Ana_Idkit

In this month’s issue Sep/Oct 08 of YourTradingEdge magazine, you will be able to read an article entitled:Trading for Profit with Contracts for Difference.

Excerpts:

Dramatically increase your probability of success while reducing your level of risk, trading CFDs both long and short. Dale Gillham shows you how.

The desire to trade contracts for difference (CFDs) often stems from the notion that a trader will become much wealthier, in a shorter time, from this than from any other method of trading. While this is possible, in my experience most traders who have achieved such success have done so through sheer luck rather than by applying solid trading techniques.

In any market, the higher the risk, the greater is the knowledge needed to manage that risk. However, many traders mistakenly believe they already possess the required knowledge and skills to trade the highly leveraged CFD market. As any trader who earns a living from the share market knows, to be successful trading CFDs in the long term you need to have the knowledge, the skills and yes, maybe a little luck – although the harder I work at my trading the luckier I become…UNQUOTE

CAVEAT:
SO, although CFDs facilitate your learning process with low risks compared with normal trading accounts, using large sizes for your CFDs could also increase your risks in the highly leveraged CFD market.

Last weekend I ran the first retail Habits of Success seminar in Singapore. It’s a no-frills (no lunch, no drinks etc ) about US$290 for 2-days. The aim of the seminar is a simple one: to change the focus of retail traders from the plan (10% of the success equation) to Winning Psychology (60% of the success equation) and Money Management (30% of the success equation).

The aim of the Winning Psychology section is an ambitious one: to teach a method of setting goals in line with our dominant values. This entails identifying our values, creating a Vision based on the values, then creating goals, action plans and a review process. The review process includes a suggested journal template.

The aim of the Money Management section is to create a habit of risk assessment, position sizing and ongoing monitoring of the trade as long as it remains open. I provided an Excel spreadsheet which if followed would provide a template for the attendees.

What I found interesting at the end of the seminar was the probability that I was unable to help around 60% of those attending. A couple had clearly decided that all they needed was a computer black box system to generate winning trades. All I can say is ‘good luck’. With some, nothing I say will shake them of the mistaken belief that all you need to succeed is a ’super-duper’ guaranteed win system.

Of the remaining 60%, the main problem was the thought: “Wow! All this work!”. No matter that I suggested the attendees start with baby steps and build up.

Ten percent of the attendees are on the 50-50 list. They could easily tip one way or the other. I guess the early trades will make the difference. If they hit a series of wins, then they’ll most likely stay the course.

The remaining 40% will make it. Interestingly a good many have not traded before but they are willing to do whatever it takes to attain their dream.

The figures remain true in this first week that I ran the Google Group follow-up. Of 45, 35 have accepted. Of those that did not join, I was surprised by only two omissions (they fell into the 10% category). The remaining 10 all came from my 60% assessment.

Having said the above, I rate this as a highly successful retail seminar. There was a buzz in the room at the end. If indeed we have 30% attaining habits of success, I’d have achieved. I’ll know in 3 months when I send out the evaluation form.

The success was entirely due to Ms Ana Wang’s tireless efforts. In 20 years of teaching, I have never seen participants queue up to thank the organiser. Thanks, Ana! I hope the September show goes as well.

What does this blog mean to you? Do you profess to hold Winning Psyhology and Money Management high among your endeavours? Do your intentions match your behaviour – that would be great place to start.

Key economic data for the week starting September 1, 2008. Numbers shown are consensus estimates (market anticipates this value) and prior value.

Tuesday:
	10:00 Construction Spending Jul -0.4% -0.4% 10:00 ISM Index Aug 49.5 50.0

Wednesday:
	10:00 Factory Orders Jul 0.4% 1.7%

Thursday:
	08:30 Initial Claims 08/30 NA 425K 08:30 Productivity-Rev. Q2 2.9% 2.2% 10:00 ISM Services Aug 49.0 49.5 10:35 Crude Inventories 08/30 NA -177K

Friday:
	08:30 Nonfarm Payrolls Aug -70K -51K 08:30 Unemployment Rate Aug 5.7% 5.7%

Having been involved with running seminars for our mentor over the past two years, I find  there is a common thread that runs through all participants.

Less than half really show great enthusiasm , even prior to the seminars.  For example, I find great frustrations when  participants are asked to submit to a course of action, like  just filling up a simple registration form with some details of their trading experiences.  For whatever reasons, there is a reluctance to respond to requests which ultimately will help them in class. 

