Posts

Guest Speaker at SGX “Live Trading Mondays”: Stock Picks for 2017

Last Monday, I was invited as an SGX trainer to speak at “Live Trading Mondays”, to share my views on the general market outlook, and more specifically on O&M (offshore and marine) counters.

I also took the chance to do a full analysis of various major market themes, as well as my predictions for major markets like stock indices, Gold, Oil, etc.

It was a great sharing session, and we managed to identify several good trading opportunities.

Although the focus was on O&M stocks, there were a lot of bullish property counters which were flagged out by our “Synapse Stock Screener”, which we use to flag out the best stock trading opportunities daily.

For those who are keen to start trading in stocks (or any other markets), or would like to know which are the best “hot” counters to be looking at now, do join us for our “Trading Foundation Workshop” this coming Wednesday on 15 February. See you there! 😀

Check availability: http://wp.me/P1riws-6gw

Top 3 Reasons Why You Should Start Investing in 2017

copy-of-copy-of-not-allthose-who-wanderare-lost

Brexit, Trump, Italy, asset bubbles all over the world… you name it, there’s probably some financial market jitters that keeps most people out of the world of investments.

On the flipside, the financial world often quips about some investment that has made xx% over a certain period of time, trying to entice visitors with a glimpse of the profits possible for anyone. In the world of investing, it is easy to find spectacular returns on hindsight, and salesmen go through great lengths to market what has already happened.

As traders, we live in a constant state of uncertainty. Every trade we make has the possibility of going wrong, and this is taken into account when a decision is made. It is the knowledge of this that gives power to a trader; if he can understand the math behind his investment decision, he can have a positive expectation and a positive traders’ equation.

There are three main reasons why trading is even more attractive these days. Indeed, with advanced technology, there has never been a better time to step into the world of finance, and grab a golden egg while you still can.

GOLDEN EGG 1: TRADING GIVES A HIGHER INTEREST RATE THAN BANKS

fdThe best you can get on a fixed deposit is 0.35% a year in Singapore, as at December 2016.
Source: moneysmart.sg

While inflation is a constant enemy for our savings accounts, most people do not know what to do to combat inflation. The most common quick-fix is to work harder and earn more money. While that does feed us and our families for some time, the need to build a war chest for emergencies becomes more and more real.

 

How much can you make from trading? Institutional traders bring in a success rate anywhere from 30%-70%. Why is this so?

The greatest insight into the markets that can make you profitable is this: 90% of the time, the odds are 50-50, while 10% of the time, the odds swing 60-40 (slightly in your favor).

That’s right. While most of the time, markets are 50-50, it is those brief moments when the market gives some opportunity, and prices quickly move to take advantage of this opportunity. That means that if you were to buy or sell randomly, you already have a 50% chance of success!

Another insight to know is that a high success rate (hit-rate) brings a lower profit target, while a low success rate brings a higher profit target.

What do I mean by this? Institutions trade using a combination of low-probability and high-probability trades.

Example: 40% (low) success rate, win = +2%, lose = -1%.”

low

In this case, if you were to make 100 of such low-probability trades, you would make +80% on winning trades and -60% on losing trades, bringing a 20% return on capital.

Example 2: 75% (high) success rate, win = +0.5%, lose = -1%

high

In this case, if you made 100 high-probability trades, you made 37.5% on winning trades and -25% on losing trades, bringing +12.5% return on capital.

It is impossible for the market to give high-probability trades with a high profit potential. This would be quickly detected by institutional traders, who have mathematicians, PhD staff, and computer science experts who can quickly make adjustments and profit from it. With hundreds of millions of dollars at stake, these people would do all they can to bring profits for their firm.

 

That is why if anyone quips that they have a 80-90% success rate, they are probably having many small wins but a few gigantic losses. If you don’t believe me, try trading forex and planting random trades with low profit potential and high loss potential. The numbers indeed prove to be true!

That is also why it is important to understand the traders’ equation. With a reasonable success rate and an appropriate win-loss ratio (or risk-reward ratio, RRR), you would be profitable over the long-run.

