front, the announcement of a new Cabinet line-up by Prime Minister Datuk Seri Abdullah Ahmad Badawi on Tuesday had also somewhat brought cheers and a breath of fresh air to the market.
In the new line-up, seven ministers who won in the recent general election were dropped while two corporate figures appointed as ministers.
“It is a good line-up and it will strengthen his position in the country’s political arena.
“We can expect good governance coming into the new administration and we can also expect good economic performance in the long term,” the analyst said.
Abdullah announced the appointment of Maybank group president and chief executive officer Amirsham as Minister in the Prime Minister’s Department heading the Economic Planning Unit.
During the shortened trading week with the market closing for Prophet Muhammad’s birthday on Thursday, the KLCI ended Friday’s trade 2.52 points higher at 1,189.06 after opening 3.25 points higher at 1,189.79.
On a week-to-week basis, the KLCI went down 5.78 points to 1,189.06, the Industrial Index lost 46.80 points to 2,479.01, but the Finance Index added 33.47 points to 9,392.74 and the Plantation Index lost 199.76 points to 7,123.28.
Of the FTSE-BM Index series, the FBMEmas fell 107.73 points to 8,036.72 and the FBM30 decreased 52.39 points to 7,907.96.
The FBM2BRD fell 30.25 points to 4,629.32 and the FBM-MDQ was 124.23 points lower at 5,598.30.
Total volume for the week depreciated to 2.331 billion shares valued at RM4.773 billion from 4.361 billion shares valued at RM11.115 billion last week.
Volume on the Main Board declined to 1.719 billion shares worth RM4.628 billion from 3.382 billion shares worth RM10.807 billion the week before.
Second Board volume for the week fell to 140.278 million shares worth RM77.738 million from 266.291 million shares valued at RM155.334 million.
The Mesdaq market’s volume eased to 225.296 million valued at RM58.902 million from 316.157 million shares valued at RM85.165 million previously.
Call warrants went down to 245.875 million shares worth RM8.754 million from 398.289 billion shares valued at RM22.048 million a week ago.
Direct business deals declined to 107.944 million shares valued at RM144.199 million from 233.585 million shares worth RM257.713 million previously. — BERNAMA
KLCI LIKELY TO CONSOLIDATE
KLCI likely to consolidate further
AFTER staging its sharpest technical pullback last week, the Kuala Lumpur Composite Index (KLCI) continued to consolidate further during the week, albeit at a much slower pace.
Major weaknesses on regional stock markets sent share prices on Bursa Malaysia lower on Monday. The KLCI closed lower at 1,177.53 points on Monday, posting a day-on-day loss of 17.31 points, or 1.45 per cent.
Regional stock markets’ technical rebounds the next day provided stability to Bursa Malaysia.
After struggling for the major part of Tuesday, the KLCI rebounded to close at 1,180.02 points, giving a day-on-day gain of 2.49 points, or 0.21 per cent.
Continued stability on the regional stock markets helped to stabilise the overall market sentiment on Bursa Malaysia on Wednesday. The KLCI rebounded to close at 1,186.54 points, giving a day-on-day gain of 6.52 points, or 0.55 per cent.
Share prices on Bursa Malaysia traded within tight trading range yesterday. The KLCI closed at 1,189.06 points, giving a day-on-day gain of 2.52 points, or 0.21 per cent.
The KLCI posted a week-on-week loss of 5.78 points, or 0.48 per cent. The FTSE Bursa Malaysia Second Board Index lost 105.22 points or 1.83 per cent to the 5,643.60 level while the FTSE Bursa Malaysia Mesdaq Index eased 33.27 points or 0.71 per cent to 4,654.06.
Following are the readings of some of its technical indicators:
# Moving Averages: The KLCI continued to stay below the support of its 10-, 20-, 30-, 50-, 100- and 200-day moving averages.
# Momentum Index: Its short-term momentum index continued to stay below the support of its neutral reference line at market close yesterday.
# On Balance Volume (OBV): Its short-term OBV trend stayed above its 10-day exponential moving averages.
# Relative Strength Index (RSI): Its 14-day RSI stood at the 30.33 per cent level yesterday.
Outlook
The KLCI’s mild pullback hit an intra-week low of 1,166.83 points on Tuesday, staging a successful re-test of this column’s envisaged support zone (1,141 to 1,191).
Subsequent technical rebound took it to its intra-week high of 1,206.84 on Wednesday, encountering resistance at this column’s envisaged resistance zone (1,198 to 1,248).
Chartwise, the KLCI continued to stage below its immediate downside support (See KLCI’s weekly chart —A1:A2) during the week under review. It continued to trend above its immediate downside support (A5:A6).
The KLCI’s daily trend breached the neckline (See KLCI’s daily chart — B1:B2) of its headand- shoulders top formation on March 4. It continued to trend above its immediate downside support (B3:B4).
