Project Freedom (4): Understanding of the States of Market Trend and Rotational Trading Concept

Attached are a few charts aim to demonstrate the importance of understanding the State of Market Trend and the Rotational Trading Concept which could help one to handle his personal finance.

POINT I: Understanding of the States of Market Trend.

Fig 1.  ^STI Daily Chart (2 years)  (Click on the chart to Zoom in)

The above chart show a daily chart for ^STI from Apr 2010 to Apr 2012.  This particular period is selected to show that money put in the market (so call buy and hold investment) can ended up with zero percent return over years.

In the price chart, there are algorithms built-in to draw the trendlines (also act as dynamic support and resistance lines).  When the bar change color, it signal a possibility of change in trend. 

In the lowest pane, it is an indicator desgined specifically to measure the Vibrational Energy of the stock:

If the Energy is High and moving upwards, it signals a state of UPTREND MARKET.

If the Energy is High and moving downwards, it signals a state of DOWNTREND MARKET.

If the Energy is Low, it signal a state of SIDE WAY MARKET.

It also display the number of bars in the respective state of trend and its percentage over the period.  For example:

Over the two years period, when breakdown into percentage...
The UPTREND is      : 31.39%;
The DOWNTEND is : 18.05%;
The SIDE WAY is     : 50.56%.

Fig.2 ^STI Daily Chart (1997 Jan - 2012 Apr)

So, one may think that two years of data could be too short to make the point.  How about longer period of data? 

So, with the longer term of data, it show that the result is similar with the previous finding. And, lead to some basic understanding of the market trends structure...

Conclusions from Point I:
1) The Speed of UPTREND is SLOWER and DOWNTREND is FASTER.
2) BUY AND HOLD strategy is NOT WORKING in todays market.
3) One must be able to ride on the Trend in order to make profits from the market.

POINT II: Understanding of the Sector Rotational Trading Concept.

As the previous point illustrate that money put in one market/Stock/Fund are really productive about 30% of the time in UPTREND, 20% in DOWNTREND, and wasting time 50% of the time.
So, if one were to only LONG the market, does that mean 70% of the time he must wait???
Not true if he understand the concept of Sector Rational Trading.


Fig 3. State of Trends in S&P500(SPY)
and its 9 sectors(XLB,XLE,XLF,XLI,XLK,XLP,XLV,XLU,XLY) (Apr 2010 to Apr 2012)

See... 
The money in the market are of fix amount.  When the stock market is moving up strongly, people would pull money out of bond market and put into stocks and cause bond market to fall, and vice versa.  Similarly, the professionals would not put their funds in equal distribution into all sectors, they would pull the money out from the weak sectors to put them into the strong sectors.  And the sectors Relative Strength would keep changing over time.  In the picture, you can see the TREND is Out Of Phase from one another.

With the same token, one can then zoom into the individual stocks, in the strongest sector, to ride on the trend with the few strongest stocks

By the way, you may be interested to zoom into the chart and see the respective percentage of trends in various sectors.


Conclusions from Piont II:
1)  It illustrates a VERY IMPORTANT POINT that is IN CONTRADICTION with one of the popluar myth in the investment industry -->  That is DIVERSIFICATION the money into many sectors in equal portions as to reduce RISK.  As sectors trend pretty much follows the market (after all they are the components that create the market).

2)  In order to maximize the profit from the market and reduce risk.  One must always rotate money into the strongest few sectors when there is a trend.

---------------------------------------------------------------------------------------------------------------------
I found a picture on the web and it is Very True. 

There are certain risks in life one can simply choose to avoid it, such as if one don't know how to swim and he choose not to go near the sea... He may miss some fun for that but find more fun somewhere else.

On the other hand, there are some risks one cannot avoid, such as financial crisis... Then, the only logical answer in dealing with it is to master it.  And,

if it is necessary...  Then, it doesn't matter how much time it may take.
Whether it may require 3 years, 6 years, 10 years or more,

something learnt is something gained. 

