Daily Commentaries 1st Dec 06

The market raced ahead yesterday with broad based buying across bluechips and strong volume of 1.58bn. Nonetheless, after 2 days of breathtaking gains, we would advise caution amongst investors lest profit taking be stronger than expected. For today, ANZ Bank agreed to pay RM4.30 per share for an additional 11.4% of AMMB. On the broader economic front, Tesco is tipped to take over Makro’s Cash & Carry stores while Khazanah is taking over the International Medical University for RM98m. TSR Capital signed a MOU with TH Properties SB to buy 528 acres of land to develop a medical city in Negeri Sembilan. Tanjung Offshore finally announced the acquisition of a another 10% stake in its Cendor MOPU while Alam Maritim announced new charter contracts worth RM18.7m for 3 of its vessels and M3nergy announced a 1-for-2 bonus issue. Results which should garner attention include Petronas Dagangan and Lion Industries which both returned to the black, while Proton’s loss widened. US markets were largely flat with the rise in energy stocks offsetting concerns arising from poor retail sales. Still this is enough for us to advise caution for today. The market may just rest on its 1080 pts support level for today with resistance now higher at the 1100 pts level.

Daily Commentaries 30th Nov 06

Continued buying on selected blue chips including the PNB related companies involved in the Synergy Drive led merger led the KLCI higher on sustained volume. Good earnings in a number of small caps also spurred broader market interest. Strong results overnight include those from Media Prima, Guthrie, KPJ and UEM World. In news today, Coastal Contracts announced the sale of 4 offshore utility support vessels to Alam Maritim for RM54.9m and Malaysia Airports is seeking to impose a security surcharge at KLIA in line with global operators. Ranhill is building 10,000 apartments for US$413m in Libya while Kurnia Asia joined the race to buy Commerce Assurance after getting the green light for negotiations from Bank Negara. Genting and TNB have been shortlisted in Malaysia’s first open tended to build a controversial coal fired IPP in Sabah. Finally, Frontken secured the exclusive rights to negotiate for the acquisition of 19% stake in Taiwanese tech firm Ares Green. Overnight US market surged on good GDP data and this good news will likely have a follow on effect in our market today. Look for the market to test the 1072 pts resistance with support now moving higher to 1056 pts.

Daily Commentaries 29th Nov 06

As expected, profit taking activities took place yesterday after the strong run-up over the last five trading days. For today, Telekom’s weak 3Q06 numbers has been widely expected while MAS’ first quarterly profit may lead the company to revise upwards its financial forecast. Other news are the appointment of AmInvestment Group and BNP Paribas to structure the NSTP-Utusan merger, DRB Hicom’s clarification that it had made no offer to dispose of an equity stake in EON Capital, and Hexagon’s RM500m contract to supply corporate identity visual products. Meanwhile, Petronas’ discovery of O&G reserve in Johor may spur trading interest in O&G stocks. For today, the KLCI may continue to correct, testing the support of 1,050 level.

Quote Of The Day

Big shots are only little shots who keep shooting.

Christopher Morley

Daily Commentaries 28th Nov 06

The KLCI closed another 8 pts firmer for the day underpinned by continuing bullish sentiment. For today, the revelation of the RM31bn landmark merger exercise involving Sime Darby, Golden Hope and Guthrie clouds headlines. Other news include TM buying into 2 Sri Lankan companies, BCHB disposing- off its insurance businesses, probable merger between NSTP and Utusan, MISC investing RM20bn for the purchase of another 23 tankers over the next five to six years and toll rate hike next year. Guthrie is also selling-off the Guthrie Corridor Expressway to Prolintas. Of the remaining few big caps, Sime Darby’s numbers were below expectations. For today, the KLCI appears headed for a breather of sorts to digest the 5 consecutive days of trading gains. The Dow continues to be in corrective mode. Support for the KLCI remains at 1,050.

