Posts

Why Goldman Sachs Thinks a Stock Market Crash Might Be Coming Soon

Source: CNBC

“Financial market reconciliation lies ahead…”We are approaching the point of maximum optimism and the S&P 500 will give back recent gains…” – Mr. David Kostin, Goldman’s chief U.S. Equity Strategist

While the S&P 500 continues to break new highs, prominent economics and C-level staff in multinational banks are coming out to say it’s time it has to stop.

 

U.S Equities are at Extreme Highs

As the old adage goes, “what comes up, must come down”. However, this adage has a valid explanation in the world of stock trading. Prices that go up must come down eventually because at some point there will not be any more buyers in the market, buyers would look to take profits and sell, new sellers would short the market.

 

Markets move in swings; they often don’t go straight up.

As you can see above, classical technical analysis theory teaches that every uptrend swing must be accompanied with a correction downwards. Even though the price can go in one direction for “far too long”, there will always be a correction.

Riding the bull market 😄

A post shared by Spencer Li 🇸🇬 Synapse Trading (@iamrecneps) on

 

A Correction is Due, BUT…

Before I go on, let me state 2 very basic facts about market euphoria:

Fact 1: Euphoria in the Market Happens Often

In the forex markets, this happens very often. In fact, these are known as gentle trending markets and the easiest way to trade these markets is to buy, add on at every opportunity, and watch your profits grow.

If you zoom in to the 5-minute charts, 1-hour charts, or move to different financial products like Forex, Commodities or Bonds, you would notice that market euphoria is quite a frequent occurrence.

Euphoria in that sense, can happen in both directions, as seen in the diagram below (Hourly chart for EURUSD)

Euphoria can happen in both directions, and for very long. In this case,
there were many opportunities to short, and the trend lasted far longer than one would expect.

Here is another recent example of riding trends:

Trends can last far longer than one expects. That’s why it’s important to know this fact:

Fact 2: Markets Don’t Reverse Immediately!

It’s easy to jump on the hype when almost every news outlet is talking about it. But the truth is this; what’s important is on the chart. Price already gives you the decision-making tools you need!

Even though Goldman Sachs says that a correction is due, that does not mean you immediately go ahead and go all-in to short the market. Even if you are fully convinced that the market is going to crash, it is best to wait for actual price confirmation before taking any action.

Daily chart of the S&P 500, with a small pre-emptive short position which I have initiated.

In trading, it’s all about probabilities. The above technical levels show how far the market might go, but what actually happens will depend on price action. And since the reward to risk is pretty decent based on this price channel, I am winning to take a small short position, and add on more later if it goes in my favour. This will ensure that I have a decent profit from shorting near the top when the market does crash. Till then, fingers crossed!

Here’s some food for thought before we conclude this article:

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” -Sir John Templeton

Cheers and have a great week ahead! 😀

P.S. For those who want to start learning about how to make money from the financial markets, don’t miss our last 2 workshops for this quarter at the special price of $25.
Check workshop availability: http://wp.me/P1riws-6gw

Research Sources:

cnbc.com/2017/02/21/goldman-sachs-market-investors-have-a-letdown-coming.html
thefelderreport.com/2016/05/23/this-might-be-the-most-extreme-stock-market-euphoria-we-have-ever-seen/

Synapse Weekly Market Highlights (1 Jan 2017) – Opportunities Aplenty!

1

2016 has been a blast, and a very happy new year to everyone! This week’s analysis will be a little heavier, so keep calm and read on. Let’s just dive straight into the market analysis for this week:

 

RECAP OF LAST WEEK’S PREDICTIONS – HOW DID IT GO?

#1: Bullish breakout on EURCAD (D1 chart)

euraudLast week’s analysis; we predicted EURAUD would climb higher.
Source: MetaTrader 4

This week, we saw the EURAUD climb even higher after a mini pullback that didn’t touch the EMA. Those who took entries intra-day would have seen large profits, while those who took longer-term positions would have in-the-money positions. Congratulations to those who took this trade!

thisweekThis week, the EURAUD climbed higher and close with some profit-taking.
Source: MetaTrader 4

The chart still shows that EURAUD is bullish, and it is still wise to hold on to any long positions, adding on if a gentle pullback to the EMA occurs.

