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3 Dangerous Myths About Trading that Could be Affecting Your Profitability

The world of finance and investing is filled with opinions, news, jargon, and sometimes pure nonsense. It is only the people who actually make trades, who will be able to tell the truth from the lies.

After all, an opinion has no consequence. People can quip about what they think is true, if there is no money on the table. However, when you’re trading with your own money, you’re forced to confront the reality of things. I, for one, am no stranger to taking risks, but I only take calculated risks with a high payoff. That is what trading is all about.

Without further ado, here are 3 dangerous myths that could be wrecking havoc on your trading account:

 

MYTH #1: TRADING WITH LEVERAGE INCREASES YOUR RISK
(Reality: Trading with leverage reduces capital required, but risk can be kept the same.)

Let’s tackle the myth first; the media handles the idea of leverage very poorly, because it often sensationalizes the trader who over-leverages and blows everything.

The idea is simple: I have $100, and I leverage so that I can trade $500 or $1000 of stock/forex. I make one bad trade, and I’m wiped out.

This is true for the person without proper risk-management. After all, the temptation of leverage is to dump all your money into one trade, max out the leverage, and hopefully you make 500% on one trade and can call it a day. The truth is, these lucky trades do happen in reality. Eventually, the trader with his newfound wealth (and greed), piles his money into another trade, and loses everything.

Leverage kills the person who abuses it. It’s like fire; it can cook food for people, or it can kill people.

 

Leverage, in practice, actually keeps you disciplined. In forex trading, maximizing leverage is actually a wise way to start trading. When you leverage, you are actually committing less margin to a trade, and you can get comfortable with trading by committing as little margin as possible. Here’s what I mean:

For example, suppose you have a stop loss of -$10 and a target profit of +$30, and you make a trade of unknown size X.

1:100 leverage – Margin committed for X lots = $102.50 (I’m making this up)

1:500 leverage – Margin committed for X lots = $20.50 (five times smaller)

In the case of higher leverage, you stay comfortable because even though the stop loss is -$10, you see that the margin committed on your account is only $20.50. This allows you to not have to see the wild fluctuations in margin requirement, and keep you trading small and trading often.

There are several benefits to leverage that most people don’t know about.

Also, trading with higher leverage allows you to take multiple positions with little capital. This is great for beginning traders who want to experiment and take multiple trades with a small account. With as little as $500, you can take 3-5 forex positions with leverage, risking anywhere from $5 to $20 or so for each trade. This is a great way to start for aspiring forex traders.

 

MYTH #2: BROKERS ARE OUT TO HIT YOUR STOP LOSSES
(Reality: You get stopped out because of the market, not because of the broker.)

Many people who have been trading for some time get convinced that the broker wants them to be stopped out of their positions. I’ve heard of this and seen it happen; the trade hits your stop loss, then immediately goes in your favour and flies in the direction you want, and then you beat yourself up and say “I was supposed to make $XYZ on this trade but I got stopped out because of the stupid broker!”

The truth is, the broker has better things to do than to keep hunting the stoploss on your account.

At least, this is for brokers who want to remain in business over the long-term. How do brokers make money? They make money if you keep trading. Why would any broker want you to stop trading? They would actually want you to be profitable, because for every trade you make, they get a small cut from the spread (also known as the bid-ask spread). Essentially, they want you to love trading and trade so much and so often that they get large revenues from spreads.

Why in the world would the broker want to stop you out? The reason why we get stopped out, is because we are bad traders.

Professionals are buying or selling exactly where your stop loss is placed, because they know that the average investor would place their stop loss there.

The solution to not getting stopped out, is to first acknowledge that trading involves some positions getting stopped out. Being right 40-50% of the time is already sufficient for you to be profitable, so don’t be surprised if half your positions get stopped out.

One example is a sideways market. Beginners love to enter on sideways markets because it presents many signals in both directions. However, professionals are buying and selling at the extremes of the sideways markets, causing beginners to get stopped out repeatedly, while professionals make money repeatedly. Remember that there is another trader on the other side who is filling your order; if you are losing money, it is because someone else is taking money from your account, and putting it in their account.

MYTH #3: FOREX IS MORE RISKY THAN STOCKS
(Reality: Risk is independent on the product, and forex actually requires less capital.)

In a previous blog post, I mentioned this: If you have $500 to invest, it actually makes more sense to trade forex.

In the Forex market, you can ‘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 to become profitable in the long-run.

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, making the ‘tuition’ fees a lot less than trading in stocks.

I’ve spoken about this at length in my previous blog posts. Besides the lower cost of trading forex, you actually lower your risk by getting better at trading. After all, the biggest risk is yourself. If you’ve got skin in the game, made a few hundred trades with real money, and got yourself a strategy that you can rely on, you are actually a lot less a risk to yourself.

24/7 market; choose when you want to trade.

The great thing about Forex is that you can decide when to trade based on your schedule. That helps people who have punishing schedules: trading in the middle of the night, or during lunch, on a daily basis, works out to a trading schedule that accommodates your lifestyle needs.