Those who attended the August seminar last week realized that time was taken up when they registered physically for the seminar on the first day – those who omitted to comply with my request for information had to tell me verbally the requested information ie the number of years of trading experience and so on.  Because of this delay in furnishing me the vital information, I had to decide on the spot  how best to position them  so that traders with more experience would be sitting close to complete would-be traders. 

This is the reason why I am asking for the same information from the next September participants;  I hope those who have not complied with my requests would do so , to save time on the registration day and for me to plan in advance how to sit the participants with differing  trading experiences.

The 2-day weekend seminar at SMU at SGD400 is really a steal, and this is the first experiment which will not be repeated next year as far as the fee is concerned.  So, the participants at the August and September seminars this year can consider themselves very lucky to attend such an intensive 2-day course with Ray Barros, of the class of a Master Trader.  Although there is no   hand-holding  for the fee, obviously, our mentor has bent himself backwards to respond to direct emails  until yesterday. 

As of today, the Google SMU August seminar ’08 group set up for the participants to join so that they can discuss and learn from each other, will run effectively.  The forum group has been running for a few days now and there has been active participation by a few members, which bodes well for the group.

The success of this forum group for the August SMU seminar depends on the participants or members who have taken the trouble to join the group in the first place.  While the less knowledgeable members can learn from the more experienced newbies,  from time to time, when there is a point that needs some correction/comment, our mentor will step in.  This is not as of right to members but to contribute whenever his time permits.  Our mentor has in a way been hand-holding for this week, gratis. Having said this, this is really the members forum group, to make or  to break. 

One observation has also surfaced from the forum group – it can not be an instant learning from  two days attending the seminar .  There is so much to study just to understand the definitions of trading glossary for the complete newbies.  I have given them some guidance as to how to use the search engine to find more trading glossary in my other posts earlier.

Part of the misconception produced on seminar attendees is due to the half-truths or hype we see in ads bombarding us in the dailies – Instant success to making money , No previous trading knowledge is necessary, You can make 1000 times your capital, and so on.  Only a naive trader will take such  CRAPS!

Nevertheless, I sincerely hope the participants of the last weekend seminar will now realize there is no short cut to success, in trading, in any career.  They just need to think how to utilize selectively the barrage of information that clutters their Inbox or wherever.

ULTIMATELY,  one needs to  do whatever it takes to be successful, ie moving out of one’s comfort zone, affirming work with visualization and emotional intelligence, all in line with the desire to succeed.  You leverage yourself to become a good trader by also investing time, efforts and  money in good education  to make money, eventually, as a trader.

“Anybody who’s an adult, working in the adult world, realizes that your ability to encourage other people, form groups, and get the best out of everybody is the secret to success,” said a research finding by George  Lucas.

Lucas argues that learning must consist of more than just assigned reading and lectures. Instead, we must embed social and emotional lessons into the educational process, for example, by assigning students to work with others and grading the group on teamwork and emotional relationships with each other, as well as their individual achievement.

“These are the things, ultimately in the real world, that are the main factors in getting hired and getting fired,” says Lucas.

ANA aka IDKIT

I am still acting moderator for Tradingsuccess blog as some urgent matters have claimed our mentor to fly off again.

Since the August  seminar at SMU is just over from last weekend, my post is aimed at the  newbies again.

Many of the attendees may not be familiar with the history or  terms  for forex trading.

Forex or FX  are  terms used to describe the trading of the world’s many currencies. The  Forex Market is the largest market in the world, with trades amounting to more than USD 3 trillion every day. Most Forex trading is speculative with  a low percentage of market activity representing governments’ and companies’ fundamental currency conversion needs.

There is also another aspect to fixed income market.  The term fixed income is used to describe a collection of securities which have predefined pay-out terms.  An example is the CD or Certificate of Deposit when one deposits an amount of money and receives a given amount of money which includes both the original deposit plus interest earned at maturity.

Fixed income securities come in various maturity dates.  Those with initial maturities of one year or less trade in what is the Money Market.  This term comes from short-term instruments which are very liquid and often trade between banks.  Money market instruments include Banker’s Acceptance or a Draft or Bill of Exchange, Municipal Notes, Certificates of Deposits, Treasury Bills,  and Commercial papers.

Most of these instruments are out of the  realm of the individual traders but a handful can be traded via the futures markets.

