Sold DBS at 17.11 and OCBC at 10.47

I have a condition in my trading where if all my positions (at least 3) are showing a total profit of 0.5 R per position, I simply take off all my positions. Hence if I have 3 positions, I close all 3 positions when there is a total profit of 1.5R. If I have 4, then I close out when the total profit is 2R. I like to call this the 'ebb out', for lack of a better term. And yes this is my original idea, after watching my portfolio of trades ebb up and down too much.

And I was shorting AUD/JPY and XAG/USD at the same time I had the DBS and OCBC stock positions.

Note this is only applicable when you have at least 3 positions at the same time. 

The rationale is that when you have 3 or more positions, some will show losses, some will show profits. And these positions will be in a state of 'flux', so to speak. You will see the ebb and flow of profits then losses then profits again in these open positions. So when this happens, you just want to catch the ebb preferably when it is showing profits. I set the total profits I am willing to take at a sum of 0.5R per position so that the total profit is meaningful and I remove the exposure and risk of giving back too much profits and seeing them turn to losing positions.

Typically, what happens with having 3 or more positions is that your equity curve starts becoming more volatile, and you may see yourself having an open loss of 3R or more. So that is going to affect your trading judgement the more Rs you experience, much like how fighter pilots are affected by the number of Gs they are pulling. So having this rule is like having a reset button. You press the button and take the profits and close out and the pressure goes away.

While profit-riding purists may say that this rule will cut short your expected profit of 3R or more, more often then not I found that this rule protects your profits and overall makes your equity curve more attractive. When luck throws you a nice profit, just take it!

About Rationality

Recently I came upon a collection of quotes by different well-known philosophers about rationality. They were in a peculiar order that evokes amusement. (Ref. The Art of Procrastination, A Guide to Effective Dawdling, Lollygagging and Postponing - John Perry)

Man is a rational animal. - Aristotle

Man is not a rational animal, he is a rationalizing animal. - Robert Heinlein

Man is a rational animal who always loses his temper when he is called upon to act in accordance with the dictates of reason. - Oscar Wilde

It has been said that man is a rational animal. All my life I have been searching for evidence which could support this. - Bertrand Russel

Bought OCBC at 10.5 on 18th Oct

Another similar trade to DBS.

Stop loss at 10.07.

Bought DBS at 16.7 on 18th Oct 2013

On 18th October, DBS showed a breakout of the diagonal.

Stop loss at 16.39.

Sold Yangzijiang at 1.13 on Oct 2

Profit is 0.25 R.

Looking at the chart today. Today it is at 1.18. I have to admit that I took my profits too early. I did not give it room to ride. I was freaked out by the price action on 30th September. I was afraid that my profit will turn into a loss. So I took my profit at 1.13 two days later.

That was bad discipline on my part. For those that followed this blog and are still holding on to Yangzijiang, great job!

Bought Yangzijiang (BS6.SI) at 1.02

Looking at the Dow Jones, it looks like traders are starting to buy on the dip in an uptrend.

 Looking at the STI, it is bouncing up from a downtrend channel. With the above 2 charts, I decided to try to find some opportunities to trade the market.

I found Yangzijiang. This chart is a 2-year chart and I saw that I could draw a trendline all the way from March 2012 to September 2013. And I saw that price is breaking out from the down trendline. Volume also seems to be picking up.

So I picked up Yangzijiang at 1.02. Stop loss at 0.91. First target at 1.14 valid for 3 days. And from now, no trailing stops while the first target is valid.

Bought GBP/CAD at 1.6303 to close position

Profit is 0.86R. And you will notice, this position is closed by a trailing stop after the first target expires on the 3rd day.

Bought EUR/USD at 1.3203 to close position

Talk about a double whammy! I got stop out by a trailing stop incurring a loss of 0.16R. Okay, the rule of "no trailing stop when there is a valid first target" is set.

And actually this trade is strongly correlated to the EUR/GBP trade. I should avoid such correlation in the future.

Bought EUR/GBP to close position at breakeven

This position was stopped out by a trailing stop at breakeven point. Maybe I should make a rule of "no trailing stop when there is a first target still valid" (that is usually for the first 3 days).