Time is ticking anyway regardless whatever nice phrases one may come out with. Such as:
"Only IF I have the time..."

With the current state of economy, which is full of potential for turbulences such as:
* Debts in certain countries in EuroZone building up,
* Energy Crisis due to Peak Oil,
* Over Population on earth,
* Aging of the Babyboomer in USA (in fact it is a worldwide problem, and more serious would be in China for its one child policy), and
* Increase in trend on Unethical issues exposed from corporation executives (worldwide)... etc.
I cautious myself not to be negative, but logically, it can only predict more financial crisis in local and global scale to continue happen in the near future...

So.  It is my simple idea that when more people willing to learn about it, then it would make market manipulation task more difficult for the minority and BALANCE IT.  Let's make it so! :-)

Bless You

KH Tang


A more throughout explaination on Sector Roation -> Back to Basics & The Galaxy Chart.

Personal Finance (9): Would Japan give us the next Surprise?!

Well,  just to forward a successful currency trader friend’s opinion(social service) from Australia, as I believe there are values inside for sharing ...
-------------------------------------------------------8<----------------------------------------------------
From: brijon

Sent: Sunday, March 11, 2012 3:29 AM
To: xxx

Subject: japan

brijon 5: GDAY

brijon 5: japans economy is the next finacial buble ready to go into meltdown

brijon 5: this is the next major shock comming to the worlds economic meltdown

brijon 5: a far bigger crises that is being hidden under the table

brijon 5: imports far exceed japans exports  now

brijon 5: energy imports oil is massive

brijon 5: there gdp is now one of the worst in the world

brijon 5: on 26th march all neucler plants are beuing shut down

brijon 5: so we are being like always are being kept in the dark about the real problems unfolding on the world economy

brijon 5:   

brijon 5: the carry trade is already in reverse as japans money flow  is now reversed for the carry trade

brijon 5: so the real disaster  for finacial markets is starting to unfold

brijon 5: as japan goes into finacial meltdown so all the world wil feel this massive effect on there economys

brijon 5: my opinion only

-------------------------------------------------------8<----------------------------------------------------

It might be a good starting point to do your own research/verification on the points mentioned in the mail, and access the current situation yourself.   Or, wait for the public media to give the “Surprise” after the insiders fully positioned themselves. Such as the previous man-made financial crisis.

Such as google for the news:

http://mdn.mainichi.jp/mdnnews/news/20120310p2g00m0dm021000c.html 

Of course, most of the people might think that this in not relevant or unimportant to their personal financial matter... 
Think again!
The world has been coming up with many man-made economy SURPRISES, one after another, in the last decade.  And some surprises wiped up saving and investment in "reliable" banks!

Euro Zone Trouble, US Debt (See US Real Time Debt Clock <-) & Japan energy problems are ready to have chain-reaction to bring down world economy (just another big Ponzi Scheme anyway) when something is ignited.

Attached is the DEBT vs GDP ratio and Many in the top list already running into trouble.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

Another Source:

http://wallstcheatsheet.com/stocks/the-10-most-indebted-governments-in-the-world.html/

This is NOT crying wolf, as the wolf is already outside the door. Just a matter of timing.

Yes.  It is not that easy to find a Inspirational/Positive Quote to end this blog entry...

Anyway, though it is NOT a solution for all, and NOT even a solution for the majority...

Learn to Re-Balance Personal Asset timely in critical time could help to

minimize perosnal financial impact if not profits from it.

Project Freedom (3): Why and How Successful Traders CAN Keep Making Profits from the Market

Let's start by reviewing an old fable: “The Mathematician and the King”

Once upon a time there was a mathematician invented a chess game for a king.  The king was so happy about it and told the mathematician to name his reward.

“I don’t ask for much,” said the clever mathematician. “A single grain of wheat on the first square on the chess board, two grains of wheat on the second square, and double the number of wheat in every subsequent square….”

“So it shall be done,” said the king, who was not having any idea about the concept of exponential growth.