Stocks have bigger gaps between bars than Forex does.

Furthermore, with regards to stocks, stocks tend to see bigger gaps between days. Here’s what I mean:

forexForex pairs/currency futures tend to have less gaps between bars; bars close and open at roughly the same price. Here, the chart of NZDUSD (daily).

stockMost stocks have gaps between the candlesticks/bars. Notice how there are many ‘holes’ between bars for First Majestic Silver Corp (NYSE).

Gaps make the analysis a little more complex, because you have to take into account the size of the gap along with the actual candlestick printed on the chart. Forex allows you to employ technical analysis more simply, and learn how to read price action without the distraction of having to figure out what the gap means. Of course, this isn’t a problem among more liquid stocks like the SPY, C, MCD, FB and other “famous” counters.

WHAT’S THE REAL RISK?

The real risk in trading lies with the trader. The moment you stop improving, stop learning, stop growing, or stop challenging yourself, you’ll start to see your profits suffer. I encourage all of you aspiring traders to seek the truth, and rely less on opinions in your trading journey. After all, you can only find out the truth when you’ve got some money on the table, and actually start to make trades.

WANT TO GET STARTED IN TRADING?

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

FREE Market Outlook Seminar in Penang: What are the Best Investment Opportunities for 2017?

This coming Saturday (25 Feb 2017), I have been once again invited to speak in Malaysia about the market outlook, and this time I will be speaking in Penang! [Scroll all the way down to register.]
 


 
For those of you (outside Singapore) who don’t know me, I am a professional trader with over 10 years of market experience, and have been featured more than 20 times in various media. I hold double degrees in accounting & finance (dean’s list), and I’m also a globally accredited CFTe, and one of the few official trainers for the Singapore Stock Exchange (SGX).


I was thrust into the media limelight when I retired at 27 (in 2013) and spent the next few years travelling around the world (50+ countries) while trading just 15 minutes a day.

Since this is my first time in Penang, I will be conducting an exclusive FREE workshop to share the 4 strategies that my students and I use to make 20-40% annual returns consistently. These strategies work for stocks, forex, CFDs, etc.

In addition, I will be logging into my live trading account to show my all my trades and also the records of my students.

Workshop details:

  • Date: 25 February 2017
  • Time: 9.00 am to 12.00 pm
  • Venue: YMCA Penang

To register, please whatsapp +65-9772-4280 or email info@synapsetrading.com with the following details:

  • Full name
  • Email address
  • Contact number
  • Number of tickets

Seats are very limited for this one-time event, so it will be based on a first-come, first-serve basis.

Good luck, and see you there! 😀

Recent Travel Highlights: Dubai, South Africa, Lesotho – Over 3,000km by Road!

Last month, I embarked on a 2-week trip to Dubai, South Africa and Lesotho, and  it was truly a unique experience, especially driving over 3000km in 2 weeks, trying out the shark-cage diving, riding an ostrich, and doing a self-drive safari.

And the best part was that by continuing to trade 15 minutes a day, I managed to make a tidy 5-figure profit during these 2 weeks of travelling, which was more than sufficient to cover the cost of the whole trip! 😀

Here are some photos from the trip:

 

Here is the full photo album for this trip: https://www.facebook.com/iamrecneps/media_set?set=a.10154888317308430.1073741843.530303429

To see more travel photos from my previous trips, you can visit this photo album.

Good luck, and see you in 2 weeks for our very first “Trading Foundation Program (TFP)” intake in 2017! 😀

Recent Travel Highlights: Ireland, Iceland, UK – Photos Are Finally Out!

In October, I embarked on a 2-week trip with my sister to Ireland, Iceland and the UK, and it was an amazing trip! 😀

In 2 days, I will be going for another 2-week trip, this time covering Dubai, South Africa and Lesotho. (Yes, this is a country!)

Of course, I will continue trading as I travel, and continue supporting my students and traders. Stay tuned for my next “weekly market highlights” video which will be shot in South Africa!

For those who love adventure and real-time updates, do follow me on Instagram as well: https://www.instagram.com/iamrecneps/ 

ig-profile

 

Here are some photos from my last trip:

fb-album-ireland-iceland-uk

Here is the full photo album for this trip: https://www.facebook.com/iamrecneps/media_set?set=a.10154654785598430.1073741842.530303429&type=3

Good luck, and see you soon in 2017 when we commence our new training workshops! 😀

Personal Checklist: The Top 5 Habits of Singaporean Self-Made Millionaires

Just last week, I came across this interesting article, talking about some of the prominent millionaires in Singapore, and how they created their wealth.

vulcan-postSource: Vulcan Post

As I read it through, I couldn’t help but think about what they did to make, keep, and grow their wealth. Sure, some of them inherited their wealth, but it takes a different kind of education in order to preserve and grow the inherited wealth.

It is definitely not chance that these people have achieved phenomenal success. There were, in fact, common patterns of behaviour that keep them successful.

