Media Prima

Media Prima is valued at RM2.15.

Daily Commentaries 1st September 06

The build up to today’s market action looks promising enough with the 5.9% 2Q GDP growth higher than expected, a seeming turnaround at MAS boding well for future GLC performance and strong results from Media Prima. Nonetheless, the risk remains that much anticipation has been built into the 2007 Budget which will be released today and given our house view that not many surprises remain to be announced in the budget, disappointed investors may turn bearish. Aside from the budget, major news includes the approval of 40,000 foreign workers to assist in construction works during the 9MP, talks on a partnership between Volkswagen and Cycle & Carriage ending and the first draft of the South Johor Economic Region masterplan being completed by Khazanah. US markets closed flat yesterday on unexciting corporate earnings forecasts. As such, we expect the market to trade rangebound or today between its support at 953 and resistance at 958 pts.

Quote Of The Day

The future belongs to those who believe in the beauty of their dreams.

Eleanor Roosevelt

Undertrading

When Jack Schwarger asked Bruce Kovner in "Market Wizards" what advice he would give novice traders, he said, "undertrade, undertrade, undertrade." Although the adage, "You have to risk money to make money," is true of trading, if you risk too much money and risk significant amounts too often, you will more often than not see losing trades, and end up blowing out. And if you blow out, you won't be able to build up the necessary skills to trade the markets profitably. It's better to manage risk, and limit the number of trades you do make.

Bruce Kovner believed that novice traders traded three to five times too big. "Whatever you think your position ought to be, cut it in half," was his advice. But novice traders are often impatient. They want to make money fast. Behavioral economists Brad Barber and Terrance Odean showed that traders overtrade after a windfall. It's like playing with the "house's money" at a casino. When some traders have a big win, they tend to believe that they have nothing to lose by risking a large amount of capital. In addition, they may think they are on a hot streak and can take advantage of it to make huge profits. Unfortunately, novice traders are likely to face many more losing trades than winning trades, and will end up mounting significant losses if they don't control risk. In order to survive in the long term, it is vital to minimize risk. For example, if you risk only 1-2% on a trade, you can make quite a few losing trades and still continue to learn how to trade. As a novice trader, your goal should be longevity rather than profits. Trading takes time, and the longer you can keep trading, the more likely you will be able to build solid trading skills, skills that will ensure that you end up making huge profits in the future.

Longevity is necessary to learn any skill. For example, if you break your leg during a skiing lesson, you will never learn how to ski. You must be careful to learn to ski slowly and avoid becoming disabled in order to learn how to master the slopes. It's the same with trading. You have to build up skills to learn to master the markets, but if you mount huge losses, you won't be able to survive the learning curve.

As a trader, you must learn the conditions under which you work best. By making small, practice trades, you can develop an intuitive feel for the markets. You can learn what it feels like to win and how you handle losses. You can learn about psychological conditions that are necessary to trade with a mental edge. For example, you might find that you prefer to trade in the middle of the day after you are more alert. Or you may learn that you need extra sleep before you feel alert enough to trade at your best. You may also learn the number of trades you can make per day without feeling stressed out. There are a variety of things you can learn about you and your trading style by making small trades to get a feel for the markets. Don't think you need to be an overnight success. Learning how to trade profitably can take years. Rather than blow out too soon, and feel like a failure, it's better to take your time, hone your skills, and build up your trading ability to the point that you can trade like a seasoned professional.

Your Psychological Comfort Zone In Trading

Jerry is a full time professional trader. He doesn't trade a very large account, only about $250,000 from family and friends and a few clients who each gave him about $50,000. He takes a conservative approach to risk, risking about $500 on the three to four trades he makes a day. When he loses $500 on a particular day, he stops trading for that day. He figures that he's just not in the zone, and better stand aside and start fresh the next trading day. There is something about losing $500 in a day that bothers him, and on those rare occasions that it happens, his confidence is shaken, so shaken that he has trouble trading. He would like to make about $500 a day on average every day, but he can't seem to do it. Sure, he makes close to $500 on some days, but after a few days of achieving such profitability, he gets nervous, makes a few trading mistakes, and starts losing. Trading experts have noted that Jerry is not alone in reaching a ceiling on profitability. Traders have their comfort zone and it's very hard to break out of this safe place to trade at greater levels of profitability.