 

#2: Bullish breakout on EURCAD (D1 chart)

lastweekLast week, a bullish call was given for the EURCAD.
Source: MetaTrader 4

Traders were advised to enter only intra-day, which meant profit taking was to also be intra-day. Those that followed this advice did well:

eurcadThis week, the EURCAD climbed higher and closed with heavy profit-taking.
Source: MetaTrader 4

Despite the heavy profit taking on Friday, the intra-day traders would have already taken profits. Those who bought near the EMA would also have seen great profits and have at least had partial profit-taking, securing the profits on the position.

 

#3 Wait for pullback to EMA on USDCHF (D1 chart) and buy on a touch of the EMA (with a good bullish bar!)

usdchfLast week’s analysis for USDCHF.
Source: MetaTrader 4

Those who waited for a USDCHF pullback to the EMA saw it, but the pullback was very violent. Here’s how it looks like since last Friday:

chfThe pullback was very violent, and profit-taking from bears was very substantial.
Source: MetaTrader 4

This week, we expect the USDCHF to remain sideways, as traders consolidate what the huge candle (on last friday) would mean for 2017. Don’t expect to have your trades on USDCHF run quickly in one direction; let it consolidate for 3-5 days before deciding again. This will be on my watchlist, but will not be a top priority. Bulls would be looking to buy near 1.01000, so watch out for the price action at this level. 

UPCOMING MARKET OPPORTUNITIES: KEY STOCK MARKET INDICES

S&P500 – Look to buy on bullish bars near the EMA.

spS&P500 as at 31 Dec 2016.
Source: MetaTrader 4

The S&P has travelled upwards rather violently in 2016. After a mild correction to the 20EMA, it is wise to look to buy on bullish bars near the EMA. Profit targets can be near the all-time high, or even further up (2300 and above). However, note the following:

  • Bulls will be hesitant given the uncertainty surrounding the first week of the new year.
  • Bears would try to exert their influence repeatedly, so don’t be alarmed if your long positions get stopped out easily.
  • I would wait for 2-3 bullish signals before being confident of a nice up-move.

 

Bearish on the Hang Seng Index. Short near the EMA with bearish confirmation bars.

hsBears have exerted their influence, and will continue to exert influence unless the bulls suddenly show up for no reason at all.
Source: MetaTrader 4

Bears will be happy to short near the EMA and at any prior resistance. If the Hang Seng index climbs up beyond the EMA, it is unlikely to break above 22300 (near the trendline drawn above). I’ll look to short it in the upcoming days/weeks, if a nice opportunity arises.

 

Watch the ASX closely for a buying opportunity.

asxThe ASX has broken new highs and bulls will continue to buy on every opportunity.
Source: MetaTrader 4

The ASX has had a whirlwind of a 2016, and bulls are pleased that it has broken new highs. I would be looking to enter on pullbacks to the EMA, preferably near the breakout support level of roughly 5550, and ride up for a nice bull trend trade.

UPCOMING MARKET OPPORTUNITIES: FOREX TRADING SPACE

Short AUDUSD, but wait for pullback to EMA + bearish bars for a  higher probability trade.

audusdThe AUDUSD looks bearish and should be unable to hold support at 0.71400.
Source: MetaTrader 4

AUDUSD has seen multiple trendlines broken. The bullish move in early 2016 was broken significantly, and the sideways market that took 6 months to develop also saw its end, causing me to believe the market is transitioning into a bear market. Bears will look to short at every opportunity, which means smart traders will go short, preferably near the EMA, and until bearish signal bars appear. Possible price levels to observe at 0.73000, 0.74000, and 0.75000 (all these present good shorting opportunities). 

 

Sideways on GBPUSD; look for opportunities in both directions.

audusd
The GBPUSD looks sideways and must be traded like how a sideways market should.
Source: MetaTrader 4

GBPUSD has seen a humongous correction (almost 20%) in the past 6 months, and should still trade like a sideways market for some time before traders decide where it should finally end up. Buying low and selling high, though simple as it sounds, is the suitable strategy for such a market context.

 

Short on NZDUSD on every opportunity! (but read the cautionary notes below before you trade)

nzdusd
Good time to short on NZDUSD, but caution is advised.
Source: MetaTrader 4

Classic head and shoulders on NZDUSD, strong bearish bars in recent times, and a breakout from the prior support. A bearish bar near the EMA gives good reason to go short, but I’ll be hesitant and do the following:

  • The year has just started so a sideways market is more probably in the first few days.
  • If you are going short once the market opens on Tuesday, take a small position, use a wide stop, and don’t be afraid to sit through pullbacks and open losses.
  • Add on for every short opportunity you can find (if you are more aggressive).
  • I’ll be more confident if I see 2-3 confirmation bearish bars.