Sold USD/RUB at 33.3226 to Close Position

Gross profit is 2.1R. I held it for slightly more than 1 month. Apparently trading the RUB involves quite a substantial foreign exchange swap rate. Quite unlike most Forex pairs I traded which have very negligible swap rates. I incurred a swap equivalent of 1.1R.

Hence net profit is 1R. Well, well, something to take note of when trading the RUB in future.

Shorted EUR/GBP at 0.8462

Stop loss at 0.8485. First target at 0.8406 valid for 3 days.

This trade is a simple short off a broken support for a target near the next support.

Shorted EUR/USD at 1.3196

Stop loss at 1.3236. First target at 1.3018 valid for 3 days. On the 29th of August the EUR lost ground against the USD and broke the uptrend. The next 2 days, there were signs of bullish reversals. But it turned out they were quite weak. Hence on the third day, I decide to go short.

Sold XAU/USD (Gold) at 1421 to close position

I trailed a stop and also had a target price of 1422. I mentioned that that target was valid for 2 days. Well I left it alone as I changed my mind after seeing that 1422 is a major resistance.

Profit is 61/17 = 3.59R. Nice.

Bought NZD/USD at 0.7874 to close position

My NZD/USD position is closed with a trailing stop of 100 pips.

Profit is 2R. I have removed my first target after 3 days. On the 4th day, it would have given me a profit of 2.88R if my target was not removed. Oh well, it happens.

Bought XAU/USD (Gold) at 1378

Stop Loss at 1361. First target at 1422 for 2 days. After which I will let it run with a trailing stop.

After the third bounce at the downward trendline, it plunges down and came up to pierce the downward trendline. At that point, I shorted it for a small profit of 0.4R. At the time that I exited, it broke through the downward trendline strongly.

I anticipated  the break of the 1385 resistance and hence I decided to go long at 1378 while the risk is still small (1378 - 1361 = 17) vs (1385-1361 = 24).

Sold GBP/AUD at 1.7241 to close position

Entry at 1.7125. Stop loss was at 1.6904. R is 221 pips (1.7125 - 1.6904 =0.0221; smallest unit is a pip and is equal to 0.0001). Exit is on a trailing stop of R.


Profit/Loss = 1.7241 - 1.7125 = 0.0116 = 116 pips.

My profit is 0.61R (116/221). 

Sold SingPost (S08.SI) at 1.28 to Close Position

Close position for a loss of 1R. Notice the MACD crossover on the second section of the chart below. It so happens that the stop levels I picked also tend to be of technical significance. I basically pick my stop levels just below support or resistance levels.These levels once breached usually sees further unfavourable price action beyond.

Stop levels also determines your loss per share which when paired with R (what you are willing to lose per trade) in turn determines your position size. Which in turn determines your profit if the price action is favourable. These are important parameters to any successful trader.

When successful traders talk about their reward: risk ratio for any trade, they are mindful of these parameters and their relationship to each other. They also look for a good entry and a stop level that gives them a good reward: risk ratio.

If it sounds complicated, it really is not. They are natural relationships that define any trade and are familiar to traders with proper risk management practices. Much like the accelerator, brake, steering wheel, handbrake, clutch, gearbox, rear-view mirrors form a natural relationship to each other for the driver to control their cars.

Shorted NZD/USD at 0.8078

Stop loss 0.8178. First target 0.7790 valid for 3 days.

In a downtrend and trading sideways. This is basically a short from the top of the range. Or what some traders call range trading. Simple enough, and if the market moves up against me, I lose 1R. My 1R is 0.0100. That is 100 pips. Otherwise my first target is 288 pips away or 0.0288. And that is?

2.88R then, my friends! The key to the kingdom? Risk small.

Bought GBP/AUD at 1.7125

Stop loss at 1.6904, first target 1.7590 valid for 3 days.

It is in a clear uptrend. Price just rebounded from the bottom of the channel.