Since the fixed income market is driven by interest rates, ie prices are inversely related to yields, there are factors which impact on rates to influence prices.  The biggest driver of these rates is monetary policy, which central banks make in respect to the level of domestic interest rates.  Central banks directly control interest rates in the short-term at least, and they do have a heavy influence over the direction of interest rates.

Other less direct influencers are fiscal policy, general economic growth, employment, inflation and currency exchange rates and trades.

Hence, it is advisable to track the key  economic news data that are coming out each week which I post  almost every week day at IDkit at www.awanginvest.com under Archives.

There are some terms/scenarios  newbies must understand:

• 24 hour trading

  One of the major advantages of trading Forex is the opportunity to trade 24 hours a day from Sunday evening (20:00 GMT) to Friday evening (22:00 GMT). This gives you a unique opportunity to react instantly to breaking news that is affecting the markets.

• Superior liquidity

  The Forex market is so liquid that there are always buyers and sellers to trade with. The liquidity of this market, especially  of the major currencies, helps ensure price stability and narrow spreads. The liquidity comes mainly from banks that provide liquidity to investors, companies, institutions and other currency market players.

• No commissions

  The fact that Forex is often traded without commissions makes it very attractive as an investment opportunity for investors who want to deal on a frequent basis.
  Trading the “majors” is also cheaper than trading other cross  because of the high level of liquidity. 100:1 Leverage for some trading platforms.

• Leverage (gearing) enables you to hold a position worth up to 100 times more than your margin deposit. For example, a USD 10,000 deposit can command positions of up to USD 1,000,000 through leverage. You can leverage the first USD 25,000 of your investment up to 100 times and additional collateral up to 50 times. However, with money management, you would not trade with such high leverage permitted by the trading platforms.

• Profit potential in falling markets

  Since the market is constantly moving, there are always trading opportunities, whether a currency is strengthening or weakening in relation to another currency. When you trade currencies, they literally work against each other. If the EURUSD declines,  it is because the US dollar gets stronger against the euro and vice versa. So, if you think the EURUSD will decline against the dollar, you would sell EUR now and then later you buy euro back at a lower price with a profit. The opposite trading scenario would occur if the EURUSD appreciates.

• Spread

  The spread is the difference between the price that you can sell currency at or BID and the price you can buy currency at  ASK. The spread on majors is usually 3 pips under normal market conditions.

• A pip is the smallest unit by which a cross price quote changes. When trading Forex you will often hear that there is a 3-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD  is quoted at a bid price of 0.9875 and an ask price of 0.9878. The difference is USD 0.0003, which is equal to 3 “pips”.
• On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is cancel out the four zeros on the amount you trade and you will have the value of one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.

 You can read more about Forex if you learn to  use the search engine for more.

Bonne chance.

 ANA aka IDKIT

Ag Moderator

After last week’s seminar at SMU, I received an enquiry about automated systems .

I thought it may be good to share my findings as follows:

Automated systems can be dangerous ; otherwise, we would all be successful without using our brains to an extent that indeed any blackbox system is the Holy Grail.

Quote:

The computerization of trading and investment is a logical and noble pursuit. However, attempts such as these are not without their pitfalls for a variety of reasons. Statistical arbitrage strategies have become progressively less and less attractive as more capital has flowed into the area. Where a super-smart quantitative manager could once design a high frequency, quasi-market making strategy that was both very profitable, required little capital and entailed a small degree of market risk, they now need to extend signal horizons and seek to generate returns by doing what everybody else does when they reach for return – take on more risk and accept greater variation in returns. Further, these high frequency strategies are often not very scalable, a real hinderance for a manager that wants to grow and leverage their brand into a multi-billion dollar operation. Returns in the various statistical arbitrage strategies display asymptotic profiles, where early alpha generation is eventually squeezed to zero as more brains and assets focus on the strategy in question. Managers innovate, enjoy attractive returns for a period after which they need to move on and develop the next set of algorithms. It may appear to a layperson that a black box trading strategy would be great – few PMs with huge egos, relatively modest investment in programmers and hardware to build a scalable platform and a nimble, easy-to-adjust model to adapt to changing market conditions. This, my friends, is simply not the case.

Consider the two black box managers with the most successful long-term records and asset growth – the aforementioned DE Shaw and Renaissance. They both have armies of PhD.s of all stripes – computer scientists, mathematicians, physicists, biologists, chemists, linguists, etc. This is not exactly the cheap and scalable infrastructure many have in mind. It takes a lot of money, relentless and effective recruiting and a culture to support the degree of innovation required to succeed. I think about it as the “cycle of the 4 M’s:”

1. Man, who develops the
2. Model, which is operated by the
3. Machine, which executes the Model in the
4. Market, which generates returns, results in feedback interpreted by Man, who modifies the Model, etc.