 

LASTLY: UPCOMING NEWS upcomingSome of the upcoming unemployment figures, and the NFP announcement on Friday.
Source: myfxbook.com/forex-economic-calendar 

The first week of 2017 will see 4 unemployment rate announcements. No shocker expected here, because the main market-moving news will be the NFP announcement on 6 January, Friday. Intra-day traders can keep their eyes peeled for the hours surrounding the NFP, which happens at 21:30 hours (Singapore time).

This week is a week with a number of great opportunities. Happy trading, and wishing everyone a great start to the new year!

Cheers!

A Comprehensive Review of 2016: The Ups & Downs of the Singapore Stock Market

123

Here’s what the STI looked like from 2014-2016. I’ve only put in one indicator, an exponential moving average, to show the general direction of the market. The huge move was somewhat like a freak rollercoaster ride, while the year 2016 has been a whirlwind of sideways price action.

aThe Straits Times Index, from 2014 to 2016; what a ride it has been!
Source: Chartnexus

The market isn’t exactly bullish, and it has been rather undecided in 2016. The huge fall that you see in the chart above was started by the sell-off in the Chinese market in Aug 2015:

dowNews headlines in Aug 2015 struck panic in investors worldwide.
Source: CNN Money

Ever since that crash, the STI has been struggling to find its footing over the next 16 months. It’s been interesting to look at how different people have predicted what would happen to the STI,

Tradingeconomics.com provides this image (below) as a prediction to the state of the STI. They are projected using an “autoregressive integrated moving average” (ARIMA) model, as mentioned in their website. This gives a range of values that the STI is likely to fluctuate within.

waveThe econometric model shows a bear market has started to develop.
Source: TradingEconomics.com

This is rather depressing considering that the Dow and S&P have hit new highs, with some even calling for “Dow 20,000”.

Another website forecasts a measured move fall in the STI. Referring to the diagram below, this means that the stock market will fall by the distance of the red arrow, producing two red arrows of the same length, just as it has done so for the bull run, producing two blue arrows.

redThis particular prediction for 2016 was accurate; the STI moved a lot lower than where it was in this chart.
Source: AmiBrokerAcademy.com

After falling by a measured move, the STI climbed slowly and went nowhere in 2016. The year was marked by uncertainty, binary events, political shuffles and record lows/highs on many financial instruments.

 

THE YEAR 2016 IN REVIEW: A SHAKY START IN JANUARY

January started quite poorly for the STI, falling 6.4% from Dec 31 to Jan 30, 2016. Total market capitalization was $804.9 billion, down from $856.4 billion on Dec 31, and investors were worried about the January barometer coming to pass.

3 companies were listed on the Catalist board of the Singapore Exchange, but it did little to bring the market cap higher.

Strong blue-chip companies like Prudential, DBS, and Keppel, were down -14.1%, -15.8%, and -22.9% respectively for the month of January.

In the chart below, the last candlestick is the 1st of February. That was how the charts looked at that point in time!

downThings weren’t looking that good at the start of 2016.
Source: Chartnexus

A ROUGH MID-YEAR: VOLATILITY IN APRIL

April was characterized by wide swings in either direction, and intraday volatility for all 30 STI stocks was at 36%.

Three stocks were in focus at that point in time: they had an annualized intraday volatility of 68%, compared with the average of 36%. They were Noble Group, Golden-Agri Resources, and Thai Beverage PCL. 

Subsequently, Noble went on to experience a shocking -55.8% free-fall in the next 4 months, Golden-Agri fell -15.4% before recovering back to its original price at end-April, while ThaiBev experienced a shocking +42% bull run in the next few months.

thaiThaiBev experienced a spectacular bull-run after our stock screener picked out hidden buying in April. 
Source: Chartnexus

 

JULY 14th – 5.5 HOUR TRADING HALT ON SGX

On 14th July 2016, the SGX experienced it’s longest trading disruption ever. Trading was halted just before noon stayed shut for the rest of the day. Apparently, trade confirmation messages were duplicated and posed a serious systematic risk to the SGX.