Random Distribution of Wins and Losses

Here is another link I found that expresses excellently the idea of random distribution of trading wins and losses and why it is important to risk small:

http://www.learntotradethemarket.com/forex-articles/the-one-fact-about-trading-you-need-to-know-now

The Whipsaw Song - Ed Seykota and the Trading Tribe

Never really knew what Ed Seykota looked like til today. Ed Seykota is one of my heroes in trend trading. I read about him in one of the Market Wizards book by Jack D. Schwager. I recalled he likes jamming in a band. And today, I finally see him jamming it up on youtube! Enjoy!

http://www.youtube.com/watch?v=LiE1VgWdcQM&feature=BFa&list=FLDQdHo5Wlxk8&index=10

USD/CAD sold at 1.0336 to close position

0R profit. Yet another scratch trade. I shifted my stop to just below the August 2nd bar which also happens to be just about the breakeven level. The August 2nd bar defines the structural low of the recent range of trading.

I shifted my stop when the price exceeds 1.042 which is the level that shows a profit of 1R. So shifting my original stop to trail 1R from the high of 1.0444 serves to protect whatever gains I have so far LESS 1R.

If I do not have a trailing stop, then I risk seeing my 1R profit becoming a 1R loss. This is how I manage my trades. I have studied lots of trading books, attended seminars, webinars, and spoken to professional day traders. I would say trade management belongs in the intermediary level of trading. If trading becomes an established University course one day, then the subject of trailing stops, protecting your profits and trade management would be a 2nd or 3rd year module.

Gold (XAU/USD) Short Position closed at 1292

My short position on Gold (XAU/USD) is short-lived. On the fifth day, my trailing stop of 20 units took me out for a small profit of 0.4R. That is what is called a scratch trade, where the market gives you little profit or a little loss as to be about breakeven.

Well, well that is trading for you! Exposure to the market forces and at risk to your capital. Like Forrest Gump used to say in that movie: 'Life is like a box of chocolates, you never know what you gonna get'. Ditto for trading.

Short Gold (XAU/USD) at 1301

This is my 4th short on Gold (XAU/USD) since November 2012.

XAU/USD 1 day chart

I noticed the convergence of the short term diagonal support meeting the longer term diagonal resistance. That is all the 'picture' I need to decide that shorting it might be a good idea. Okay, let's make that 2 pictures, because I always like to zoom out for the bigger picture. Let me examine my thoughts one at a time.

XAU/USD Zoomed Out

The support as represented by the diagonal joining the lows is broken. That longer term downward diagonal was drawn from the bar of May 3rd and that is resistance. Looks like a case of the bigger wave overriding the smaller one. 3 bounces each off both diagonals. Okay the resistance was broken too. And that seems like a bull trap. I like how it looks. The Reward vs Risk looks good. Let's go. 

So those were my thoughts. Next I plotted the stop loss just above the recent range. Then I calculated my R to be 48 units. Hmm, a bit too much risk for my 1% to stomach. However, I still feel I wanted to be in the trade. So I took the high of the bar as my stop loss instead. R is 20 units. Nice. So I set my stop at 1321. Calculated my position size, and entered a market order for a short.

That was 2 days ago. Now it is showing a profit. Nice. 

DBS sold at 17.30 to close position

I trailed a stop of 25cts from a high of 17.56 and got stop out of my entire position at 17.30 yesterday. My gain is 50cts hence in terms of Rs, my profit is 2R.

Looking at the chart today, I just feel so grateful that my trailing stop is in place and I locked in my profits. Well, business as usual. Let's not get complacent when the going is good. Just press on and get on with the flow.

Bought USD/CAD at 1.0329

Stop Loss at 1.0241. First target 1.0433 valid for 1 day. Why only 1 day? Well, I feel a strong move can easily get there in 1 day. If it takes 2 or more days, my target is higher, liebe freud. Try 1.0624. Alles Gute!

Nah, I am not going to translate all that. That's Google's job! Mighty fine job ther doing too! Just missing my hiking trip up yonder at Austria!

Bought SingPost (S08.SI) at 1.33

Stop Loss at 1.28. First target at 1.38 valid for 3 days.