After the King got his men to work out the numbers, he was shocked that before reaching half of the complete chess board, the number had become bigger than total annual wheat production in his whole Kingdom.

The moral of the story is: TWO CONDITIONS are required to grow Rich. It takes both the “TIME” and “EDGE” to increase the number through exponential growth.

Now, let's see how these concept apply to trading:

* TIME: Every move to the subsequent square represents the “Time” required in the game. Adding all the individual step, short term, together become a long term. 


* EDGE: In the story, it has an “Edge” in doubling every next step. Similar to say that as long as there is a CONSISTENT edge, it would grow over time. The stronger the edge (Percentage growth over a fixed period of time) the faster the number grow, and Back Testing the system would help to identify which "Edge" is better.


Just like the house of any Casinos, as long as there are enough customers keep playing the game, they can keep making money because there are “Edges” built into all games by designed, though these edges may be very small in percentage in terms of winning probability bias towards the house.

(-> Here is a good article illustrating the Edage of a casino.  <-)

So...

When one can workout a consistent "EDGE" and keep himself continuously participate in the market... It is like, he is operating an online Casino by himself.

Of course, the "edge" must be much stronger than many other devaluation factors to be meaningful edge, such as "Inflation","currency devaluation","Tax", etc.This link has a picture to show how serious inflation could be over time:

http://blessedfool.blogspot.sg/2012/01/personal-finance-8-where-have-all-money.html

The moment when a trader is able to change from the state

of "understand the principle of probability" to the

state of "thinking in probability mind set",

he changes his world.
- Mark Douglas - "Trading in the Zone"

Personal Finance (8): Where Have All the Moneys Gone?!

(Click on the chart to Zoom-in)

In the above diagram:
1) The upper pane is the price chart shows a long term monthly chart of S&P500 ETF (SPY) for the past 19 years. 

2) The middle pane  shows that DEVALUATION of currency due to INFLATION. The Back/Blue/Green/Red color are representing 0,-3,-5 and -10 percent per year respectively.

3)  The lower pane shows the inflation adjusted value of the S&P500 Index.  Now, when factor in devaluation rate of  0,-3,-5 and -10 percent per year due to inflation, the number is more realistic in reflecting the "actual value" after all these years of investment.

Consider the annual inflation rate as of today, and think about how this FACT would affect your retirement plan (if you already have one).
For those people who simply look at their bank account balance without factor in the devaluation due to inflation could be having a shock at a later date.


So, after many decades of world peace since the end of WWII... 
After chopping down so many forests...
After using up about half of the total crude oil on earth...
After polluting so much rivers/air/environment under the name of development...
At the end: Where have all the moneys gone??!!

May be this song will give you some inspiration to find out.

Where have all the Moneys gone?
Long time passing
Where have all the Moneys gone?
Long time ago
Where have all the Money gone?
Gone to ????? every cent
When will we ever learn?
When will we ever learn?

->Home<-

Project Freedom(2): In Search of the Heaven Sword and Dragon Sabre Indicators

“武林至尊，宝刀屠龙，号令天下，莫敢不从，

倚天不出，谁与争锋。” 
-- 金庸小说《倚天屠龙记》

Above is a phrase from Jin Yong's famous novel The Heaven Sword and Dragon Sabre.

It may be translated as follows: "The precioius Dragon Slaying Sabre is the most Honourable Weapon in the Martial Art Community.  It commands the world and no one dares to disobey!  Who else dare to challenge it unless the re-appearance of the Heaven Reliant Sword?"

The story background was set in the late Yuan Dynasty, and it revolves around a pair of extremely powerful weapons as named by the novel.  Of course, one can imagine that all the people want to own one of these weapons, and some went to the extreme, by hook or by crook, in order to get it.   Almost all Chinese spoken people know more or less about this story as it been flimed into movies and TV series for about ten times since the last 3 decades.