In an update to reporters, confirmed that executions were back to normal and said the market come back up by 4pm, however, it retracted its previous statement and said the market would be closed for the rest of the day, and it wasn’t clear then whether the market would open. The green arrow in the picture below shows the day that this happened.

jump
tadinghalt
The trading halt was a mere blip on the chart; the market ended +0.7% after the problem was resolved.
Source: Chartnexus, Straits Times

The markets seem unaffected, and subsequently went into a 3-month yo-yo about the trading range during that time. It was particularly difficult to trade because there wasn’t a clear trend in sight.

Swing traders (those who hold a trade to ride a trend) were particularly hit by this period. Their trades would have been stopped out easily, and new entries were psychologically difficult to take. The confusion kept these traders aside, and intra-day traders prospered during this period.

NOVEMBER 2016: BREAKOUT AND A NEW BULL RUN?

2016The STI broke out of a classic wedge pattern, and is currently testing the prior highs in July.
Source: Chartnexus (Chart correct as at 15 Dec 2016)

After a couple of months of going nowhere, the STI looks like it has made a resolution to go higher, but it has paused near the prior resistance level. It could find support at the EMA, but we’ll have to look for more price action to make a high-probability trade.

The STI is still positive for the year, and those who bought the STI had to sit out a rather uneventful 2016. The big wins came from stock speculators getting involved in superstar stocks like CityNeon (up >500% for the year), China Aviation (up >100% for the year).

2016 IN SUMMARY: A SIDEWAYS MARKET WITH MANY SURPRISES

In January 2016, a senior investment strategist at OCBC stated that the market volatility “will cause your stomach to churn, but it may not be enough to cause you to lose your job or wipe out your investment. (China) will cause volatility, but not enough to create mayhem”. The market at the start of the year was still reeling from the spectacular crash of the Shanghai stock market. This time, amidst a post-Brexit world, populist political climate, and a recent U.S Federal Reserve rate hike, it makes sense to think the year wouldn’t start with a bang.

There is a saying that “the market tends to be 6 months ahead of the economy”. If this were true, we should see economic indicators picking up, as it already had in the U.S with better employment figures. Let’s see how 2017 will begin!

Cheers! 😀

REFERENCES & RESEARCH SOURCES:

http://www.tradingeconomics.com/singapore/stock-market/forecast
http://www.straitstimes.com/business/companies-markets/good-chance-of-sti-rebound-in-2016-ocbc
amibrokeracademy.com/amibroker/straits-times-index-prediction-for-2016/
http://www.channelnewsasia.com/news/singapore/sgx-halts-trading-in/2956382.html
http://www.straitstimes.com/business/companies-markets/sgx-says-securities-market-to-open-per-normal-on-friday
http://www.straitstimes.com/business/companies-markets/sgxs-longest-trading-halt-raises-concern
http://www.straitstimes.com/business/companies-markets/value-of-singapore-stocks-down-64-in-jan
http://sbr.com.sg/stocks/news/here-are-three-most-volatile-sti-stocks-in-april

Credit Suisse Report: Is Your Net Worth Above the Average Singaporean?

123

Here’s an interesting article I came across during the weekend: according to a Credit Suisse report, the average wealth of Singaporeans is the highest in Asia.

In the report, it states that the average adult has US$276,885 (S$395,000) in wealth, which is 1.4% higher than last year.

“The Global Wealth Report ranked Singapore number 1 in Asia, and when compared to the major economies, Singapore is ranked number 7.”

 

averageSource: Today Online

 

 

This is great news and I’m quite humbled that our tiny nation has managed to achieve this. However, remember that there are two main sources of household assets:

#1: WEALTH FROM FINANCIAL ASSETS

“Financial assets — which include items such as currency, deposits and equities — accounted for more than half of the average wealth per adult in Singapore at US$180,414.”

Wealth from financial assets accounted for >50% of the wealth of a singaporean adult. That means an average Singaporean has $130,000 in cash, foreign currencies, deposits, stocks, and other liquid investments.

Of course, the figure is just an average. I went to Singstat to get a visual of these figures, and here’s what I found: while the growth rates of household assets and liabilities have slowed down dramatically since 2010, net worth continued to climb every single year alongside liabilities!

householdThe growth rate for assets and liabilities slowed down in the past 6 years.
Source: Singstat

I recommend that you click the image above to expand it. Take a look at the details: liabilities have never exceeded assets, but the growth rates have plummeted severely over the past 5 years. It seems that low growth rates in household net worth is going to be the norm.