Its daily, weekly and monthly fast MACDs (moving average convergence/divergence) continued to stay below their respective slow MACDs. With that, the KLCI will continue to consolidate its recent losses in its base-building phase.
The KLCI’s 14-day RSI stayed at 30.33 per cent level yesterday. Its 14-week and 14- month RSI stayed at 31.09 and 49.17 per cent levels respectively.
In the aftermath of the 12th general election, overall market sentiment on Bursa Malaysia remained on the weak side. It takes time to rebuild its market sentiment in its base-building phase.
The KLCI is likely to consolidate further within range-bound activities. There may be intermittent market rebounds to correct its grossly oversold position.
Next week, the KLCI’s overhead resistance zone hovers at the 1,192 to 1,226 points while its downside support is at the 1,151 to 1,185 points.
The subject expressed above is based on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
AFTER staging its sharpest technical pullback last week, the Kuala Lumpur Composite Index (KLCI) continued to consolidate further during the week, albeit at a much slower pace.
Major weaknesses on regional stock markets sent share prices on Bursa Malaysia lower on Monday. The KLCI closed lower at 1,177.53 points on Monday, posting a day-on-day loss of 17.31 points, or 1.45 per cent.
Regional stock markets’ technical rebounds the next day provided stability to Bursa Malaysia.
After struggling for the major part of Tuesday, the KLCI rebounded to close at 1,180.02 points, giving a day-on-day gain of 2.49 points, or 0.21 per cent.
Continued stability on the regional stock markets helped to stabilise the overall market sentiment on Bursa Malaysia on Wednesday. The KLCI rebounded to close at 1,186.54 points, giving a day-on-day gain of 6.52 points, or 0.55 per cent.
Share prices on Bursa Malaysia traded within tight trading range yesterday. The KLCI closed at 1,189.06 points, giving a day-on-day gain of 2.52 points, or 0.21 per cent.
The KLCI posted a week-on-week loss of 5.78 points, or 0.48 per cent. The FTSE Bursa Malaysia Second Board Index lost 105.22 points or 1.83 per cent to the 5,643.60 level while the FTSE Bursa Malaysia Mesdaq Index eased 33.27 points or 0.71 per cent to 4,654.06.
Following are the readings of some of its technical indicators:
# Moving Averages: The KLCI continued to stay below the support of its 10-, 20-, 30-, 50-, 100- and 200-day moving averages.
# Momentum Index: Its short-term momentum index continued to stay below the support of its neutral reference line at market close yesterday.
# On Balance Volume (OBV): Its short-term OBV trend stayed above its 10-day exponential moving averages.
# Relative Strength Index (RSI): Its 14-day RSI stood at the 30.33 per cent level yesterday.
Outlook
The KLCI’s mild pullback hit an intra-week low of 1,166.83 points on Tuesday, staging a successful re-test of this column’s envisaged support zone (1,141 to 1,191).
Subsequent technical rebound took it to its intra-week high of 1,206.84 on Wednesday, encountering resistance at this column’s envisaged resistance zone (1,198 to 1,248).
Chartwise, the KLCI continued to stage below its immediate downside support (See KLCI’s weekly chart —A1:A2) during the week under review. It continued to trend above its immediate downside support (A5:A6).
The KLCI’s daily trend breached the neckline (See KLCI’s daily chart — B1:B2) of its headand- shoulders top formation on March 4. It continued to trend above its immediate downside support (B3:B4).
Its daily, weekly and monthly fast MACDs (moving average convergence/divergence) continued to stay below their respective slow MACDs. With that, the KLCI will continue to consolidate its recent losses in its base-building phase.
The KLCI’s 14-day RSI stayed at 30.33 per cent level yesterday. Its 14-week and 14- month RSI stayed at 31.09 and 49.17 per cent levels respectively.
In the aftermath of the 12th general election, overall market sentiment on Bursa Malaysia remained on the weak side. It takes time to rebuild its market sentiment in its base-building phase.
The KLCI is likely to consolidate further within range-bound activities. There may be intermittent market rebounds to correct its grossly oversold position.
Next week, the KLCI’s overhead resistance zone hovers at the 1,192 to 1,226 points while its downside support is at the 1,151 to 1,185 points.
The subject expressed above is based on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.
EMA AND SMA - RELIABLE INDICATORS
I have found out that EMA 1.4, 2, 2.75, 3 and SMA 3 are good indicators. On a yearly basis, you can make 1000% profit.
If you start at 5000, it will end up at 50,000 in a year.
The only requirement is to strictly follow the indicators.
NO SECOND THOUGHT
If you start at 5000, it will end up at 50,000 in a year.
The only requirement is to strictly follow the indicators.
NO SECOND THOUGHT
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