Why is Jerry having problems? Why can't he leave his comfort zone? First, he may be striving for unrealistic goals. He may not have the trading skills to make $500 a day. A profit of $500 a day is about $10,000 a month, and over $120,000 a year, which is almost a 50% return on his account. Some traders make such a return, but it may not happen for others. Putting pressure on yourself to reach an unrealistic goal is probably going to cause stress that interferes with cultivating the calm, objective mindset required for profitable trading. Second, Jerry may not be willing to take the extreme risks required to make $500 a day. You've got to risk money to make money. But risks are often difficult to take. If Jerry wants to make an average of $500 a day, he must be willing to take more risks and trade more aggressively. The question is whether or not he wants to take such risks. Again, unless he is a natural born risk taker, such risk levels may interfere with his ability to trade calmly and rationally.

In the end, Jerry must learn to respect his comfort zone. Sometimes you have to accept what you can do and just do your best. Some days, everything will click. On those days you can push yourself a little to make more profits than usual. On other days, however, you will not do as well. You must learn to adjust your risk taking so that you can make a great deal of money on a "good" day and lose relatively little on a "bad" day. It is useful to examine your trading performance carefully and gauge market conditions and trading strategies that work well for you. Study how you perform and identify the conditions when you perform at your best. By examining your past performance, you can identify the specific trading strategies, market conditions, and psychological conditions that are associated with winning trades. After you gain such insight, you can adjust your risk depending on circumstances. If the conditions are right in that you are feeling good, and feel you have a winning psychological edge, you can learn to move beyond your comfort zone. Soon, you will expand your comfort zone and build up the skills and confidence to trade beyond your comfort zone. It's a tricky business, though. If you push yourself too far and too fast, you will feel so stressed out that you will choke under the pressure. But if you make ambitious, yet realistic, goals, and appreciate your comfort zone, you will build up the skills you need to reach ever-greater levels of trading performance.

Why Not?

Some men see things as they are and say "Why?" I dream things that never were, and say "Why not?"

George Bernard Shaw

Daily Commentaries 30th August 06

OSK Research

Technical View

The market continues to hold its course ahead of the 2Q06 GDP announcement today and Budget 2007 on Friday. Today is also the final day of the current reporting season with the last of the big caps such as MAS and Genting expected to unveil their results. So far, earnings have mostly met expectations albeit there were several casualties among the smaller caps. News today revolves around results that were released last night including Sime Darby which surprised on the upside, AirAsia and RHB Capital came in within expectations while Proton disappointed with a 1Q06 loss. Stationary maker, Pelikan is also in the news today with approval granted for its 1-for-5 bonus issue while 2Q06 results have outperformed consensus estimates. We would expect much of the same trend for the KLCI on the eve of Independence Day celebrations with the positive bias coming from the further easing of oil prices below the US$70 per barrel mark. US markets pocketed marginal gains last night after the consumer confidence index dropped to the lowest level since November otherwise offset by expectations of a pause in the Fed rate with economic growth coming below potential. Immediate support and resistance are pegged at 950 and 955 respectively.

Quote Of The Day

Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.

Antoine de Saint Exupery

A Matter Of Perspective

How many Xs do you see? XXXXX There are five, right? Are you sure? Your mind can play tricks on you, especially when you are highly motivated to see something. It may seem like psychobabble, but when you are under stress, you see what you want to see, even if it is not there. You've probably had this happen to you. You look at a chart, and at first glance, you see a pattern that suggests a winning trading setup. If you don't take a second, more careful look, however, you may be fooled into thinking you see an optimal trading setup that just isn't there.