I have had days where I ran 7-8 trading losses in a row, but because I trusted in the probabilities, the next 3-4 trades ended up profitable, as long as I stuck to my trade setups and didn’t let the emotions get the better of me.

GOLDEN EGG 2: TRADING DOES NOT REQUIRE LOTS OF CAPITAL

If you have $500 to invest: trade forex.

In the Forex market, you are entitled to ‘get a feel of the game’ by risking a few dollars per trade. By trading the smallest lot size (0.01 lots), you can learn to make a few dollars here, lose a few dollars there, and rack up trading experience and learn to trade ‘live’ without incurring hefty losses.

By learning to make many decisions and experiencing all the different conditions of the market, you would become seasoned enough to trade a bigger size, and fine-tune your own trading strategy.

Many traders discover they have certain characteristics about themselves that hinder success. In trading a ‘live’ account with a small sum of money, they are putting in some skin in the game, and getting used to the ups and downs of their account.

The best part about forex is that there are no commission charges. The broker makes money from the bid-ask spread, which is the difference between the buy/sell price, and most brokers charge reasonable spreads, allowing you to trade with almost negligible transaction cost.

If you have $3000 to invest: explore stock CFDs.

Stock CFDs have low commissions and can be bought in small quantities – a few thousand dollars can allow you to have a portfolio of 5-10 stock positions.

For people with less time and more money, stock CFDs can be a great way to learn to deal with commissions, spreads, fee structures, and the whims and fancies of the stock market.

The stock market is only open during working hours, unlike the forex market. Someone who is interested to take longer-term positions may be open to trading stock CFDs, risking small amounts of money, and yet racking up trading experience.

Some people quip that the forex market is more difficult to trade than the stock market. I beg to differ, because it is your circle of competence that determines your success, not the actual characteristics of the market.

If I were to ask you to drive a Formula 1 race car, you probably would kill yourself within the next few hours or so. However, if you were progressively taught how to drive the race car, it doesn’t become dangerous, and because of the progressive nature of your learning, the high speeds don’t come as a shock to you.

f1Driving this car is dangerous, only if you are not trained.
Source: wallscorner.com

Many people get shocked at the speed by which forex markets move during the Non-Farm Payroll Announcements and FOMC Interest Rate Announcements; prices can move 10-50 times faster than normal during those crazy periods! However, with practice, these sessions can become a profitable time for traders with experience and proper risk management.

If you have $10,000 to invest: trade everything.

People with more money have the luxury of trading a combination of stocks, forex, commodity, bonds, and index trades. These can be accessed through any decent forex broker, and you’ll be surprised to find that most forex brokers let you trade forex, oil, gold, the Dow Jones Index, the S&P, the bond markets, wheat, corn, natural gas, and more. These of course come with higher margin requirements, but exploring all the asset classes makes you a seasoned, well-rounded investor that can take any market condition.

Sideways in the forex market? Maybe there is a trending opportunity in the oil market. There’s always something to trade if you have the experience and know where to look.

However, in my opinion, the greatest investment is Golden Egg 3.

GOLDEN EGG 3: TRADING BOOKS ARE CHEAP AND EASY TO FIND

John Murphy: Technical Analysis of the Financial Markets. One of the great trading classics that builds a strong foundation.

John Murphy’s book on technical analysis reveals the fundamental nature of financial markets. Prices move in patterns and cycles, and understanding history helps you to cope with what is to come.

In my trading journey, I’ve read more than 200 books, and found only about 11 of them that are useful in my trading career. These books were either borrowed from the library, or bought only for $30-$50 a book, which is a very good price (since stock commissions can be $15-$25 already!).

Buying a few good trading books can completely change your destiny.

If you are starting out, why not invest in 3-5 good trading books, before getting your hands wet in the financial markets? These books would build a strong foundation, and you would start off with a better understanding of why things happen.

bookSome of the more famous online bookstores.
Source: Company websites

Amazon.com and bookdepository.com provide great options and they ship almost anywhere in the world. Personally, I found that bookdepository has the more exotic books, but it is a little pricey (yet still worth it since you can’t find the books easily!)