Dragon Sabre

There is a saying, "人生如戏 戏如人生", "A Life is just like a Movie, A Movie is just like a Life."  So True!
From personal experience and what I read from the trading forums...  Most system developers are in their journey in search of such powerful indicator(s), and the west call it the Holy Grail Indicator.

Many people in the forums claimed that they don't believe that there is such thing, yet keep on discussing and debating about it... Having told some stories...
The following are some good reasearch sites for indicators/systems, and some indicators used to be sold for  a couple of hundred USD (bought a couple before ) and are now for free:

1) MetaStock Zone (Link updated and tested working on 13 Feb 2014)

2) EasyLanguge Zone

3) WealthLab Public Chart Scripts

4) Amibroker AFL in WiseStock Trader

5) Trader Tips from TASC

My engineering view point is this: there is definitely no Holy Grail indicator, but there are Holy Grail systems which consist of multiple indicators working in harmony at the background.  In such system, each individual indicator would cover the shortcomings for other individual indicator , like a Master Mind Team, and make it works great.   Everyone has blind spots.  Cannot see it don't mean it is not there.

"Nothing great was ever achieved

without enthusiasm."

- Ralph Waldo Emerson

...  to be continue ...

Self Development Idea (13) - Two Worlds of Reality, and the Magic Mirror

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Everyone of us is simultaneously living in two worlds of reality. One is the "Inside world", and the other is the "Outside world".

In the Inside world, it is yourself consist of "Philosophy, Thoughts, Feelings, Emotions, and Attitudes."

In the Outside world, it is your Environment of "People, Place, Things, Events and full of Public Opinions."

And, in between the two worlds, there is a Magic Mirror.
This mirror has the ability to reflect the reality from one side to the other side...


Note: A summary note taken from reading the book "Mind Power by John Kehoe"
-------------------------------------------------------------------------------------------------------

Take for example.

If the person has a stronger faith in his own Internal World, he is able to eventually project it into the Outside World through the help of his own subconscious mind.

On the other hand, the other case is true also, for a person who does not set any goal or does not has any belief of faith that he can make a difference... The Outside World would keep telling him that this is wrong and that is bad ... Eventually, this would reflect into the person Internal World. Which would create stress and harmful to the body.

So. It is a better deal to choose to be happy and have peace of mind, rather than let the Outside World to dictate what they want you to be.

Many may have read that popular phrase "Your are what you think you are...".  Well, that is over simplified and not accurate. A sage puts it, "We aren't what we think we are, but what WE THINK,  WE ARE!"

"All mankind's inner feelings eventually manifest

themselves as an outer reality."

— Stuart Wilde

Personal Finance (7): Realistically, What’s the Yield Rate for Top Traders?

For many beginners  who come to invest/trade in the stock market, they don’t have a realistic idea of how many percent they might gain over a year.  For years, from the trader library and forums, I figured out that the top number was around 28-35%/year.  And, recently, I discovered that these numbers are way too low for benchmarking at all…  and, that could set an invisible barrier of limit in traders mind.

1) Breaking Through from the Limiting Beliefs:

Here is just a short story of how imaginary barrier can limit people performance and may spark some inspiration in the mind…

* The 4 minutes Barrier

Just like once people thought that the world was flat.  Before 6 May 1954, athletes had never able to run a mile under 4 minutes, and some “experts” at the time even commented that it was physically impossible for a human to do so, or the heart would explode under the pressure to run a mile in under 4 minutes.

Roger Bannister was medical students at that time, not even a professional runner, believed it could be done.  He prepared himself with training and he became the first person to ever run a sub four-minute mile (3min 59.6sec) on 6 May 1954.

More interestingly, 56 days after Roger Bannisters breakthrough, John Landy ran the four minute mile in 3 minutes and 57.9 seconds in Finland. Later Bannister and Landy raced in the Mile of the Century where Bannister won in 3 minutes and 58.8 seconds.

As for today, it is no more any surprise for high school athletes to run a mile under 4 minutes, for that mental barrier had been gone.