Is it that difficult to read a chart? The price is either $50 or it is not, right? The price either went up $2 or not, right? When looking at the price at any given moment, you will probably actually see a price objectively even while under extreme stress. But trading is an activity where your intuition plays a central role. Where a stock price is right now is less important than what you think the price will be in the future based on an analysis of all the available information you have at your disposal. When trying to bring together a variety of different pieces of information, you must rely on your intuition, and that is where psychological biases can come into play. You may see illusory correlations, for example, believing that two events that have nothing to do with one another are related. Or you may fall prey to overconfidence in that you believe your forecasts of future market trends are more accurate than they really are. Sometimes, you have to make an educated guess based on partial information and that's when you may let your hopes and dreams bias your investment decisions. Just because the human mind is fallible under stress and uncertainty does not mean that you should second-guess your investment decisions. But you do want to be aware of psychological biases and minimize their impact. How do you minimize the impact? First, realize that you are especially prone to psychological biases when under stress. It is useful to minimize stress. Don't risk money you can't afford to lose. When you risk too much money, you will feel it, and it may influence your judgment. Second, accept your fallibility. Realize that there will be times when you will let your psychological needs influence your decisions. You're human. Everyone makes mistakes. The key is not to let your psychological limitations get the better of you. At any given time, you must trust your instincts. They may be wrong, but they must be trusted and you must live with the consequences of fallible decisions. Again, that's why it is important to manage risk. You may make mistakes, but they won't hurt you very much if you limit your risk.

Profitable trading is often a matter of having the proper perspective. Sometimes our intuition is off, and we should be aware of this potential problem. We don't need to be perfect, but we do need to manage risk. Our perspective may be wrong, but if we manage risk, we can survive to trade on a day when are intuitions are right and we enter the zone.

Daily Commentaries 29th August 06

OSK Research

Technical View

Trading volume was considerably thin yesterday as investors chose to remain on the sidelines. The market closed only marginally higher with blue chips keeping the 950 level afloat despite regional markets ending mostly in the red. Pantai is in the news today with Khazanah wresting control of the company from Singapore’s Parkway Holdings. Pioneer Cash and Carry entrant, Makro has been put up for sale while Ireka is selling the 455 room Westin Hotel to Newood Assets Ltd. In terms of results announcements last night, Ahmad Zaki surprised on the upside while Bumi Commerce, Tanjong Offshore and Hong Leong Bank met expectations. Samudra and Chin Well were notable casualties. For today, sentiment on the market could be dampened by reports that SC will be investigating the trading and manipulation of Iris’ shares. Contrast again the higher overnight close on the Dow and steady oil price, the KLCI could consolidate further today with a slight positive bias. Support is seen at the 940 level.

Quote Of The Day

Efficiency is doing things right. Effectiveness is doing the right thing.

Zig Ziglar

Details Matter

Sometimes a small, seemingly insignificant detail can make a huge difference. Details do matter, but many traders minimize this fact of trading. For instance, it is essential to outline a detailed trading plan and to follow it, but many traders, especially novices, believe they can leave the plan open, and fill in the blanks later. And that would be all right, if they could afford to live with the consequences. Many people, however, cannot afford the losses that result from ignoring the details of a trading plan.

There are many ways to mess up a trade. If you misjudge volatility, for example, and buy too many shares based on an inaccurate estimate of the possible fluctuation in price, you may end up risking, and losing, more than you had planned. Some traders do simple, preventable things to screw up a good trade like forgetting to put in a stop loss order, or going on an errand or vacation without taking precautions to close a trade should the market move against them. When they return and monitor the trade, they wonder how they could have been so negligent. It didn't seem like such a big deal at the time, but in retrospect, failing to pay attention to seemingly minor details and then trying to undo the problems, is tantamount to doing nothing to prevent the fall of Humpty Dumpty and hoping to put him back together again with ease. It can take more time and energy to fix a problem than preventing it from happening in the first place. This is especially true of trading, where you have to make many more trades to make up for a loss than it took to lose the money in the first place. Rather than take a haphazard, slipshod approach to trading, it is vital to pay attention to details.