The chart clearly looks like it has been trending up steadily for the past 1 year. You can draw a straight line connecting the lows and there you have your support. SingPost has been fluctuating in a narrow range from 1.25 to 1.32 since June this year. So I set an alert for 1.33. I reckon a breakout from this narrow range should see it going for 1.39 thereabouts. Hence my first target. I was alerted this morning and set up the trade in 5 minutes and proceeded to buy it at 1.33.

EUR/GBP position closed out for a loss

It does not feel good to blog about losing. Neither does it feel too bad. But it is good to blog about the losses as well, because that is the reality of trading, investing or anything else in life for that matter. In trading, losses are part and parcel. Some traders say it is the cost of trading. I agree. So I keep my losses manageable and bite-sized. It does not affect me much emotionally or financially. I am not going to scream my head off over this.

So what do I lose? If you have to ask, then you really have not been reading my blog, have you. No matter, the loss is 1R as usual. What is 1R? 1R is 1% of my trading capital. What is my trading capital? My trading capital is the amount of monies in my trading account. What is my trading account? My trading account is a forex margin account with Dukascopy.

USD/RUB Part 2

Started a new long position on USD/RUB after noticing the one day reversal which produced the bullish dragonfly doji pattern. The price traded to a low of 32.6701 and then reversed and rallied to 32.8718 which is when I noticed it and decide to place a trade.

Stop loss at 32.6345. First target at 33.3094 valid for 3 days.

When the price has such a turnaround as to produce such a candlestick, it tends to continue its bullish trend. And I allow myself to be proven wrong if the price falls below that candlestick. Which is where I placed my stop. The stop loss is wider this time compared to the previous round so naturally this position is smaller than the previous one, to preserve the risk taken per trade.

Sold USD/RUB at 32.824 to close position

The first target of 32.824 is reached on the 3rd day of the position and the full position is closed. Profit is 2.7R. Not bad for just 3 days.

The purpose of the first target is to get a quick gain that is characterised by a strong move, in this case strong because it just encountered the diagonal support 3 days ago and reacts to it. Slowly at first but gaining momentum once other traders realise what is happening and joins in the move.

Hence, I am free now of this market exposure and available for the next opportunity. If you profit more than you lose over the long term consistently, such quick trades are invaluable in the sense that the profit (though smaller than my usual 2-4 weeks duration profits) are made in a few days. It is a higher frequency of return. If I have more of such trades, it is like I am selling $3 chicken rice to more customers and gaining more from it. My longer duration profits are like selling $6 pork chop in comparison but to less customers.

Bought USD/RUB at 32.3619

Stop loss at 32.1924. First target 32.824 for first 3 days.

I never thought I will ever be trading the RUB. In fact I just knew what it is a moment ago. It is Russian Ruble. So I am buying USD and shorting RUB with this trade. So why did I trade the Russian Ruble when I know nuts about it? Well I like the price action (pattern) I see on the chart. First, I see a diagonal support. Second, I see a pennant pattern unfurling. Technical traders will know this pattern.

Anything else? My gut feel and experience. Anything else. No, I do not use fundamentals much. So as for the fundamental reasons, I really do not know nor do I really need to know. Because, price action speaks for itself and is always ahead of fundamental reasons. Way ahead. What is important is the risk you bear. Fundamental news and analysis are for journalist and investors who believe they can rely on them to make their investing decisions.

Bought DBS at 16.8

Stop loss at 16.55, first target at 17.76 valid for 5 days. After 5 days, if target is not reached, I will manage the trade accordingly, either I get stop out, or I react to certain price patterns. My first target also means I may just take half my position off on a discretionary basis when the time comes. Discretionary because I want to assess the price action on that day when it reaches 17.76. Then I will decide if I take half or full position off.

These are my thought processes as I look at the chart. These thoughts form as a result of experience trading the markets over 6 years or more. As always risk small.

The Illusion of Control

The closest to being in control we will ever be is in that moment that we realize we're not.
- Brian Kessler

Short on EUR/GBP

EUR/GBP Weekly Chart

Looking at the weekly chart for EUR/GBP, it looks ripe for a downturn. On a weekly chart, the trend is down.