It is usually not the cute, campy story of a smart technician with his trusty computer building a successful and scalable hedge fund. Few have done it well, and it remains to be seen whether Ray Kurzweil and his lot will be able to make it into the pantheon of black box gurus like David and Jim. Do these new entrants have brains? Yes, and often in spades. But success ultimately requires A LOT more than brains, like:

1. Managerial skill
2. Risk management skill
3. Recruiting skill, and
4. Business-building skill, to name a few. Unquote

Ultimately, we must be realistic that there is no short-cut to success.

Using an automated system may be fine until there is a 9/11 event; also we do not know exactly what factors were being used by the system to give us confidence when changes occur.

LAST NITE OUT AT GRAND HYATT -AUG 27 ‘08

Meeting of the Minds or Ad Idem @ Via Mar, Esplanade Mall- Aug 25 ‘08

What a better place to let our minds meet than at the Esplanade, Singapore’s art and convention centre.

We have the leading minds of Dr Brett Steenbarger and Ray Barros to pick while Mic and I took in the sea breeze, sipping our drinks , enjoying and sampling Spanish dishes especially paella.

Mic the comic related some local stories of how hawkers push for their fares – by shooting a picture of a celebrity eating at their stalls. This must have raised Dr Brett’s eye-brows! So we warned him in local dialects not to put off our honoured guest with such stories, which may be true but may not be the done thing. Mic the quick former trader from the Pit is always ready with a repartee: only joking!

Now it is my turn to relate my ‘diplomatic jokes’, only to break out into giggles before I could tell, which has to be finished by my mentor Ray. It must have struck our guest how stress could have turned us into funny creatures in order to release tensions.

Now back to the reason for the warning to Mic is because I want to put up a memento of our night out with our honoured guest, Dr Brett. I do not wish to use his picture with us for any gainful purpose except to remind us of his first visit to our lovely shore.

Dr Brett, as we all know , is a travelling Coaching Psychologist , who has been invited here for the first time on this important assignment to coach institutional traders around the globe.

We are lucky to claim his evening for a night out when still under jet lag. The first thing that came to our mind is to introduce him to our arts hub at the Esplanade.

The gentle and fresh sea breeze will clear his mind after a hard day ‘s coaching session with his clients and at the same time allow us to pick his brains.

So it has been a meeting of minds that will seal his first impressions of Singapore.

Let us hope our comic minds will not corrupt his but will just be a synapse or safety valve for escapism.

He must be amused in his ‘psychological mind’ before hitting the sack at his historical GPO hotel of what a night of meeting minds!

ANA aka IDKIT

SUNDAY August 24, 2008

JUST RECEIVED FROM NORMAN HALLETT

tdt_-_ray_barros_interview

============================================================

I have decided to write this post at both our mentor’s blog and mine to help would-be traders form good habits seeing we have the first August seminar tomorrow at SMU. Also our mentor has just arrived back from Sydney and unable to post. His plate is full without doubt having been interrupted with the necessary trip to see his ailing mother in hospital DownUnder.

SO HERE GOES:
Guidelines for Pre and Post seminar prepations:
1. Please read the prep materials as per Welcome sent by our mentor Ray to all attendees.

2. Please read the Mental Fitness ebook which will also prepare you to reduce stress which is inevitable as a trader

3. Check that your notebook is working and bring it along, unless you do not have one; it is a matter of time that you possess one in order to trade online.

4. Read daily digest of economic news for Mondays to Fridays which I post at IDkit for general information. This is one of the fundamental factors of trading well.

5. Learn to search and read up on definitions of trading vocabulary : eg Google for basic forex terms of trading at :

http://www.forexmarketexplained.com/FOREX_Glossary_For_FOREX_Trading_Strategies.html

6. Do daily meditation exercises ; some meditation music can be searched at:

 http://awanginvest.com/?page_id=319
here is one from our mentor:
http://www.tradingsuccess.com/4mm.mp3

7. Form good habits of punctuality, carry through what you intend to do and you are on the way to forming good habits of becoming a successful trader.

8.Take your course seriously at the seminars as a first step to get out of your comfort zone.

Please feel free to add to the list as comments.

Bonne chance

ANA aka idkit

MAP OF SMU