How can you increase your ability to pay attention to details? First, reduce the amount of trades you are trying to make. When you try to make too many trades, you feel pressured to get more done. And when you feel the pressure, it's hard to pay attention to details. By reducing the number, you can pay more attention to the trades you do put on. Don't substitute quantity for quality. It is better to make fewer trades that are well thought out instead of many trades that are poorly conceived and are likely to lose money. Second, do whatever you can to make sure you are calm while trading. When you are tired or pressured, it is difficult to concentrate and pay attention to minor details. You will not have enough mental energy to devote to addressing essential details of a trading plan. Your ability to pay attention is a limited psychological resource. Coping with stress saps up limited resources, so the more you can remove background stress from your life, the more likely you will have the required psychological energy to earmark for paying attention to details. Third, you can create a checklist of procedures to follow to ensure you attend to essential details. Some traders actually devise worksheets that require them to outline all parameters of a trade before it is executed. Such a form would have blanks for target entry price, stop loss rules, and exit price. Additional details of the trading plan can also be noted, such as market conditions that must be present before a trade is executed. The goal is to add structure and organization onto chaos. If you have to write it down, you will be likely to address it. Rather than try to remember what you should do, you will force yourself to actually go through each step before you execute. It may seem pedestrian, but going through the process of completing each step in a checklist can increase your ability to pay attention to details.

Trading is challenging. It's easier to lose than to win. In order to survive, you must do everything possible to increase your chances of success. One of the most important steps you can take is to get organized, plan carefully, and pay attention to vital details of your trading plan. The more you pay attention to details, the more likely you will follow your plan and take home profits.

Daily Commentaries 28th August 06

OSK Research

Technical View

Crossing over. The 950 level was broken last Friday on meliorated sentiment following the revelation of few positive corporate earnings. Sentiment was also aided by expectations that Bank Negara will keep interest rate unchanged that subsequently proved correct. SC is in the news over the weekend with the shortening of the time frame for companies seeking a listing to a month from 3 months previously. Petronas is in a quandary with allegations that it had not paid taxes in Chad and a notice of eviction served. In terms of results, it was a mixed bag with both Sime Engineering and KUB returning to the black in the current financial year and quarter respectively, EON Capital's earnings, whilst in line, were dampened by higher provisions and expenses while Affin's results came in below expectations. For the holiday-shortened week ahead, the market catalysts would come from the tail-end of the reporting season with few big caps such as MAS, Sime Darby, Proton and Bumi-Commerce scheduled to release their earnings. Investors are also likely to take cue from 2Q06 GDP numbers and Budget 2007 that will be released later this week. Precedence would suggest that a mild Budget rally may be in the offing but do not expect miracles as gains are likely to be shallow with external developments still very much a concern and the Dow retracing for the better part of last week. The 950 level is the level to watch today with next resistance at 953-958.

Maybank

Maybank is valued at RM12.80.

Daily Commentaries 25th August 06

OSK Research

Technical View

The KLCI again experienced a last minute rally to close just slightly in the negative territory even as other regional markets slumped on fears of overtightening of interest rates in the US. For the results round up, YTL and Muhibbah Engineering showed good growth but there was more on the downside with Kian Joo, Halim Mazmin and Heitech Padu results uninspiring. Maybank’s was on the higher side of consensus estimates. Aside from results, Naim Cendera announced a contract from the Ministry of Human Resources worth RM88m for the supply of training equipment and Oilcorp announced the expansion of the Konsortium Perikanan Nasional with the addition of a new party. PLUS announced that it was refinancing its Islamic bonds while YTL Corp made an offer for sale to its shareholders of 1 YTL Power share for 10 YTL Corp shares at a steep discount price of RM1.00 per YTL Power share. Unconfirmed sources were quoted as saying Proton is set to ink a deal with a major Thai car firm to distribute Proton cars in Thailand. US markets closed largely flat overnight and we expect the KLCI to perform similarly ahead of the BNM meeting today where we expect interest rates to hold. For today, resistance is at 949 pts while support remains at the 938 level.