ONLY after a person breakthrough from his own limiting beliefs, he can then sail into uncharted waters and has experiences he never had before.

2)      Setting the Right Benchmark or Higher

Recently, I have come to know of an old trader who wrote and trade his own system for 30 years and only work for himself.  He does not sell his system or even signals for trade.

On the other hand, he joins some forums and professional groups to share some valueable views and ideas…  He also presents his research paper freely for others who may interest to read.

For those who may get the ideas from his paper would know that his system is for REAL, and not fantasy.

If you are interested to get into the financial market some day, say in the future.  Then it is strongly recommended that, take a look at his website… His papers and his simulation results.

http://alphapowertrading.com/

These are some of the back test results with over 100% return a year:->
On Turtle system:

http://alphapowertrading.com/index.php/tests/turletests/turtles-test-v32-improved
On Modified Jesse Livermore System:

http://alphapowertrading.com/index.php/tests/livermorechallenge/livermorechallenge3rdact

(with permission to post as reference)

ONLY when there is a good Benchmark, then one can know what kind of aim he should set…

OF COURSE, the market cannot give profits from air, when more and more people are aware and able to use such strategies and tactics, the profits would drop according to number of participants are able to develop such systems.  

Many “Conventional Wisdoms”, such as ship must be built by wood in order to be able to float, no machine can fly, and later believe that plane cannot break the sound speed barrier, etc…  are now proven to be wrong ideas that limiting people imagination...

 

"One person with a belief is greater than a force

of ninety-nine who have only interests."
-unknown

Games that People Play(2):- Work Behind the Scenes

The world economy and major events that are happening all around the world seems like following the plot of the story in the book - Atlas Shrugged - in the final section.

There are many people complain about their current president can not fix the economy problem effectively.  Some could look further blame previous term presidents that their economy policies are not sound.

Actually, the seeds of trouble for today economy were planted decades ago while Alan Greenspan was at his position as Chairman of the Federal Reserve of the United States from 1987 to 2006!  And now, all the troubles have grown to their mature state.

 If you were to search in the web: "Who is Alan Greenspan mentor?"  You can find that his mentor was the author of the book "Atlas Shrugged", Ayn Rand, and they have a small circle of mastermind.

If you were to dig further and see who's was backing up Ayn Rand -->
http://www.kt70.com/~jamesjpn/articles/atlas_shrugged.htm

Of course, many people would simply say that this is yet another conspiracy theory...

So, I believe that the best way to keep a secret is to put it up onto the web, as people don't believe any secret can be found in the web.

The following pictures are self-explanatory:

It is Strongly Recommend that you watch the video clip (only 24 seconds) on what 

Alan Greenspan has to say.

You may not believe what he say without watching it!!!

If you have trouble to see the video from this blog, click on this -> link  <-

But, history has proven, it is not necessary that their plan would succeed as human being are most creative under huge pressure in critical time.

 AND

 What Matters Most is How You See Yourself, and not

limiting your own beliefs due to circumstances.

Bless All

Project Atlas Shrugged!? (2): THE EURO ZONE

I have a German friend told me that there is absolutely no reason for them, German, to retire at 65 while the Greece to retire at 57 yet need their financial help...

Looking at the current situation, people would wonder how to keep all the countries in Euro Zone to work together... For they have their very own and broad range of cultures, social benefits, productivities, etc.

Attached is a link to an article on the cause, current situation and potential effect that may hit the world.

It's All Connected: An Overview of the Euro Crisis.

------------------------------8<------------------------------

1.  It Starts With The Euro ...

In 1999, most countries in the European Union adopted the euro as a common currency.  This union allowed poorer countries like Portugal, Italy, Ireland, Spain and Greece to borrow money at the same low interest rates as rich and financially prudent Germany, even though their inflation rates were higher.  That give them a strong incentive to borrow.

------------------------------8<------------------------------

See from the excerpt...  How could one lend more money to those companies that are continuously losing money with no particular plan to do better, and just hope that they can perform better and return the money in the future?