All In Perspective

As a novice trader, Jack has just put on his tenth trade. He's still new to trading, but he is optimistic that he will be successful. He wants to succeed. He thinks, "I want to prove that I'm a good trader. I hope I do well on this trade. The outcome is critical to the rest of my trading career."

Jack's thoughts and feelings are understandable. Whenever we start a major endeavor - starting college, a new job, or whatever - we want to succeed. And it's nice to have early success. The first few moments of a major life turning point seem especially significant. When we aren't successful immediately, the initial letdown often haunts us for a long time, interrupting our train of thought, and shaking our self-confidence. Despite the reasonable hope of an early triumph, however, it's vital to keep the proper perspective when approaching trading: one must always think of the big picture, the long run.

Any single trade is of little importance. Experienced traders know this fact, and live by it as if it were doctrine. Even though they may focus all their energy on the current trade, they know it is of little real significance in the long run. It is wise to put each trade in proper perspective. It is essential that you consider, at least in the back of your mind, that a single trade is just one among a series of trades, and that the bottom line is the overall outcome across the series, not any single outcome.

There are psychological advantages to taking this perspective. When you downplay the outcome of any single trade, it is less critical to your ego. When viewed as just one in a long line of trades, it's easier to tell yourself, "It doesn't matter. There will be many more trades and opportunities to come." If there isn't much riding on the outcome of a trade, it will free up precious psychological energy. You won't waste your limited psychological resources needlessly worrying about the outcome. You will feel free and creative, ready for whatever happens next. All your attention will be focused on trading your plan, objectively analyzing how market moves fit into your plan, and taking decisive action for a clean exit.

Putting a trade in proper perspective is not only psychological, however; it also involves proper risk management. To survive the learning curve, or a severe drawdown, you must limit your risk on any single trade. By limiting your stake to a small percentage of your trading capital, the trade will have minimal financial significance. In reality, it will be of little consequence compared to your overall account balance. Merely believing that a trade is insignificant doesn't work very well unless in reality it is not significant. For example, it's hard to fool yourself into thinking that a trade is insignificant if you have a month's salary on the line on a single trade, and you can't afford to lose it. The stress will be unbearable. It's important for your psychological and financial security that you limit the risk on any single trade. Again, think in terms of the big picture. You don't need to make money on a single trade; the overall results across a series of trades are all that really matter.

When starting a new endeavor, it's natural to want to do well on every single attempt. All of one's hopes and dreams may be placed on a few key trades, for example. But trading is much too difficult to think you can quickly make a few trades and be set for life, with all your aspirations met. The successful trader is in the game for the long haul. The trading lore is replete with stories of traders who made huge profits only to lose it all later. You may see some big trades in your career, which will provide numerous war stories that you can use to entertain your friends for hours, but when going into a trade, it's vital to keep the trade in proper perspective. It's still just one trade of the many you will make in your career.

Daily Commentaries 27th Nov 06

It was another field day last Friday as the KLCI gained a further 13pts into uncharted territory. Genting and Resorts led the upward charge although trading excitement centered along call warrants which dominated the active list. M&As decorate headlines over the weekend with ANZ making an offer for AMMB, Kuwait Finance House keen on Utama’s stake in RHB, Multi Purpose's GO for remaining Magnum shares and Affin securing the green light to commence talks with Bank of East Asia Ltd. MAS will also review its domestic airfares following protests from several parties. As for results, both Road Builder and Carlsberg were within expectations. Also as expected, BNM has kept the OPR unchanged at 3.5%. The slew of corporate developments should uphold the bullish sentiment on the market this week although we will not be surprised to see a mid-time correction given the spectacular rally over the past week. This should only be viewed as healthy for the KLCI to sustain the longer-term upside. Immediate resistance is now seen at the 1,080 level with support at the previous resistance of 1,050.