Quote Of The Day

Without speculation there is no good and original observation.

Charles Darwin

Daily Commentaries 24th August 06

OSK Research

Technical View

Morning Call by OSK

Volume continued to thin on the market with the current school holidays likely sapping retailer interest. Last minute buying of blue chips again saw the KLCI close in positive territory although both the 2nd Board and MESDAQ indices ended lower. For today, Magnum 4D, KNM and UEM World reported strong results while EON and Puncak Niaga were on the opposite side of the fence. Maxis and KLK tread the middle path as their results were within consensus. Aside from results, news includes Malaysia eliminating duties on 1926 products as part of the move towards an Asean economic union. July vehicle sales were down 5% y-o-y while Muhibbah Engineering looks to invest some US$30m to upgrade its Sihanoukville Airport in Cambodia. In other news, PKNS is offering RM3.50 a share to take Worldwide private while both MAS and AirAsia are in hot soup after complaints of delays in their flights. With BNM Governor stating that inflation is likely to ease in 2H, expectations will be for the BNM meeting this Friday to keep interest rates stable. Nonetheless, this positive news will likely be offset by the overnight fall in US markets on poor housing data which may give rise to fears that the US has over tightened its interest rate. We believe the market may still edge up slightly today with support now at 938 while resistance is at 953 pts.

LNG Resources

LNG Resources is valued at RM0.735.

Daily Commentaries 23rd August 06

OSK Research

Technical View

Morning Call by OSK

The market again traded within a tight range yesterday and closed slightly up led by Maybank, Maxis and IOI. Retailers chose to stay on the sidelines in trepidation as Farm’s Best took the plunge. On the news front today, the government has raised the foreign ownership level for local insurers to 49% from 30% previously. Landmarks has refuted talks of a casino in Indonesia, Worldwide is being taken private by PKNS and Bank Negara is initiating internal organization changes. Also OilCorp might see interest on the award of a RM40m contract. Results announcement last night show some promise with Guinness, Maybulk and Dialog exceeding our expectations. Crude oil prices were little changed yesterday as concerns of demand slowing and growing stock piles coincide with Iran considering serious negotiations on its nuclear research programme. The nuclear issue also weighed down on the Dow which closed flat. We see the market trending within an upward bias today, albeit within a tight range judging from the good showing of results. Technically speaking, support and resistance levels remain at 940 and 946 respectively.

Daily Commentaries 22nd August 06

OSK Research

Technical View

Morning Call by OSK

The KLCI gyrated within a tight 3 point range throughout the day but managed to close in positive territory led by blue chips BAT, Nestle and Petronas Gas. That retail investors were away for the school holidays probably explained the modest trading volume of only 436m shares. Key headlines today include Alam Maritim’s purchase of 3 new vessels, MAS’ offer of 1m seats under the new multi-tier domestic fare scheme and SC’s official rejection on Farms Best’s placement exercise. Genting also confirmed that it was the buyer of a 16.6% stake in Landmarks. 3G is in the news with MiTV slated to rollout its services by 1H2007 while the government is mulling the possibility of setting up a national telco infrastructure company to expedite broadband rollout. There was a mixed bag of small cap results yesterday with UAC reporting better than expected numbers, Yi-Lai and Hexagon coming in line while Crest Builder and Sunrise disappointed. US markets closed weaker on profit taking and renewed concerns on higher oil prices crimping profitability. The KLCI is expected to extend its narrow trading range with a bias on the downside given the absence of fresh leads and the wait-and-see attitude ahead of the BNM monetary policy committee meeting this Friday. No change in the support and resistance levels of 940 and 946 respectively.