The average Singaporean has about S$130,000 in financial assets. Cash, stocks, deposits, and foreign currencies included.

That’s a very good figure to have, because most Singaporeans will be able to tide through a 1-2 year period of retrenchment before having to look for sources of income.

What about the statistics on Non-financial assets?

#2: WEALTH FROM NON-FINANCIAL ASSETS

“Non-financial wealth, including assets such as housing, accounted for US$151,239.”

I wanted to find out if this was accurate, and dug deeper to get the data. I decided to do away with Credit Suisse’s claims and check out the figures reported by the statistics department:

householdMost of the wealth is still held in financial assets, rather than in homes.
Source: Singstat

This gives a more accurate figure in my opinion. The data until Q4 2015 reveals that approximately half of every Singaporean adult’s financial wealth came from residential property valuation. The average Singaporean’s wealth in residential property assets could be anywhere from 40-60% of his/her personal wealth.

A casual glance like this might lead you to conclude that Singaporeans are well-protected, wealthy, and financially-savvy.

It is no wonder that even though Singapore has a great number of millionaires as a percentage of population, much of the wealth is held in property. I managed to find statistics on the total assets of Singaporean households, and these are presented in the tables below.

Note: The figures below are in millions of dollars.

householdNot counting CPF & Residential Property, Singaporeans have a lot less liquid assets as a percentage of total assets.
Source: Data from Singstat, Chart generated using MS Excel

In essence, the Singapore as a whole without CPF and Residential Property can be almost 65% poorer on average! That means the true amount of liquid capital that our country commands is much lower than the net worth figures reported. Take note that the data is in millions of dollars and represent the whole nation.

SIDENOTE: DEBT

“The average debt was US$54,768, or 17 per cent of total assets, moderate for a high-wealth country, the report said.”

The average debt was “moderate” for a high-wealth country, and I wanted to understand what this meant. To my pleasant surprise I realized we could actually get the data for our CPF, life insurance, pension funds, shares, liabilities classified by category, and many other statistics from our very own statistics department of Singapore.

excelWith data, in hand, much magic can be performed.
Data Source: Singstat

After downloading their data in XLSX format, I saw that there were several categories for liabilities. They are:

  1. Mortgage loans – to financial institutions
  2. Mortgage loans – to Housing and Development Board (HDB)
  3. Personal loans – motor vehicle
  4. Personal loans – credit cards
  5. Personal loans – education loans, renovation loans, hire purchase loans, loans for investments etc.

After putting them in a pie chart, this is what it looks like:

pieMortgage loans in both categories take up 75% of liabilities Singaporeans have.
Source: Data from Singstat, Chart generated using MS Excel

It was interesting that much of household assets include residential property, while much of household liabilities also include residential property. It’s understandable that most of the loans would be made with financial institutions since HDB has a fixed loan rate, while the FI’s have variable ones (good news for us in a low interest rate environment).

It is remarkable that credit card loans amounted up to almost the same size as motor vehicle loans!

WHAT ABOUT YOU?

The average adult Singaporean has $130,000 of liquid assets, has 75% of liabilities in housing loans, 19% of liabilities in education/renovation/investment loans, and, unsurprisingly, derives most of his/her wealth from CPF and Residential Property.

What does your balance sheet look like? It’s important to review your own finances periodically and see how they have changed over the years.

Perhaps it’s time for a financial health check-up as we round up and conclude the year 2016. Hope you enjoyed plowing through the numbers like I did!

Cheers!

 

REFERENCES & RESEARCH SOURCES:

http://www.todayonline.com/business/singaporeans-average-wealth-increases-us277000-credit-suisse-report
http://www.singstat.gov.sg/statistics/browse-by-theme/household-sector-balance-sheet
http://www.singstat.gov.sg/statistics/visualising-data/storyboards/household-sector-balance-sheet
http://www.tablebuilder.singstat.gov.sg/publicfacing/createDataTable.action?refId=1952

3 Insanely Profitable Traders You Probably Never Heard Of – What Makes Them Different?

When people think trader, they think rogue trader Nick Leeson. 20 years ago, a single derivatives trader caused Barings bank to collapse, leading to many quickly labelling forex trading as an evil profession.

Here’s a photograph of that historic event when it happened:

1Source: The Guardian

As most people know, proper risk management would prevent failure on such a catastrophic scale. At the same time, it is unfortunate that some of the most famous traders in the world shot to fame as a result of one big trade that normally rocks the headlines. This results in some traders having the mentality that they just need that one big winner to retire comfortably.