Daily Commentaries 24th Nov 06

The KLCI rose another 2.7 pts with market volume still staying about 1bn shares. Leading the way were Maxis, Transmile and MOX who all reported good results recently. It now appears that details of the possible merger between Sime, Golden Hope and Guthrie may only emerge on Monday although the Deputy PM has already stated that the Government supports the move. 3Q GDP figures where above expectations thus boosting sentiment for today. On the results front, KNM, Scomi and YTL reported strong growth while Shell and Affin reported sharp declines. Petronas’ 22% growth in 1H profits and acquisition of a 10% stake in Cairn India may provide some sentiment boost to the local O&G players while unconfirmed sources stated that AMMB had picked ANZ Bank to be its equity partner in AmBank. With the US market closed for its Thanksgiving holiday, the lack of major overseas factors should mean our market will ride on the domestic positive sentiment to march ahead to the 1,050 pts resistance level.

Daily Commentaries 23rd Nov 06

With a 7.65 gain in the KLCI and volume of 1.3bn shares and value of RM1.6bn, the market had a good day yesterday. For today, the market will be awaiting the 3Q GDP figures to be released which should hopefully reinforce the positive sentiment in the market after October’s inflation fell to a 15-month low. Sime Darby, Golden Hope and Guthrie are in the spotlight with a potential merger between the three possibly being announced today. In results, Maxis surprised on the upside while KLK’s was below expectation although the company is proposing a 1-for-2 bonus issue. Malaysia Airports has concluded its restructuring discussions with the Government and is awaiting the Government’s decision. The S&P closed at a 6 year high ahead of the Thanksgiving holiday in the US. With enough good news, we believe the market will test its immediate resistance of 1044 pts with the next resistance level at 1050 pts.

Daily Commentaries 22nd Nov 06

After the jump in CPO prices the day before, plantation stocks rallied to push the KLCI higher yesterday. For today, results from banks such as RHB Cap and EON Cap were in line while other results from Ranhill, Scomi Marine, Dialog and Maybulk showed strong growth. Big news is related to AMMB with ANZ Bank initiating negotiations to buy a stake in the company, thus competing with US based Newbridge. Greenpacket entered into a collaboration with Unicom Shanghai to offer VOIP services. YTL is among 3 bidders for a majority stake in a Manila water company. Sumatec won a RM20.7m pavement contract for Putrajaya while Ingress secured a RM11.9m contract to supply transformers to Tenaga. Further sweeteners today are statements from the Second Finance Minister who expects the value of M&As to increase next year due to favourable market conditions and overall expectations for reasonable 3Q GDP growth that will be announced tomorrow. Crude oil jumped back above US$60 per barrel thus helping energy stocks to lift US markets. We expect some follow through buying in the KLCI today helped by buoyant results with resistance at 1040 pts. Support is at 1030 pts.

Daily Commentaries 21st Nov 06

The market looked tired after the strong run last week and retreated for the better part of the day against brisk volume of 1.2bn shares. Key corporate highlights today include Media Prima's acquisition of a 70% stake in outdoor advertising outfit, Big Tree Outdoor and Naza’s competitive bid for Proton with bitter rival, DRB-Hicom. The government also said it may award RM800m worth of contracts to local contractors of the 2nd Penag Bridge Project. KFC results came in above expectations while that of Crest and TSR disappointed. Last night also witnessed the long-awaited correction on Wall Street ahead of the holiday-shortened week after closing in record territory for 18 times since October. We would expect the KLCI to drift further today with investors taking cue from the reporting season. Support is now at 1,030 followed by 1021 level.

I Want To Be Impulsive

The markets keep reaching new highs. Oil prices are at their lowest levels in years. HP profits are up despite a government investigation. Many market indicators are positive. There's a sense of optimism in the air and you can't wait to cash in. It's at times like these, however, that some traders have trouble with discipline. After making a few winning trades, they want to celebrate. It's understandable but potentially dangerous.