EUR/GBP Daily Chart

Over to the daily chart, the trend is up. But I am betting that the weekly trend will override the daily trend soon enough. That is why I am considering shorting it.

EUR/GBP Daily Chart Zoom-In

Zooming in, I see a MACD Histogram divergence from May to Jul 2013. That seconds my decision to short it. With stop loss at 0.8724, target at 0.8412, and entry point at 0.8632, my reward-risk ratio is close to 3. However I set an initial 0.8493 as initial target for the first 3 days in the trade. After 3 days if the initial target is not reached, I remove the target and preferably ride my profits down.

Why do I have an initial target for the first 3 days? Because if the markets moves strongly within the next 3 days and reaches my target, it is prudent to just take the quick profit and remove your exposure from the market. However, if that does not happen, I am prepared to ride a longer period for a bigger profit, together with the risk exposure of course. In this case, my reward is 3 times my risk.

Close Gold Short at $1222

I trailed a stop and got stopped out of my Gold short position. My profit is 4.3R. Not a bad trade at all!

 

And yes the answer to the previous question is that my stop loss level was the same at 1378 whether I entered earlier with the break of the slant or later with the break of the horizontal. Entering earlier at 1348 versus1335 at the horizontal, I can command a position twice as big while risking the same i.e. 1% of trading capital. If I entered at the horizontal, my profit will probably be 2.1R only.

 

Why 1%, you may ask? It sounds pretty small. Next time I will show you why. And why inevitably, if you trade long enough and want to continue prospering from trading for the long term, you really should stick to no more than 1%.

Another Gold Trade

This is a discretionary trade that I took recently. I am sharing it for discussion and learning. I entered the position using the slanting line joining the troughs in the chart. I did that instead of using the horizontal line because I see that should the slanting line be broken, it is high probability for the horizontal line next to be broken.

Why? Because, the market for Gold has been quiet , so it is high probability that should the slanting line be broken, traders will react more strongly to it, simply because it has been quiet for too long (1 month?). It will either give me a quick decisive loss, or a strong start to a new move. The market is cyclical in this way, pretty much like how the waves retreat to attack the shore once again.

As a bonus, entering before the horizontal breaks gives me a more substantial position (i.e instead of 1 unit of gold, I can enter 2 units of gold), and still bear the same 1% risk. How? If you can answer this question correctly, I congratulate you. For then, you should already be a mature risk-management professional. Or you have been following and understanding my blog line by line.

The smarter you get, the more humble you become

"The smarter you get, the more you realize how little you know. The more you realize how little you know, the less willing you are to only use that information." by Erich Schiffmann

How true that is! How often have you heard a kid talk like a 'know-it-all', only to think to yourself "Well they are still growing up, they will know better when they are bigger". Lots of times I bet. (Although sometimes I still marvel at how intelligent kids are becoming nowadays. I know, kids are indeed smarter nowadays compared to 3 decades ago).

ST Engg Sold at 4.31 on 17th May

Sometimes people do not report their losses or results that seem insignificant. I am guilty of this as well.I simply forgot all about it til the time comes for me to enter the trade into my trading journal. Yes, a trading journal is useful and sometimes insightful, though it can be a little boring to do it. Anyway keep one if you need to improve at some activity be it trading, swimming, dancing, chess, dream analysis or what have you. You will  naturally progress to a point where you may no longer need it in the same way as in the initial stages. Then the 'learner bicycle wheel' will naturally not be needed anymore. And you will probably monitor your progress in a different way or use different formats or structure in the journal.

ST Engg has a dividend of $0.138 per share. So actually I still gain a little from this trade.

Hunger - the ultimate force?

"No fear can stand up to hunger, no patience can wear it out, disgust simply does not exist where hunger is; and as to superstition, beliefs, and what you may call principles, they are less than chaff in a breeze."
 - Joseph Conrad

I recalled when I was younger in my teens, a friend named Karthik once asked me: "Alex,  what's the greatest satisfaction you can have in life?" Being a teenager, raging hormones and all, I think I blurted out "Sex!" 

His exact reply: "No, the greatest satisfaction you can have in life to to satisfy your hunger. That is better than sex." I was totally mystified and confounded then, and I went something like "Huh?? Are you sure?"