Daily Commentaries 21st August 06

Kenanga Daily

Morning Call by OSK

The KLCI closed a touch weaker ahead of the weekend on softer crude oil prices. The disparity between gainers and losers quickly tilted in favour of the former after the PM revealed the Industrial Master Plan (IMP). Aside from the IMP, other key news items include Genting coming in as a new suitor for Landmarks, Mulpha's bid for control of listed Australian hotel group, Grand Hotel and few contracts secured by WCT, Fajar Baru and Road Builder. It was also reported that the RHB EPF deal may have hit a brickwall as both parties could not agree on the pricing. Celcom is also making a capital repayment amounting to RM700m to its parent, TM. Results announcement last Friday showed Opus and Choo Bee reporting better-than-expected numbers while Far East and Metrod delivering mediocre performance. Given the more positive stance on economic fundamentals as conveyed by the IMP, higher closer on the US markets last Friday and rumblings ahead of the Budget, we would expect the KLCI to start on a firmer note today. Immediate resistance is seen at 946 while firmer support remains at 940.

Kossan Rubber

Kossan Rubber is valued at RM3.63.

Daily Commentaries 18th August 2006

OSK Research

Technical View

Daily Commentaries 17th August 06

OSK Research

Technical View

Quote Of The Day

Other men's sins are before our eyes; our own are behind our backs.

Seneca

Daily Commentaries 16th August 06

OSK Research

Technical View

Daily Commentaries 15th August 06

OSK Research

Technical View

Staying Calm In The Midst Of A Storm

Jack is on edge. He isn't extremely uptight but he isn't completely calm either. He is just a little fidgety and it's getting to him. He is having a little trouble concentrating. He's reading charts incorrectly and he is having trouble outlining a trading plan. He can't figure out where to place his stops, where to enter or where to exit. Can you relate to Jack's plight? There are times when you just can't calm down. Your physiology is elevated and you are restless and on edge. It's natural and understandable, though. When your money is on the line and you are fighting for your livelihood, you can't help but feel a little uneasy. There's a lot you can do to calm down in the midst of a storm of chaos.

Sometimes we get flustered and upset without our conscious awareness. It seems to have come out of the blue. There was probably something that started it, however. Maybe we remembered a set of past losing trades earlier in the day, or saw a media report on a stock we traded last year and lost. However it happens, we end up on edge. How it happens may not matter in the end. All you know is that your physiology is elevated and you are ready to overreact to even a minor setback. What do you do at this point? You don't have to mull over the reasons why you are agitated. You can take decisive action to calm down.

Your mind and body are closely linked. When your body is energized, you look at your physiology and try to interpret it. Sometimes you feel hyped up, and rather than interpret the your physiology as excitement, you may label it as fear, uncertainty and anxiety. The way you think about dictates how you feel about your physiology. If you feel fearful, it is because you are looking at your physiology and thinking that something bad is going to happen and you are not sure what you will do. To change your physiology, you have to change your thinking. When you are worked up, you can use it to your advantage. Rather than feel in a state of panic, you can reinterpret your high agitated energy level as excitement and start feeling enthusiastic about what you might want to do next as a trader. It may also be useful to cultivate a carefree attitude. You might think, "It doesn't matter what happens. I'm going to just do my best and pat myself on the back for whatever I accomplish. No matter what happens I'm going to feel good about what I am doing." It's amazing how a little positive self-talk can turn feelings of agitation into newfound energy.

It's easy to get a little uptight while trading, but it's all a matter of perspective. If you feel on edge, tell yourself encouraging thoughts to turn things around. By cultivating a winning attitude, you can feel calm during the storm and take home huge profits.