Winning traders maintain discipline. Successful trading is a matter of odds. It's vital to get the law of averages to work in your favor. The more trades you make, the more likely you will win. But you can't make impulsive trades or abandon risk limits. After a few winning trades, though, acting impulsively is what most traders want to do. Behavioral economists call this phenomenon the windfall effect. It's much like playing with the house's money at a casino. You win big and you figure you can gamble with wild abandon.

When you trade the markets, however, sometimes you will win but oftentimes you will lose. Losses are commonplace when trading. So when you win, you must retain the profits you make for those times when, by shear chance, your method temporarily stops working. How can you maintain discipline? It isn't as easy as it may seem. Self-control takes psychological energy, and just like physical stamina, when your energy runs out, you get worn out to the point that you can't keep going. Similarly, you can only control your impulses for so long before you feel like acting out and doing something wild and impulsive. Some trading experts suggest recognizing this fact. For example, if you want to act out, stand aside and do something impulsive to get it out of your system. You might want to do something fun and exciting outside the trading arena, or even do some recreational gambling to celebrate, and pat yourself on the back. Once it's over, though, it's time to get back to work.

How else can you maintain discipline? First, admit your limitations. Self-control is like a muscle. You need to practice self-control. Don't try to be superhuman. You can't run a marathon tomorrow if the farthest you had to run in the past year was between your front door and your car. You need to work up to it. Don't expect to be able to maintain self-control without extensive practice. Give yourself time to build up your self-control skills. Second, make a strong commitment to build up your self-control skills. Take the matter seriously. Until you commit to change, you cannot improve your ability to maintain discipline. It's similar to losing weight or quitting smoking. A person must first acknowledge that he or she has difficulty with self-control before change can happen. Admitting that you need to improve your self-control skills goes a long way. Don't trade impulsively. The winning trader is the disciplined trader. The more you can stay calm, rational, and in control, the more profits you'll take home.

Daily Commentaries 20th Nov 06

Gains were trimmed by the intermittent profit-taking activities last Friday although the KLCI did trace another high. Losers tipped gainers by a small margin of 446 to 420 but trading volume remained robust at over 1.2bn. Newsflows out of the weekend were spearheaded by results from BCB and Tanjong Offshore that were within expectations. Tan Sri Syed Mokhtar is reported to keen on the port assets of Road Builder while AMMB has gotten the go ahead from BNM to commence negotiations with TPG Newbridge Capital. CIMA has consummated its discussions with VICAT for the sale of its cement businesses. Meanwhile, Port of Tanjung Pelepas (PTP) is also tipped to be the regional hub for Shanghai based- China Shipping Group following official meetings held last week. Also, Leader has entered into a JV with a Cambodian company to bid for a 200MW coal-fired power plant in Sihanoukville. We would expect the broader market to take a slight breather after the good run in the previous week although the positive sentiment and the Dow’s extended high should uphold the bullish bias outlook. Resistance remains at the 1,050 level with immediate support at 1,028.

Daily Commentaries 17th Nov 06

The KLCI rallied up 9.22 pts, ignoring all constraints as positive sentiment led to 1.2bn shares being traded with a value of RM1.5bn. In terms of results announced yesterday, Lingui and Ornasteel reported excellent growth while auto stocks Tan Chong and APM disappointed. UMW’s was within expectation. Among the feel good factors today are MTD Infraperdana possible plan to return as much as RM460m to shareholders, Lingui looking for more timber concessions, Pantai announcing an agreement with the Government of West Java to manage medical waste there and Mah Sing’s bonus and rights issue. Scomi clarifying that its largest shareholder has received some proposals but no decision has yet been made to Scomi’s privatization. AmFIRST REIT proposed the acquisition of Kelana Brem towers from Brem Holdings for RM85m while UEM Land confirmed that they are in discussions to issue a REIT. We believe that there is still sufficient positive sentiment for the market to move ahead today towards the resistance level of 1050 pts particularly given the overnight rise in US markets.

