Most Important virtue of being a successful Investor/Trader

If your a trader or an investor, you will come across various rules and vodoo, that would be mentioned to you by other traders or market gurus. I have a whole personal list of trading rules for myself too, however, the only and only one trait to be a successful investor/trader is being PATIENT.

Patience is the key to be successful. If you have a sound investment strategy, then you need to be patient enough to wait for the right opportunities and hit it as hard as you can when it comes. Patience is required once you execute your strategy and waiting for your strategy to work and reach its goal. At times in trading the trade might not go your way right away, however, if you believe in your strategy and are patient enough you would know where your stop loss and profit targets are and would not panic with the volatility or paper loss.

Patience is required so that your not chasing after stocks, cause chasing stocks can disrupt your risk-reward parameters and if the trade doesn’t work, you will feel disheartened and might involve into revenge trading which as many of you know, back fires in most cases.

Patience in Action:
A really simple example is say your a value strategy guy and your looking for stocks to have realtively cheap valuations, however, just because the stock is cheap doesn’t mean it can’t get any cheaper. Being patient and waiting for the stocks to show some signs of recovery or bottoming formation is one way to go about it. or let’s say your a momentum strategy guy who like to play breakouts, being patient to have the breakout happen will save you on a lot of trades, than if you anticipate the breakout and the breakout fails ( the momentum strategy in reference was in terms of probabilities- there are traders whom I know who can anticipate true breakouts from false breakouts, but if your starting out or even an experience investor/trader being patient can make all the difference).

Patience is such a simple word to understand, however, it’s application when mastered can improve not only investor’s/trader’s return, but also the quality of one’s life.

One of the articles which goes into more details about how to go about cultivating PATIENCE :  http://wisdomalacarte.net/blog/learning-how-to-cultivate-patience/2011/10/


dchsn6

Copper Fever

Copper is a leading market tell atleast for me. I follow it as a guiding light to me to show me where the markets are headed. The reason being it’s one of the cheapest metals , available in plenty and used for various purposes.  For markets to improve the demand for copper should increase and hence increase in price of copper. However, at this point of time, it seems copper is going nowhere but back in its trading range of 3.05-3.90.

How has copper guided me through these rough times?

As seen from the two charts that I have posted down here back in Oct 4, 2011 (marked as 1 on SPY and Copper futures chart) when $SPY was falling apart and people felt that the world is coming to an end with the break of ever so important 112 level, Copper hardly broke its low of Oct 3, 2011 which was a short term bullish sign that it ain’t over yet.

On Oct 27 (marked as 2 on SPY on Copper futures charts) when SPY was looking to breakout out the 127 level  and almost everyone out there was going all bullish, copper was no where close to its resistance of 3.90. Hence, I had no conviction to be bullish.

I will be keeping a close eye on Copper 3.05 and 3.90 levels going forward .

dchsn6

WHY and HOW to build a Portfolio?

Buidling a portoflio is similar to buying a house. You simply use a top-down approach. First, you decide, what kind of location you want to live in and then you decide what kind of house you want to live in depending on how much money you have to spend. Similarly, buidling a portfolio, you decide what phase of market cycle your in, and what kind of investment you want o be invested. It sounds simple, and when applied correctly, you can reap great returns.

Why build a portfolio?

This is the first question which comes up in the mind of most investors. Any novice investor,wants to buy one stock and get rich quick. However, an experienced investor will diversify his investments across different investments to minimize risk as different investments/stocks grow at different pace to each other during bull market and understands that during a bear cycle correlation in stocks in downturn is equal to 1 i.e. they go down together, and it’s close to having to no edge in the market. Having multiple investments like stocks and bonds in a portfolio helps to improve the return of an investor as he or she can position his/her portfolio in a position of strength during different kind of market conditions.

How to build a portfolio?

First foremost, it’s important to understand what phase of the market we are in. Is it a bull or bear or is it rangebound? During bull markets, stocks usually outperform bonds. But which stocks to pick, here is where relative strength comes into play. During different stages of market cycle, some sectors outperform the other and some stocks withing those sectors outperform the others. In terms of determining which sector is strong, it can be determined by looking at the ETF’s of each sector. Some of the common one’s that I follow are:  XLU (SPDR-Utilities), XLE (SPDR-energy) , XLF (SPDR-Financial), XLV (Healthcare), XLI (Industrial). Secondly, for investors who are more conservative can look for large cap names which have a history of paying dividends, for investors who are willing to take on more risk, you can indulge in small caps within those sectors and determine which one has the highest potential for growth. Thirdly, if the market is in a bear cycle, shorting stocks is a viable options too, however, once again depending on which sector is weaker across the board, look for stocks which have low short interest (the reason being there is lesser likelihood of a short squeeze as compared to stocks which have high short interest). The other option during bear markets are investing in bonds (which is altogether a huge topic in intself). 

Always understand what is the risk/reward and risk what your willing to loose. If you can’t sleep at night because of fear of investing or can’t pay your next mortgage if your investments go down, I would recommend you to reevaluate and check if your in the right investment.

dchsn6

What’s your bias??

In these market conditions, almost everone has a bias about the markets. Some are bullish and some are bearish, but if you asked them if they will bet their money on it, they will shake their head and say  ‘No way, market’s too crazy’.  I look at the markets with a neutral bias, atleast when I start my day and watch for the price action to guide me what’s going to happen on that particualr day, mainly because I am a small time retail trader, looking for market inefficiency to trade.  The conclusion of my bias is usually to see if that particular day is with the trend of the bigger picture i.e  yearly, monthly, weekly and based on that I take my trades and determine the size of the position I will take. I always like to trade with ‘TREND’ which is my friend.