Second-hand books: Carousell if you live in Singapore! If you’re lucky you can find good books at a discounted price. Even though the books may be a little dusty and yellowed, it’s the content that you want to really absorb. You can always find what you want if you search hard enough!

TRADING & INVESTING EDUCATION IS WITHIN OUR GRASP

If you are still thinking about it, here’s why you should pick up investing education:

  • Historical chart data is free (we used to need to pay in the 1990s and 2000s)
  • Free resources are available
  • Books are cheap and easy to find
  • Starting cost is as low as $500
  • Cost of failure is low
  • Experience can be racked up with very little capital
  • There is a market for every type of investor

And most of all, it can bring higher returns in the long-run than placing your capital in the bank account. Sure, you might risk losing a couple of dollars at the start, but the cost of ignorance is a lot higher when compounded over the next 5, 10, or 20 years!

Wishing you all the best in your trading journey, and I do hope this article serves as a pump to start you on your quest for investment expertise!

Cheers!

 

RESEARCH SOURCES & REFERENCES

http://www.moneysmart.sg/fixed-deposit
http://www.lifehack.org/articles/money/15-best-online-bookstores-for-cheap-new-and-used-books.html

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

Singapore’s First REIT ETF – Should I Add Some to My Portfolio?

Philip capital has announced the public listing of its first REIT ETF on 20 October. It claims to “provide investors transparent and low cost access to the diverse basket of quality Asia Pacific REITs which offer stable dividend income”.

The REIT has a heavy Australian weightage (59%), and a heavy retail weightage (47%).

Phillip SGX APAC Dividend Leaders REIT ETF Breakdown

reit-components

compoenent

Source: Philip Capital – REIT Prospectus

 

Is it Worth Adding to My Portfolio?

Here are some considerations:

  • There is a relatively high management fee of about 0.5% annually, which might go down as the AUM of the ETF increases.
  • There is a 15% withholding tax on Australian assets, which will lower the overall yield.
  • There is a 17% corporate tax which further lowers the yield, but there is a possibility they might do away with that, and if that happens, could act as a positive catalyst for the ETF price.
  • Overall, the net yield is about 4.5%, which is pretty decent, and if prices continue to slide, we might be able to average a higher yield on subsequent purchases.
  • This provides good diversification without the hassle of having to manage and monitor multiple counters, which is in line with my hands-off portfolio strategy.

After much consideration, I have decided to add some to my portfolio, and it will be reflected in my next monthly portfolio update for the month of October. As with all purchases, the quantity and timing is of utmost importance.

 

Useful links

General information – http://www.phillipfunds.com/home/banner_link4
Prospectus – http://phillipfunds.com/uploads/funds_file/Phillip_SGX_APAC_Dividend_Leaders_REIT_ETF_Prospectus.pdf
Product Highlight Sheet – http://phillipfunds.com/uploads/funds_file/Phillip_SGX_APAC_Dividend_Leaders_REIT_ETF_Product_Highlight_Sheet.pdf
Product Summary – http://www.phillipfunds.com/uploads/funds_file/Phillip_SGX_APAC_Dividend_Leaders_REIT_ETF_Product_Sheet_Oct_10.pdf

SGX Singapore Stocks: SATS – A 10% Gain in 1 Month from Swing Trade!

This is a good example of swing trade on SATS, which was flagged out by the Synapse Stock Screener Software, leading to a 10% gain in 1 month.

SATS 070916 singapore stocks

This trade was posted in our private Synapse Network form, which is where all our Synapse Program graduates gather to trade together.
1

The entry was given by the green arrow (buy signal), with an Entry price (EP) of $4.39, Stoploss price (SL) of $4.25, and Target price (TP) of $4.80. This was a good trade, with an upside of 2-3 times the downside.

2

After the profit target was hit, it seemed that another entry was possible.

Stay tuned for further updates! 😀