With the computer aided simulation, one can simulate to send a rocket into the space and turn a few rounds about the earth and bring it back before the real one is actually launching.  As, all these financial data has been there all the while and more importantly the trend was there, yet the politicians need to wait till last minutes to inform the public with no plan in advance.  What's going on wrong?  

Therefore, there is reason to "re-think" about the whole thing...

What was the Real INTENTION to create EURO?

Was the Euro Zone create to last or Intentionally created it to Fail?

Now, if one were to compare the current Euro Situation with the story line in the Book "Atlas Shrugged"... He can find similar situations...

In Greek mythology, Atlas was the primordial Titan who supported the heavens.  You may have seen some of his pictures - who holds the world on his shoulders.  By the name of the book, "Atlas Shrugged", Atlas wondered why should he support the world by himself all along...  and he just let go and shrugged.

In the book, there were a few genius, lead by John Galt, believed that the system that they lived-in was not set up right and wanted to change the world.  They secretly persuaded the world's creative leaders, including inventors, artists and businessmen on by one to quit and disappear from their position and join him. They organized the team in an effort to "stop the motor of the world" and bring the society to collapse - so that they can carry out their plan.

They did not just sit aside, just shrug and watch, rather they planned in every detail and executed their plans religiously to speed up the collapse of the system.  So, that when the government cannot handle the chaos, they eventually have the opportunity to step up as heros to execute their blue print in mind.


On one of the tactics in speeding up the process, by Francisco d'Anconia, one of the central characters, was to create good investment opportunity to bring in huge funds from the society and then destroyed it on purpose.  At about the end of the story, he personally destroyed the world's largest copper mining empire that he owned by inheritance.


Doesn't it looks like what is happening to the global financial system now?

"Give me control of a nation's money and 

I care not who makes it's laws" 

- Mayer Amschel Bauer Rothschild

.

.

.

-------------------------  Add on @ 1 Aug 2012  --------------------------

What is the implication of the "Fall of EU"?
Here is an excellent interview: start from 8:00min.
-------------------------------------------8<----------------------------------------
The political and economical crisis of the EU might help a new European Hitler to emerge, warns historian Geoffrey Roberts. He believes the current rise of ultra-nationalism in Europe resembles that one of 1930s as history tends to repeat itself.
-------------------------------------------8<----------------------------------------

YouTube Link : <- (If there is a problem watching it here)

Project Freedom(1): Awareness of The Current Reality

8<-----------------------------------1----------------------------------------
"我翻开历史一查，这历史没有年代，歪歪斜斜的每页上都写着"仁义道德"几个字。我横竖睡不着，仔细看了半夜，才从字缝里看出字来，满本都写着两个字是‘吃人'!"- 鲁迅的开山小说《狂人日记》

8<-----------------------------------1----------------------------------------

The above Chinese message is briefly translated as:

"I flipped through the history book and checked, this history covered  all ages.  In every pages, with the slanted words, it repeatedly written with the same phrases "humanity, justice and Integrity".  I could not go into sleep in all positions, and carefully examined it for the whole night, and finally I realized the insight through reading in between the lines, the whole book is filled with two words - 'EAT PEOPLE!' " - Lu Xun (September 25, 1881 – October 19, 1936), "A Madman's Diary"

8<-----------------------------------2----------------------------------------
"THE FEAR OF POVERTY! It requires courage to tell the truth about the history of this enemy of mankind, and still greater courage to hear the truth after it has been told. The Fear of Poverty grows out of man's habit of preying upon his fellow men, economically. The animals which have instinct, but no power to THINK, prey upon one another physically. Man, with his superior sense of intuition, and his more powerful weapon of THOUGHT, does not eat his fellow man bodily; he gets more pleasure from eating him FINANCIALLY." - Napoleon Hill,(October 26, 1883 – November 8, 1970), The Law of Success in Sixteen Lessons
8<-----------------------------------2----------------------------------------

Above are short excerpts from two great writers,  one from the East and the other from the west.  Interestingly and accurately, they pointed out the same thing that had repeatedly happened in our civilized human history, that is - "Eat People."  And, this phenomenon has even become more frequent, bigger scales, and obvious globally nowadays. -- In this, I AM referring to some manipulators are wiping out public investment and saving through more economy crisis and hyper-inflation!