Daily Commentaries 15th Nov 06

The KLCI staged a strong performance yesterday to close at 1,030.09, which was last achieved in July 1997. Top media news today is the possibility of Scomi being taken private at between RM1.20 and RM1.50 per share. The saga on Proton continues with DRB-Hicom confirming its interest in the national car company while Sime Darby informed that it has no firms plan for Proton. Meanwhile, IJM informed that Tronoh has not made any decision on its stake in IJM. Maybank reported weaker quarterly numbers while AMMB and the IOI group released commendable results yesterday evening. The new record closing high on the Dow last night as well as the rally in regional bourses may provide further boost to the market today. However, the weaker-than-expected results of Maybank may lead to some sell-down on the heavyweight. In addition, the sudden upward surge in yesterday’s market may lead to some profit taking activities today. At the current level, immediate support is at 1,021 while resistance is pegged at 1,050.

Daily Commentaries 14th Nov 06

As expected, the KLCI succumbed to profit-taking with recent gainers such as BAT, KLK, IOICorp and Tenaga sold down. Despite the overall cautious retail momentum, trading volume was a robust 904.4m reflecting extended nibbling of lower liners. News today came in the form of a new Singapore-based investor for Freight Management, RHB Islamic breaking- off talks with Saudi’s Al Baraka group for a potential equity stake and Resorts World’s associate, Star Cruises posting a maiden profit in 4 quarters and undertaking a US$200m rights issue. Also, the voluntary takeover for AMCorp has been extended for a further 7 days to Nov 21. Results announced last night were generally mixed with Timedotcom trimming its losses further while Pharmaniaga saw a contraction in net profit against the same period last year. With the near-term support of 1,021,2 taken-out, this now acts as the immediate resistance while support is seen at the 1,010 mark. We would expect range-bound trading today on the back of mixed newsflows and investors taking cue from the reporting season. Dow was marginally higher last but the bears were quick to absorb near-term gains.

Daily Commentaries 13th Nov 06

The KLCI continued its strong performance last Friday with heavy buying on index-linked stocks. Over the weekend, the Government said that an international tender for the RM3bn Pahang-Selangor raw water transfer project is expected to be carried out by the middle of next year. In addition, the Second Finance Minister confirmed that the Government is in talks with Volkswagen on the possibility of it teaming up with Proton Holdings. The Prime Minister also performed the ground-breaking for the Second Penang Bridge project in Batu Kawan. The RM3bn bridge, to be built by the UEM Group, is slated to open to traffic in 2011. Top media news today is Malaysia Airports’ submission of a RM200m working plan to upgrade and manage an airport terminal in Saudi Arabia and Gamuda’s US$248.8m highway contract in Bahrain. Meanwhile, KPJ plans to manage or acquire more hospitals, at a rate of one per year. Since the market is only a tad higher from the last resistance level, we may see some profit taking following the heavy volume on follow-through buying last week. Despite Dow Jones’ strong performance last Friday, the weekend’s blast in Jakarta may dampen investors’ sentiment. From the current level, immediate support is at the 1021.2 pts level followed by the headline support level of 1000.

Daily Commentaries 10th Nov 06

The KLCI continues to exceed expectations and rallied to near the 1,021 resistance pts level led by strong gains across the range of blue chips. With volume also breaking the 1bn shares mark, the outlook for today still looks good particularly given the launch of the 2nd Penang Bridge this coming Sunday and UMNO’s general assembly next week. In news today, the Transport Minister clarified that the Ipoh-Padang Besar double tracking project, if revived by MMC and Gamuda, would be under a PFI scheme. More privatization news today with the focus now on H&L possibly being privatized by PNB. The story on Proton unfolds further with Volkswagen confirmed as the potential party to possibly take up a 51% controlling stake in Proton’s manufacturing operations. More automotive news is also in the form of Government approval for 35 automotive projects from January to September totalling RM368.1m and UMW relooking its strategy to export vehicles to Thailand if the Thai Government continues to refuse to lower import duties on Malaysian cars. In results announced yesterday, Supermax, VADS and Southern Steel announced a good set while JTI disappointed. The aviation industry continues to be in the limelight with MAS and Malaysia Airports winning awards at the CAPA Aviation Awards dinner yesterday. MAS may also be contemplating a rights issue next year. For today, the 1021 resistance level looks likely to be tested, although the fall in US markets on higher oil prices and weaker consumer confidence may dampen the chances to break the resistance level today. Support remains at 1,000 pts.