Daily Commentaries 14th August 06

OSK Research

Technical View

Daily Commentaries 11th August 06

OSK Research

Technical View

Daily Commentaries 11th August 06

OSK Research

Technical View

Daily Commentaries 10th August 06

OSK Research

Technical View

Daily Commentaries 9th August 06

OSK Research

Technical View

Daily Commentaries 8th August 06

OSK Research

Technical View

Waste No Time

When trading the markets, you can’t merely sit back and wait for the profits to roll in. You have to take an active approach to trading. You must search the markets for new opportunities. That can mean looking through stacks of boring reports, scanning through a hundred charts, or working as an amateur specialist to see if any “insiders” can give you an insight as to how a company is doing. If you want to trade the markets profitably these days, you have your work cut out for you. How can you get yourself motivated to persist in such a demanding, challenging field? There are three key strategies that can help you get motivated when you are feeling challenged or beaten down: (1) Cultivate a fighting spirit, (2) set up an alternative reward system, and (3) focus on the process not the prize.

Traders often walk a tightrope between arrogant and unrealistic overconfidence and feelings of incompetence and inadequacy. When we feel beaten down, we have a natural need to lift our spirits. Most people's confidence is severely shaken when frustrated. Their knee-jerk reaction is to feel arrogant overconfidence. They build themselves up to the point where they are unrealistically optimistic. But it is vital to remain realistic, ready to face setbacks head on and unafraid to look at one's limitations. It’s better to cultivate a fighting spirit. What is a fighting spirit? When approaching a problem with a fighting spirit, you set a realistic course of action. You look at the reality of your circumstances and take an active problem solving approach to get ahead. One does not arrogantly believe that anything can be accomplished, but optimistically and realistically devises a plan to get ahead, and once a plan is set, a person with a fighting spirit works hard to make a plan come to fruition.

Although profits are an obvious and natural reward for trading efforts, they may not be forthcoming or closely tied to the amount of work we put in. A single-minded focus on profits is likely to impact your mood in adverse ways. Your mood will rise and fall with your profits and losses. Setting up an alternative reward schedule will provide more consistent rewards and will allow you to persist even when faced with a losing streak. Reward yourself after putting in a fair amount of time and effort toward achieving your goals (the end of each day, for example). Buy yourself a nice dinner or do something you find enjoyable. By patting yourself on the back for your efforts, you'll consistently feel satisfied with your performance, and this will keep you feeling optimistic and motivated.

Finally, it is essential to focus on the process, not the prize. Trading is about making money, but the irony is that if you focus on the outcomes of your trades, you'll put excessive pressure on yourself and choke under it. By focusing on intrinsic rewards, you'll feel more comfortable and creative, and trade more profitably in the long run. It may seem counterintuitive, but by focusing on the process of trading, rather than profits, rewarding yourself for effort rather than outcome, and cultivating a fighting spirit, you'll be willing to work hard and make huge profits trading the markets.

Daily Commentaries 7th Aug 06

OSK Research

Technical View

Guts And Glory: A Reality Of Trading

Short-term winning traders have guts. They have to. No one has a crystal ball. You can guess what the markets will do, but you can never know what will happen with complete certainty. Only the traders who risk enough money, and make enough winning trades can hope to achieve glory. And living under these conditions takes guts.

Trading can be about 90% market psychology. Do fundamentals play a role? Sure they do, but mass psychology can play a bigger role at times. Consider a current news headline: Ford Motor Company recently announced that it was doubling its second-quarter loss to $254 million. What can you do with this information? It's hard to know. On the one hand, you might anticipate the stock price to fall as car sales continue to decline and pension costs plague an already vulnerable company. On the other hand, the stock price may be at a bottom, and ready to rise at the slightest news of prosperity. For example, when Ford confirmed that it had brought in an outside mergers and acquisitions expert from Goldman Sachs to review possible strategic alliances or asset sales, the reaction of the masses increased the stock price. But in the end, no one (besides insiders) will know for sure what will happen in the next few weeks or months. In the final analysis, you must have guts to base a trade on your personal analysis of Ford Motor Company, right or wrong.