There are more illustrations of how the current system works in the following Link.
 -> What's Preventing Most People From Financial Freedom. <-



As the saying goes...

"The person who does not realize that he is in 
a jail will never think of getting out."  

So, awareness is empowering.  On the other hand, awareness without action is worthless too.

-------------2025/03/15---------------Modified Picture----------------------------------------

"What's Else On The Menu?!"

->Comment<-
-> Home <-

Personal Finance (6) - In Devastation, There Is Opportunity.

Attached are two video clips on "Traders' Mentality" and a news article describe how the Wall Street is functioning and would surely affect your bank account sooner or later.

1) The first one is a clip from the Documentary -"The Corporation." It shows how a typical trader think - Emotionless is the key.

"Traders' Mentality"

2) The second one is a clip from a recent interview in BBC News.

This guy is really telling the Truth of the Truth, proudly and confidently, on what happening in the market .

Key Messages:

i > The ONLY OBJECTIVE is Making Money.

ii> Money Rule the World, not Your Government.

Of course, these traders do not create the devastation, they just grasp the opportunity and add more trouble to it.

But do you think that some would actually go to the extend to CREATE this kind of Opportunity? You bet! And, it is getting more and often.


3) Mathematicians and their trading programs are increasingly taking the place of professional investors in financial centres across the world! (<- click the link for full article)

So, when the next financial crisis come, probably the Wall Street can blame it on the computer system rather than any human being...

In my opinion, there are two ways to avoid "Risks".

One is to totally avoid it. Such as for those who cannot swim, they can avoid the pool, etc.

Another is to learn and master it.

Since the financial matter affect everyone in this "Civilized World ?!?!?", and we are in it... Avoiding is not an option.

Of course, some people choose an alternative way...
Such as PROTESTING - "Occupy the Wall Street" is an example.


Surely, this movement would definitely help to raise awareness of the public in understand how corrupted the current financial market is and bring across the message to the authority - "Enough Is Enough!" Or, it may even eventually able to force the system to sacrifice a few scapegoats. But, not likely to change how the system works, for money and authority have been working hand in hand for centuries.

Therefore, instead of hoping everything is fine, it is good to learn about it as early as possible and take the advantage of the existing system. For I do not see any ethical conflict as an individual to protect himself from being hurt.

Let me explain...
As you must have heard of this kind of message every time when you are taking a plane... "If there is a turbulence and have difficulty to breath, the oxygen mask will automatically drop in front of you. Make Sure that you Put On Your Own Mask FIRST before you taking care of..."

So, the same and simple logic go with the case when there is a devastation happening in the system. For:
1) If those people do not protect themselves, they would also be in trouble and totally forget about the possibility to help others.
2) If you do not take the advantage, the creator of the events will take all of it anyway.

And, it is my simple thinking that... if most public know how to take this kind of advantage all together, then there will be No Incentive for the manipulators to continue in creating these troubles.

"A Trap is Not a Trap if you know it, it is an Opportunity."
- unknown trader

Charts Deleted on 2016-04-11

Bless you
KH Tang
Wealth Resonance Pte Ltd

-> HOME <-

-> Comment <-

Personal Finance (5) : Cut Lost

Case 1: The Battle of Red Cliffs (赤壁之战)

In the year 208 AD, during the era of civil war and the process of forming up the Three Kingdom…

Prime Minister Cao Cao after conquered the Northern China wanted to conquer the Southern China. Two leaders, Liu Bei and Sun Quan, arised against Cao Cao's tyranny. Cao Cao brought 240,000 soldiers to fight the battle against the ally of Liu Bei and Sun Quan, which had only 50,000 soldiers.