Conventional Wisdom

It would be wonderful if there were a foolproof and valid instruction manual for how to trade the markets profitably, a cookbook of sorts where you merely follow the steps and you are successful. For decades, traders have tried to find recipes for financial success. For some, the Holy Grail comes from the latest trading guru. For others, it may be a new software program. As appealing as a trading cookbook may sound, however, countless professional traders have told us at Innerworth that there are no quick and dirty methods for successful trading. A method may work under some market conditions and not others. And when it comes to conventional wisdom, sometimes it is true and sometimes it is not. A popular saying that captures the fallible nature of conventional wisdom is, "history only repeats itself in the markets when it does." That is, you can study old charts and discover a historical set of events that unfolded in the past that suggests a high chance of a profitable trading setup in the future should the same events arise, but history doesn't always repeat itself, so you cannot count on the same chain of events happening precisely the same way. In the end, you have to go your own way and accept what you get.

What are your favorite tidbits of conventional wisdom? Some people say avoid the market open, but other traders thrive on the chaos and uncertainty that occurs during the open. Other people warn to avoid trading right before an earnings report, but other traders make profits anticipating what the news might be. Still other traders like the idea of multiple regression formulae that will predict a trend. Sure, if you have a large enough dataset and want to make very long-term forecasts, it may work, but probably only for large institutions. In the end, conventional wisdom is right some of the time, but at the same time, it is wrong some of the time.

I'm not saying to throw out all conventional wisdom. Even though it may not be in your best interest at times, it makes sense to take conventional wisdom into account. For example, it makes good sense to control risks, and it is always vital to make sure that you can survive a trade should it be a loser. Similarly, it's always valuable to have a trading plan and to follow it. If you have a map to guide you, then you will be more likely to follow it.

Why do we have a strong need to seek out conventional wisdom and follow it? Throughout our lives we have been taught that those people who play by the rules tend to succeed. If you "do the right thing," whatever that is, you will be successful. There is a sense of security in believing that if you complete steps A, B, and C, then D will happen. It is all so straightforward, but life doesn't always work that way. And in a profession like trading, where relatively few make a fortune, it is rarely true. The steps to follow are not clear, and since market conditions are in constant flux, the "rules" seem to change constantly. But don't despair. If you have confidence in your ability to win, work hard, gain a wealth of experience and persist, you'll master the markets and make the profits you are looking for.

Daily Commentaries 9th Nov 06

The KLCI stayed its course with continued gains as what appeared to be foreign buying boosted the market. Proton is in the news today with the Government believed to have given approval for foreign parties to have a 51% stake in its manufacturing operations. IJM has been appointed as the main contractor to reactivate works on the RM840m Kajang-Seremban Highway while a number of firms including Celcom, the Berjaya Group and Salcon are expected to sign MOUs with policy makers from Vietnam for some US$1.5bn worth of projects. MAS will now maintain its KL-Stockholm-Newark route beyond January 15 2007 in response to a Government request given Visit Malaysia Year 2007. Pos Malaysia is rumoured to be one of the suitors for EPF’s stake in Malaysia Building Society. On the foreign front, the win by the Democrats in the US congressional elections seems to have had little impact on US markets which continued their uptrend. The KLCI looks set to continue its upward march today although gains could be capped by profit taking activities. The 1021 pts resistance remains while support stays at the 1000 pts level.