Those were the days when we were young and innocent. 

Sold DBS at 17.59

DBS got a recent high of 17.9. Today is also the ex-dividend date for DBS. Meaning today it start trading minus the dividend. On Friday, the previous trading day, it was still trading cum dividend. I sold today and will still collect the dividend simply because those are the rules for the ex-dividend date. But anyway I sold off not because of the ex-dividend date. I sold because my trailing stop is breached.

On Thursday, I did toy with the idea that I should add a buffer for the dividend of 0.28 to my existing trailing stop of 32 cents, i.e trail by 60 cents. So that I may get the dividend as well. Come today, I am confirmed for the dividend, the trailing stop reverted back to 32 cents since it is ex-dividend. 32 cents south of 17.9, there is a nearby support of 17.6. Hence I used the support level as my stop loss level instead.

Thus I set my alert for 17.59 this morning, and later nearer noon it was triggered, and I sold off straightaway at the market.

Profit is $1.83 per share which is 5.7 times more than what I risked. Nice! Come 4 July 2013, DBS will pay me a dividend of $0.28 per share. Nice, nice!! : ? (slurping the cream off the cake).

Total profit is $2.10 per share! My reward is 6.5 times more than my risk! Yum! Yum! It sure tastes good :)

DBS at 17.70. What now?

With a gain of near $2 per share, how now brown cow?

Well howdy, cowboy, you ride... you ride on! Never be in a hurry to get off the horse while the horse is still getting you somewhere. Just ride. Yee hah!!

So what I do? I trail a stop. Today DBS did a high of 17.77, I just shifted my stop to 32 cents below. I maintained my risk exposure. To me everyday is a new day, and while I am in a position, I treat it as a new position each day.

For example, today, I treat my position as closed with a profit of $2.01 per share (17.77 - 15.76), even though it is still open. Then I will treat tomorrow as having a new position of DBS with entry at 17.77, the high of today. Thirdly, I apply my risk of 1% of my equity, i.e 32 cents still, and my trailing stop is at 17.77 - 0.32 = 17.45.

That is how I ride my profit. I do not take it sooner. Taking it sooner deprives you of further profits. Frankly I prefer not to set any target price. And that is my post for today folks!

Bought DBS (D05.SI) at 15.76

Stop loss at 15.42
Risk is 34 cents

Some may recognise this setup as buying on a dip in an uptrend.
Others may feel that the uptrend line is broken, and there may be further downside.
Yet some may see a potential miniature head and shoulders forming.

I see all of the above and I also see a false break of the uptrend. Recently I like to trade on false breaks because then most of the shorts will get caught and they will have to buy back their shares, thus pushing up the price.

And fundamentally, I feel most market participants are not buying yet. They are still waiting for a correction in STI. Well, I see a correction in DBS and I see DOW and STI edging upwards to break resistance. People are now uncertain about gold, the once safe haven. They are also jittery about the stock market, what with the news of bombs and explosions and earthquakes. Hence it seems reasonable to me that there will be further bullish price action.

Once again, risk small.

Bought ST Engg (S63.SI) at 4.36

Stop loss at 4.19.

Once again, I am buying at a high price, in fact it was never this high before.

Many people I talk to will not take this trade, and that may be one of the reasons why this trade may work in my favour. The 'smart' money knows that in order to have bigger gains, few people should partake of it so that their own share is bigger. Meanwhile, they shore up support for the stock and it goes up. And when the stock is resting, it allows themselves and other savvy traders to come in (accumulation) before it goes up again. Most of the other market participants do not come in and so the stock is relatively stable compared to penny stocks that seem to attract the highest volume of the retail crowd.

Of course it is not foolproof. The stock market is one of the 'places' that espouses the most uncertainty around. Hence it is important to risk small. I have mentioned many times before, and I will again: the key to sustainable success in the markets is to risk small.

Did Thomas Edison really invented the light bulb?

Most people would believe that Thomas Edison invented the light bulb.