Let’s take a look at two famous examples:

GEORGE SOROS – BREAKING THE BANK OF ENGLAND

Soros famously made $1 billion from shorting the British Pound. This was what made his name famous and he was named the man who “broke the Bank of England”,  apparently due to him shifting (or shorting) $10 billion dollars worth of currency.

ANDREW KRIEGER – TRADED BIGGER THAN THE NZD MONEY SUPPLY

Andrew became famous when he shorted the New Zealand Dollar of almost $1 billion in value,  which was more than the money supply in circulation in New Zealand during that year! Andrew ended up garnering $300 million in profits from this single transaction alone for his trading firm.

We know that these two traders had trading accounts that were unbelievably large. This is not the case for almost all of us. Therefore, we need to gain the skills and knowledge that can bring consistent, decent returns on an average trading account size. The key is to look for sustainability, and this is definitely learnable.

“Trading is not about getting a one-hit wonder. It’s a career decision, and requires as much commitment and passion as building a business.”

Below, I’ve picked out three excellent traders who I believe will change the way you think about trading.

How many of you can recognize these faces? 😀2Source: philanthrophyroundtable.org, tastytrade.com


EXPERT TRADER #1: TOM SOSNOFF

1Tom Sosnoff sharing option strategies on his daily financial show with his daughter
Source: Tastytrade

Tom Sosnoff started off as a political science graduate working in the Chicago Options Exchange as a market maker. An industry veteran, he quickly spotted the market opportunity in online option trading, and co-founded and created the famous Thinkorswim trading platform. He later sold it to TDAmeritrade for a handsome sum of more than US$600 million.

A maverick of sorts, he is currently most famous for his financial network TastyTrade, where he shares professional trading strategies relating to derivatives and covers topics that are extremely difficult, such as advanced option greeks, and also the very basic. He exhibits some traits that are very rare and valuable to a trader:

  • Substantial and deep trading expertise.

Sosnoff’s knowledge of his area of specialization is admirable indeed. If you are familiar with options, or consider yourself a veteran in the options arena, you might want to think twice after knowing how much expertise he has garnered.

If one wants to make it in the trading arena, one has to be absolutely familiar with the tools of his trade, and the lingo used by industry practitioners. Forex traders, for example, know the ebb and flow of orders throughout the day, such as the Asian/European/American session, and can detect upcoming volatility even before it strikes. For price action traders, the trader can become so proficient that he knows when to stay out of the market within a few seconds.

  • Sharp business acumen.

A trader is ultimately a shrewd businessman. His trades are merely expressions of his ability to spot opportunities for profit, and he quickly knows if he has made a wrong decision. When he is right, he presses his bets and makes the most out of it. Just as a professional poker player knows the odds of every single set of cards dealt to him, a trader knows the odds of every market situation presented to him.

“If you can play poker well, you can probably trade well. Every trader is a shrewd businessman at heart, placing bets where it matters, with reasonable, sound analysis.”

The trader is also absolutely clear of his strategy. Trading without a strategy is as good as flipping a coin, but with a clear plan for attack and defence, the trader is able to defend his account and successfully build his net worth in the long term.

  • Continuous growth.

In his daily financial shows, Sosnoff quips that he has learnt far more in his years explaining option trading concepts, than he learnt while being a professional trader and market-maker in the days of the exchange floor. His team continuously churns out data and statistics on the probability of different option strategies, ranging from basic ones like naked put selling, to exotic strategies like jade lizards and the like.

“Perhaps the reason why most traders fail is they fail to see themselves as entrepreneurs.”

The ability to continually analyse his strategies and develop his domain knowledge is the key to his continual success. Where many of his peers in the trading floor days have left the industry, unable to keep up with the fast-paced world of online trading, Sosnoff has soared way above and carved a niche for himself.


EXPERT TRADER #2: BRUCE KOVNER

3Bruce Kovner with his wife
Source: The Kovner Foundation

Kovner made his first trade on credit, borrowing money to execute a soybeans futures trade, where he made $23,000 on a borrowed sum of $3,000. He was interviewed in the famous book ‘Market Wizards’, and in 2003 he reportedly ran an $11 billion dollar hedge fund named Caxton Associates. He is a rather low-profile guy and shuns media attention.