Daily Commentaries 8th Nov 06

The KLCI stayed above the psychological 1,000 mark for most of the day but closed a tad lower from its intraday high of 1,005.06. Two good news for the construction sector: (i) plans for a permanent link between the new Customs, Immigration and Quarantine Complex in JB with the Johor Causeway; and (ii) Cabinet’s approval to a railway line from KLIA to LCCT. Sime Darby reiterated its plans to make Malaysia an assembly hub for Hyundai and maintain its aim to increase plantation acreage. The company is also happy with the Bakun project, which is 60% completed. Meanwhile, Proton has clarified that it is not aware of any bids from Mofaz. Mulpha International’s offer for the Grand Hotel Group (GHG) was unsuccessful after it failed to secure at least 50% of the GHG securities when the offer closed on Nov 7. The results season is underway. Titan reported strong 3Q06 numbers, driven by improved supply and demand, stable feedstock costs while its Indonesian subsidiary PT Titan turned around. F&N showed improved FY06 earnings despite weak consumer sentiments that have affected soft drinks sales. Follow-through buying may continue today as investor confidence soars, supported by the strong regional markets, the Dow’s new intraday high last night and easing oil prices. Immediate support and resistance are at 1,000 and 1,021 levels, respectively.

Respecting Risk

Is trading easy or hard? To the outside observer, trading seems easy enough. You merely pick a stock, bet it will go up or down, execute a trade and see what happens. What's the big deal? If it were that easy, however, everyone would be doing it and making millions. Unfortunately, it is not that easy, especially in a sideways market or one that fluctuates wildly. In a strong bull market like we saw during the dot-com boom, amateur traders merely opened an online account and watched their account balances balloon. It all changed in 2000, though. We've seen a taste of "the good old days" in the past month, but even when the masses are interested and prices go up, trading is not easy. You have to work at it, and hard, to make profits across a series of trades.

Successful trading is part financial resources, part trading strategy, and part psychology. Suppose that you had a simple trading strategy. You might decide to find stocks that temporarily went down on general weak economic news, but by all indications, the stocks should increase when clearer heads prevail. You look at all the information, and decide to develop a trading method based on "seller's remorse." That is, you anticipate that there will be those investors who sold in a panic on weak economic news and will buy the stocks back when they realize that the stocks were still good buys. But there's more to it than good trading strategy. You must also decide how much capital you will devote to the strategy. On any one trade, you might risk 2-3%, but not all of your picks will go up in the way you had planned. Trading is also part mathematics. Some of your trades will come through, but others will not. You have to decide how many trades you will make and how much you will risk. And it's not just the number of trades that matter. You also must look at the range at which the price is likely to move. So, for the sake of argument, suppose you decide to risk 2%, on average, on each trade, and suppose you decide to make 10 trades using your seller's remorse strategy. That is a 20% risk. Psychologically, you have to be able to handle the risk. If you lose 20% of your capital, it will be difficult to make it back. Depending on your risk tolerance, it may be hard psychologically to risk 20%.

If you have relatively low financial resources, taking a 20% risk may be hard to handle. You may feel it would be a disaster if your approach did not realize a substantial profit. Psychologically, taking the risk can be anxiety provoking to say the least. A jumble of thoughts may race through your mind as you execute the trades, and monitor them. As you anxiously await the outcome, you may barely be able to think clearly as your emotions overpower you.

What do you do if you can't tolerate risk? An obvious solution is to simply take less of a risk. You may not want to make all 10 trades, for example. Instead, look for two or three of the 10 that are the most likely to produce a profit. You do not stand to make as much, but you are not likely to lose as much either. And if you have trouble tolerating risk, the piece of mind you get instead will probably be worth more than the profits you could have made, considering the financial and psychological risks it would require. What are the long-term consequences? On the one hand, it may seem that you will never make huge profits in the markets if you are not willing to take risks. After all, seasoned, professional traders put on big trades and it doesn't bother them. But you must decide if taking such big risks would be in your best interests. And until you are confident that you can make profits in market to market, you might want to hone your trading skills before taking big risks. Seasoned traders have established trading skills and rock-solid confidence. If they lose a large stake, it would certainly be a setback, but they know that they have the ability to make the money back, eventually. On the other hand, if you are not yet confident as a trader, you know deep down that it's quite possible that you can't make back the capital that you lose. No matter how hard you try to ignore this possibility, you know in the back of your mind that it's a real threat, and it will haunt you.