What can bias do to you?

I have seen traders who become investors, on the flip of a coin, why because everyone who wants to make quick cash and bought a particular stock based on his friend’s recommendations, TV shows or newspapers buys the stock with a bias that everything is great about the stock and he is going to make money right off the bat. What happens next is a common story, the stock goes down and down and the trader buys more and more. At the end of the day or week, the trader who was looking for QUICK gains is now like a deer in front of a speeding car. He doesn’t know what went wrong, cause he didn’t buy it on his own analysis in the first place and now he’s stuck in a stock which has gone down and he doesn’t know anything about and eventually he becomes an investor and makes up his mind, that eventually it’s gonna come up and becomes from a trader to an investor. The transition is usually so fast that even the trader doesn’t know what happened. One typical example is RIMM:  People who were trying to buy 52 week low are still buying it at 52 week low.

I would highly recommend people not to have any bias about a particular investment or market. Always have an open mind. The reason being for every bullish analyst, there is a bearish analyst and vice-versa. If you have worked so hard for your money, why let some ABC or XYZ tell you what the market’s are going to do (exception: the people your taking recommendation from actually have a transparent history you can cross check their calls on).  Any kind of investor or trader needs to have a risk-reward strategy, afterall investing is about a game of probabilities, nobody can be right all the time, but make sure when you are your right in a big way and if your wrong, it’s only for a short period.

I want to make it loud and clear, markets are here to take your money off you. If your not upto the game, don’t dabble your feet into it , cause trust me, it has crushed some of the most intelligent people out there and you are a no big deal for it.


dchsn6

My First Photoshoot

Trading can be exhausting and I try to find different avenues to go and search how I can focus my energy on different projects. I recently completed my first photoshoot with my friend.

Feel free to visit and comment on it
https://www.facebook.com/notes/justin-chang-photography/mark-li-portrait/250471381673031

Here is a couple of samples:

Trading and Workout: Hand in Hand

Two things that I just can’t do without in my life is trading and having a good workout. The two sounds so different but when I sit down and think about, it seems that both of them are actually pretty similar and requires the same kind of training and mindset.

1.  Beginning- The Attraction

Trading: you see a friends or family or individuals around you and all the TV Jazz that so and so is so making so much money in the markets and it’s so easy to make money and then you think to yourself. Damn it, that sounds easy. Why didn’t I think about it before.

Workout: You see friends or individuals with well defined bodies and their fitness level at their peaks and on hearing that those individuals go to gym only a couple of times. Sounds easy, maybe I can get beefed up to in short amount of time.

2. Honey-The Sweetner

Trading: Ever heard of beginner’s luck. Yes, that applies to trading too. You can get a couple of good trades and think hey, this is actually easy. I should put in more money and make more money from the markets. I can easily be rich in quicktime.

Workout: You go to the gym a couple of weeks and think hey, I am actually getting bigger. Now this wasn’t that hard was it. I can easily get those eye candy physiques in no time.

3. Reality: Unspoken Truth

Trading: Now the person after having some big positions thinks he knows it all and try to hit some homeruns, what happens is anybody’s guess. The homeruns don’t happen, and it gets hard to even strike the ball and here come the losses.

Workout: Even though you saw that initial increase in strength and power. You don’t actually grow in size, it just that you have used those bodyparts in the gym that you haven’t used before and now after some bloodflow in them, you think your getting bigger. But it’s nothing but just rush of blood.

4. Bigger is Better:

Trading: Ok so now your getting losses, you know what I am going to put in heavier bets now , double down and with luck I will get abck to where I started in no time.

Workout: You will now go to the gym maybe twice a day now. Put in those hours and get that rush of blood to look  beefed up all day.

5. No More Please

Trading: Your right on the verge of blowing up your account and now here is what differentiates a good trader and a wannabe trader. A good trader, will sit out at this stage, review what went wrong, speak to people who have been successful in trading and analyze what went wrong.A good trader will look for areas to improve . A wannabe trader sees no more  hope in trading and fades out, closes his account and say’s it’s not for me anyways.

Workout: Your on the verge of cancelling your gym membership, cause you didn’t have any growth and have self doubts if you can actually achieve what you thought you wanted to. Here is where the differentiation lies between people who end up having good fitness and physiques and people who end up being who they were or worse than they started workout. People having good fitness will ask their trainers, read books, speak to people who have made it. On the other hand people who don’t end up having a good fitness find reasons like I don’t have time, I don’t have the right genes and so on.

6. Growth Stage

Trading: A good trader now has gained all the knowledge that he has accumulated and see things in a different way and puts in more time and starts getting profitable again at a slower and more consistent pace.

Workout: After having spoken and analyzed what went wrong, you start implementing the good habits and achieve the fitness level that you had always wanted.

P.S. I will do a blogpost on the similarities between the mindset required for both Trading and Workout.

dchsn6

Quick Update

Hi Y'all,
Sorry I won't be able to post my trading account updates due to personal commitments. However, once my commitment is over I would surely display all my account history as usual. If any of you reader have any questions, feel free to email me and I will get back to you asap.

I'll try to keep writing some posts about trading though.

Remember, trading is a game, the more time you put in to train yourself ,the more successful your gonna become. I'm nowhere close to where I want to be in my trading but believe me, I am working on it 24X7 to be successful at it. After 'ALL I CARE about is WINNING'

dchsn6