“I have no bias toward any of the markets… I am just as happy a trader in a bear market as in a bull market, rates up or down, commodities up or down.”
– Billionaire hedge fund manager, Mr. Bruce Kovner

  • Develop a strategy that you are comfortable with.

Kovner’s hedge fund trades based on global macroeconomic conditions. In the hedge fund world, this is called macro-trading, and is a common way to manage a large portfolio. His unique approach to the markets has earned him 28% per annum over more than 20 years (every single year!). Just as he says in the quote above, he is comfortable trading any kind of market, in any kind of condition.

  • Really understand what causes markets to move.

Fundamentally, institutions and banks move money because of their view on global macroeconomic conditions, and they express this in the form of price action, demonstrating commitment through their buying and selling.

Although most small traders don’t have the luxury to express their view of the economy with hundreds of millions of dollars, it helps for us to understand where the world is heading toward, so that we can ride on the moves of the institutions.

For example, you may have heard of the famous saying “The trend is your friend.” Sure enough, as long as the trend is clear, it shows that institutions are piling into the particular financial product that you are trading. You don’t argue against a trend; you flow with what the majority of market players are doing. The context of the market is far more important than the trading signal; just because you see a bearish candlestick pattern does not mean it’s a wise trade to short the market – you have to see whether the surrounding price action supports your trade idea.


EXPERT TRADER #3: LEWIS J. BORSELLINO

4Borsellino trading in the pits as a young man.
Source: Tastytrade

Lewis Borsellino came out of a troubled past. As a young man, he had to live with the shocking murder of his father and having to deal with emotional blow while working at the Chicago Mercantile Exchange. He started off as a runner before becoming a formidable opponent in the S&P futures pit. At one point, he claims that he traded so large that market participants looked to him as a sign that the market was going to turn. Apparently, his trading volume accounted for as much as 10% of total trading occurring in the futures pit!

  • Get very, very good at what you do.

His confidence on the pit was astounding. He knew what he was doing, and traders around him could feel it. In those days, the expression and emotional state of the trader contributed to the mood around the arena. With electronic trading, this plays a less important role, but the market still expresses itself with price, and the despair and ecstasy of traders can be understood if you examine price very carefully.

He almost exclusively traded the Standard & Poor’s 500 pit during his 19-year career on the trading floor.

“I was very good at what I did.”
– Lewis Borsellino

Many people use multiple indicators, hoping to quickly find a system to get good as a trader. However, what works is to be very good at at most 1 or 2 indicators, or simply trade with no indicators, so that you can gain the most expertise and be familiar with what really matters.

In the proprietary trading world, some traders only use Level 2 quotes, trade ladders, without any charts! There are other traders that make portfolio allocations, while there are some that engage in high-frequency intra-day trading. It does not matter how you get there; once you have selected something, you need to get very good at what you do.

Now that we’ve covered the lives of these three traders, let’s take a closer look at trading as a possible career path.

TRADING AS A CAREER – WHAT DOES IT REALLY TAKE?

Many traders are frustrated with their trading results because they don’t change their behaviour. They make many, many trades, but fail to ask the right people and seek the right guidance, causing them to make the same mistakes over and over again. If you do what you always do, you will get what you always have been getting.

Lewis Borsellino left the trading floor and entered online trading. Initially, he backed a lot of floor traders financially and groomed them to become profitable, but as time went by, he saw the opportunity in backing both floor traders and online traders, and forced himself to re-learn trading with charts.

If you are still unprofitable in the trading arena, what are you willing to do to make things work out for you? Change your actions, and you will see change in your results!

Anthony Robbins says this really well:

3Source: Goalcast

Perhaps you are someone considering trading as a possible side income, or even as a career. It takes dedication (time!), expertise, patience, as well as some street smarts in order to become a professional trader.

“If you are considering making a career switch to trading, what are you willing to do to make it happen?”

 

RESEARCH SOURCES & REFERENCES

https://www.theguardian.com/business/from-the-archive-blog/2015/feb/24/nick-leeson-barings-bank-1995-20-archive
http://www.forbes.com/lists/2006/10/6OQE.html
http://archive.fortune.com/magazines/fortune/fortune_archive/2003/09/29/349918/index.htm
http://www.derivativesstrategy.com/magazine/archive/2000/0300qa.asp
http://www.investopedia.com/articles/forex/100515/these-are-most-famous-forex-traders-ever.asp