I stumbled upon some trivia that seems to say otherwise:

http://www.coolquiz.com/trivia/explain/docs/edison.asp

So all along it seems that schools have taught this as fact: Thomas Edison invented the light bulb.

Now the truth has changed it seems: it was in fact, Joseph Swan that invented the light bulb.

Facts change, just like once the Earth was flat, now it's round.

Illusion of knowledge

"The greatest obstacle to discovering the shape of the earth, the continents, and the oceans was not ignorance but the illusion of knowledge." - Daniel J. Boorstin

I came across this interesting quote above . And I feel it is applicable to trading and investing. How many investors and traders will place a wager of a small fortune on certain knowledge they knew about? I think a lot of them would. They would become so certain of their knowledge that a filter is established in their minds that allows only like and supporting evidence to their existing knowledge. They may ignore contradicting facts or diminish them to a small corner of their minds. Great fortunes can be made this way or lost...

How does this relate to trading?

Risk. At different phases of our lives, our appetite for risk tend to change. For me, for now and later, I like to risk small for bigger gains. Preferably measurable as reward to risk ratio of at least 2:1.

Shorted Gold (XAU/USD) Yet Again

For the Gold bugs in us (and I have encountered quite a number in recent months asking me whether it is a good time to buy Gold), I present to you this chart below:

I just shorted Gold (XAU/USD) 2 days back. It is in a clear downtrend channel. It touched the bottom of the channel 4 times. (Remember I shorted Gold back in 1st October 2012). My initial stop loss was 1643. I have moved that to 1614 to protect my profits from turning in losses should there be a rally from the current level 1580. My target price is 1532.

Reasons for this trade? This is a downtrend. I follow the trend unless the MACD Histogram has a divergence. I entered my short position on a dead cat's bounce (wiki it!), shown by that small red arrow. I expect it to fluctuate down to my target level that was defined by previous resistance (look to the left of the chart). After the 4th time of knocking on the bottom of the channel, probability is good for further weakness to the south.

Why did I not take the trade from the top of the channel, you may ask? Well, it is because I could not see that it was in a clear downtrend channel before. I only happened to see it 2 days before and traded on the dead cat's bounce. Some things are always clearer on hindsight. That is the known as hindsight bias (google it, it is useful to be aware of if you are a beginner).

"I can calculate the movement of the stars, but not the madness of men."

If you are wondering who said the above quote, let me give you a hand. It is none other then the man who gave the world the three laws of motion, Sir Isacc Newton. He was without a doubt very intelligent. He was also rich. But he lack financial intelligence and lost a lot of money in the South Sea Bubble. Traumatised by his loss, he uttered the quote above.

So please do not think that your IQ can be translated directly as financial intelligence in the trading markets. Most definitely not.

"I can calculate the movement of the stars, but not the madness of men." ~ Sir Isaac Newton

Chartgame

Well, for all the investors/traders in us, there is a link on the internet for you to try out your skills without any risk to your money.

It tests your chart reading and therefore technical analysis prowess. Here it is:
http://chartgame.com/

And here is my track record on this game: http://chartgame.com/trackrecord.cgi?e7btbw-9,7

Enjoy!

Seventh Heaven in Dukascopy Forex Strategy Contest

After participating in the Dukascopy Forex Strategy Contest for over a year, I finally won a monetary prize of $500USD for my efforts in December. Winning in the contest requires writing a strategy that risks more than I normally would in real life, with real money. More than 20 times.

Here's the link:
http://www.dukascopy.com/strategycontest/?action=blog&trader=eagl&month=201212

You may have noticed that I win only 25% of the time in the contest for December. But I still manage to double my capital. How's that, you may ask? Well, my losses are small relative to my wins. Remember the golden rule of trading? Keep your losses small and ride your wins high. That's my strategy in action!

Disclaimer: Please do not use my strategy in real life. It risk too much. In real life, this translates into a heart-pounding roller coaster ride!

Staying out

I have scanned the following stocks and found excuses for staying out of the market:

STI ETF: MACD Divergence
DBS: Falling and may form into a double top
ST Engg: MACD Divergence
Kepland: MACD Divergence
KepCorp: MACD Divergence

Short and sweet, I am simply staying out.