For Cao Cao’s army to attack the enemy, they must sail across a river. Since most of the soldiers from the north was unused to battling on the ships and having seasick, they set up the camps next to the river bank and doing their training.

The ally strategist, Zhou Yu, thought of a way to exploit this weakness of Cao Cao’s army. Zhou Yu idea was to attack the Cao Cao’s battle ships by fire. But, he also knew that it was impossible to burn up most of the ships as they can sail away easily.

How did Zhou Yu prevent Cao Cao from CUTTING LOST during the fire attack??

He sent spy to suggest to Cao Cao that he should get all the battle ships to be chained together by heavy metal-chain in order to reduce the fluctuation of the ships, and then his soldiers can speed up the training without having seasick. Cao Cao happily accepted that suggestion and implemented accordingly…

And, that fire burned up most of the Cao Cao’s army during the battle. Though Cao Cao managed to escape back to the north, he never able to gain back the strength advantage over his two opponents for the rest of his life...

Case 2: A Typical Mutual Fund

"Click on the chart to Zoom-In"

Sometime ago, I saw a Professor of Economics on TV commenting on stock market matters... He said that even the best fund manager, such as Warren Buffett, had lost more than 50% of his fund value (Berkshire Hathaway) during the last economy crisis from 2008 to 2009. So, as a individual investor, if you lose lot of money in the market, that's normal and don't blame yourself....

So. What do you think about his comment?

I would say that this professor had not done his home work properly, and thus comparing an Apple to an Orange!

Let me explain...

The Mutual Fund Mangers, by law, are supposed to be fully invested with the fund under their management. They can "Rotate" their fund among various sectors, but are not allow to hold cash over a period of time.

Therefore, by law, they cannot CUT LOSS even if they know the market will continue to fall for a period of time. This law is necessary for the stability of the market... Imagine that if all big fund managers are pulling out their investment due to economy crisis, no one can know how deep the market can go.

So, one must realize that the main goal of a fund manager is aiming at beat the market, and not to make money for the clients. They make money by charging the clients for managing their money, not by how much they generate the profit from the fund.

BUT, on the other hand, as a individual investor/trader. There is NO LAW restricting you from cutting lost or even going short. Thus, I say that many commentators appear on the TV do not know what are they talking about.

These tell us that... It is not that the bigger organization can always eat the smaller, it is the faster can eat the slower.

Having looked at the the effect of not being able to cut lost timely, now let us look at the importance cutting lost decisively while it is still small:

1) It is much easier to gain back the lost while it is cut at small percentage.

The following table show a Recovery/Loss Ratio. When the lost is cut less than 10%, it can be recover with about the same amount of gain in percentage. BUT, if one were to let the lost grow bigger, say 50%... then he need to gain 100% just to recover... With even bigger lost, the chances to recover are getting smaller!

"An error doesn't become a mistake until you refuse to correct it." - Orlando A Battista

2) Allow Yourself to Participate ONLY on the Up Trend Market.

The following show the S&P500 returns and it normal distribution over the year of 1926 - 2008. This is the kind of chart you can find in any Quantitative Analysis books on the stock market that shows the probability of win and loss in buying a stock over a period of time.

click on the chart to zoom-in

Now, imagine with your mind that if you were to chop off a big portion of the left-hand-side of the distribution chart through the technique of CUT LOSS (as show in the following diagram), you can literally allow yourself ONLY TO PARTICIPATE IN THE UPTEND MARKET!!! (Of course, for those who are shorting, chop off the right portion of the chart.)

Last but not least, in order to be able to use the technique, especially for the beginner. It is best to use market index tracking ETFs (exchange-traded-fund) as the vehicles. As they generally do not gap up or down in high percentage that one has to miss the targeted cut lost point far away...

"There is only one side to the stock market;... not the bull side or

the bear side, but the right side. It took me longer to get that

general principle fixed firmly in my mind than it did most

of the more technical phases of the game of stock

market speculation."

- Jesse Livermore

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