What can a trader do? You have to take a risk and think optimistically. Rather than mull over how much money you may lose on a trade, it's useful to put the trade in perspective. It's merely one trade among many. Think of the bigger picture. You may lose on a single trade, but across a series of trades you will come out ahead overall. By risking only a small percentage of your capital on a single trade, you can allow yourself to feel at ease, and calmly assess where any given trade is going. You can nonchalantly close the trade when it isn't going well, or let it ride when it is winning. Successful traders plan on executing many trades and know that not all trades need to be winners in order to increase the equity in their accounts. It's your success overall that counts. Keeping this in mind takes some of the pressure off, and allows you to go from trade to trade in order to allow the law of averages to work in your favor.

Although thoughtful and astute analysis of a company and its stock performance is vital, trading can also be a matter of chance. It may be impossible to anticipate the outcome of any single trade. However, with a large enough number of trades and a trading approach that has a high chance of producing wins, you can expect to come out ahead if you make enough trades.

Although trading involves chance and risk taking, you should not draw the conclusion that winning traders are reckless. They aren't. They approach trading systematically. They develop clearly defined trading plans and they trade them. They wait for market conditions that increase their odds of success. But most of all, they have a positive attitude. They know that if they do their homework and make enough trades, they will take home a profit. There are no guarantees, but if you work hard, and have the guts to take a risk, you will experience the glory of trading like a winner.

Daily Commentaries 4th August 06

OSK Research

Technical View

Daily Commentaries 2nd August 06

OSK Research

Technical View

Malaysia Small Caps

Malaysia Small Caps by Credit Suisse

Getting Out Just In Time

What is your tolerance for pain? Consider the following scenario. You have 10% of your account balance on the line. For the past two days, the stock has been going in the direction you had anticipated, but today, it was announced that materials for the company’s biggest selling product are now in short supply. The media has been covering the shortage, and the stock price has started to drop. All your profits were wiped out in an hour. What will you do? Sell? See if the price will recover? At times like these, it is useful to have a clearly defined trading plan with a specific exit strategy.

Trading is inherently uncertain. You never know exactly what will happen next. That’s what makes the business exciting to some traders but nerve wracking to others. How you handle adverse events that make a stock fall hard depends on your personality. The best way to protect your capital is to use protective stops. When formulating your trading plan, you must decide how much pain you can tolerate. How much money can you lose before you have to exit the trade? You can set this exit point as a formal stop loss, you can use the automatic settings on your trading platform to set a stop, or you can use a mental stop.

The problem with a formal stop loss procedure, whether it is a formal order or an automatic setting on your trading platform, is that a transitory change in price can “stop you out” if the placement of your stop loss does not adequately account for volatility. It’s hard to know how far a stock may move and a temporary drop can ruin your trading plan when a protective stop is not set properly. Mental stops may be more useful. You can decide how far a stock price must fall before you will sell. When the stock price reaches the exit point, you can decide whether the low price is transitory or represents a significant change in trend. You can then exit the trade.

This all sounds good in theory, but depending on your personality, you may not be able to carry out this strategy. If you have trouble controlling your emotions and you use a mental stop, for example, you may have trouble closing the trade when it reaches your exit point. Some people panic and out of fear don’t close their position when their mental stop is reached. These people may need to impose the proper amount of discipline on their trading actions by using an electronic stop or a formal stop-loss order.

Minimizing trading losses is the hallmark of successful trading, but not all traders are equal when it comes to their ability to trade decisively under strain. If you want to trade profitably, it is vital to work around your personality. If you are cool headed and disciplined even under the most stressful conditions, you can use mental stops to protect your capital. But if you are easily shaken by choppy market action, you might want to use electronic, automatic stops to protect yourself. Whatever you do, however, minimize losses as much as possible. It’s the only way to trade profitably in the long run.