Don't downplay the importance of risk management. There are financial and psychological benefits for limiting risks. A hard reality of trading is that there are few foolproof trading strategies. Even the most reliable strategy is bound to fail eventually. Market conditions frequently change, and when they do, your strategies must be changed also. The trouble is that you don't know when a strategy will fail or when it will not beforehand. Your best defense against the sporadic changes in market conditions is to limit your risk. If you limit your risk, you'll be able to survive the learning curve, and eventually, become one of the select few who profits big from trading the markets.

Daily Commentaries 7th Nov 06

While profit-taking among recent blue chip wins were not unexpected, it was the limit down on Sugar Bun that sent shivers down investors’ spine, contributing to the poor start for the trading week. Overall market breadth was negative with loser outpacing gainers almost 2 to 1. DRB-Hicom makes headlines today as among those short listed for the US$9bn Saudi rail project. PTP is looking to manage a seaport in Saudi’s Jizan Economic City (MMC had earlier revealed a US$30bn contract to build the economic region) while Tanjong Offshore has awarded a RM41m contract to Boustead Naval Ship for an anchor handling tug and supply vessel yard. Meanwhile, Goldman Sachs has emerged as a substantial shareholder of E&O via a 5.5% stake acquired from the open market. On the results front, Unisem reported 3Q06 numbers that came in above expectations. For today, there may just be enough to reverse the temporary malaise on the market in the form of Dow’s strong overnight gain and the dip in oil prices. Immediate support and resistance are at 990 and the psychological 1,000 mark.

Daily Commentaries 3rd Nov 06

With plantation counters leading the way, the KLCI climbed past the 990 pts resistance to within striking distance of the psychologically important 1000 pts level. Corporate news today includes Puncak Niaga’s minorities rejecting a GO waiver, Salcon securing a RM57m water supply project in Sri Lanka, IJM winning a RM331.4m condominium project, Sime Engineering bidding for RM3-4bn of contracts mainly in the Middle East and MAS relooking into its fares for the Visit Malaysia Year 2007. Nonetheless, major news comes in the form of RM100bn worth of high impact jobs under the 9MP which will be rolled out soon. This announcement ahead of the launch of the South Johor Economic Region tomorrow and the 2nd Penang Bridge on 12th November is likely to boost sentiment enough for the KLCI to attempt the 1000 pts resistance. This despite the retracement of US markets on poor retail news. Support is now at the 990 pts level.

Daily Commentaries 2nd Nov 06

The KLCI eked out another modest gain in its quest towards the 990 pts resistance level. Today, investors will look towards Time dotCom who announced a VSS exercise, PLUS who is acquiring a 55% stake in an Indonesian highway concession and PPB Group who will be constructing and operating a wheat flour mill in Indonesia via a JV with a Singaporean company. AirAsia is also in the news with a delay in its audited financial statements while resolving a non-cash tax item. Malaysia Airports is likely to be boosted by news of new airlines flying to Malaysia and potential overseas contracts while Wah Seong announced the disposal of its non-core concrete piles subsidiary to Concrete Engineering Products. US markets retraced yesterday as manufacturing growth slowed leading to concerns on corporate earnings growth. With oil prices largely flat, the market lacks any major catalyst to propel it ahead. Nonetheless, buying sentiment and momentum may just be enough for it to tackle the 990 pts resistance level. Support remains at 984 pts level.

Quote Of The Day

For every minute you remain angry, you give up sixty seconds of peace of mind.

Ralph Waldo Emerson