The difference lies in just 5 actions they take consistently:

1. THEY CREATE MULTIPLE INCOME STREAMS

The average person lives from paycheck to paycheck, while the average wealthy person receives cash from various sources, so that even if one source were to be temporarily cut off, they can still enjoy the same standard of living they currently have. Here are just some of the commonly known income streams that they have:

Earned Income: working for money

Interest Earned: earning money by lending it

Dividend Income: earning money by share ownership

Profit: Selling something you make or own

Capital Gains: Selling something higher than what you bought it for

Rental Incomes: Money gotten from owning real estate

Royalty Incomes: Money from selling intellectual property or franchise systems

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Having multiple streams of income is like having many waterfalls flowing into the same ocean. The more streams you have, the more reliable the flow.

Which do you currently have? The average person struggles to survive because he only has one stream. Personally, I like trading and portfolio management. The great thing about portfolio management is that you can enjoy interest earned, dividend income, and capital gains.

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2. THEY TREASURE EVERY SECOND OF THEIR TIME

Let’s be honest with ourselves; how many hours a day do you do things that do not contribute to your financial success? Most people would rather procrastinate or spend time on enjoyment rather than on what really matters.

I found this really interesting image of how most people spend their time in a year:

4Source: The Visual Communication Guy

It’s amazing; out of 365 days a year, 183.7 days are spent on media! If we were honest with ourselves, perhaps what we need is to rethink the way we live. Perhaps if we all take some time away from Media and reallocate it to self-improvement, learning, investing, and growing as a person, we could be living a very different life indeed.

How would your life look if you re-arranged your priorities?

Robert Kiyosaki once made a quip about what he noticed of rich and poor dads; he said that poor dad would sit on the couch and watch TV every night, while rich dad would review his investments and upgrade his skills every night. Poor dad would spend the weekends wasting time, while rich dad would build a business during the weekends.

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Many of you would know that I read more than 200 books before I embarked on my trading journey. Even now, I make it a point to read at least 3 books a week, because I feel that it is important to never stop learning and upgrading oneself. Here are some key pointers:

  • Don’t waste time. Find out what you need to do, and do it.
  • Re-prioritize. Find out which areas of your life you can do away with, and cut them out quickly.
  • Learn. Just because you have graduated doesn’t mean you should stop learning. Successful people get where they are because they have an attitude of lifelong-learning.


3. HAVING A MENTOR MAKES A BIG DIFFERENCE

Mentors are looking for people who are humble, hungry, and hard-pressed for success. No matter where you are in your career or life, it helps to have successful people to reach out to and learn from. They’ll be able to quickly point you in the right direction if you are going off-track.

When I started my trading career at a professional fund, I had wonderful, experienced mentors to guide me in the right direction. I quickly picked up on what worked and what did not. I learnt their habits, their lifestyle, and the difficulties that they went through to get where they were.

Where can you look for mentors if you have no one at the moment? This is what many people ask me from time to time.

  • Build connections: Networks are not built overnight. As you expand your social circle to include successful people, you will start to find people who could potentially guide you to where you want to go.
  • Be inquisitive: People will only want to mentor someone who has the attitude for success. While at the beginning you might lack aptitude, the right mentality and motivation would attract the right people to you.
  • Keep learning: As you learn more, you discover you will have the vocabulary to connect with people. With greater proficiency, you would be able to speak at the same level as industry practitioners, asking smart questions, being able to understand jargon, and make an impression.


4. THEY VISUALIZE THEIR DREAMS IN DETAIL

Goals without dreams are dead; they become mere tasks rather than the exciting outcome that you hope for. It helps to have an idea of what you want; most people want to be wealthy but don’t know what it would look like.

What does a wealthy life look like for you? For YOU personally?

For some, it could mean having to work only 2-3 days a week. Financial goals differ from person to person, and it’s not just the monetary goal, but also the lifestyle goal. For me, I knew I wanted to have the luxury of making passive income even when I am travelling. This may not be everyone’s goal.

“How much money do you want to make exactly, and what would that lifestyle look like exactly?”

Many people want to lose weight. Losing weight isn’t a definite enough goal; Losing 12 kg by the end of 6 months is a definite goal. Many people fail to achieve their goals because they don’t even define their goals!

It’s also important to visualize yourself doing what you hope to be doing. Having a lot of money is pointless if all you are going to do is sit aroud with the cash; it is accomplishing the goals you have, those bucket lists, that make life worthwhile.

So what is it for you?

Grab a piece of paper and start getting your hands dirty. It doesn’t matter if you are old or young, experienced or inadequate; what matters is a willing heart and dilligent hands, and of course, a big enough dream that will knock you off your sofa and get you started.

  • Be specific about your goals. General goals generally don’t work. Specific goals help you to move toward exactly what you want.
  • Keep track of your progress. You never know if you are on the right path if you don’t take stock regularly. Even better, get a mentor to help you evaluate where you are.
  • Focus on the dream with its details. Keep reminding yourself of where you eventually want to be. Otherwise, you’ll just lose steam and burn out, bum around, and end up not getting where you were heading toward.


5. THEY DO NOT GIVE UP OR QUIT

If you’ve got your foot into the investing arena, you would be familiar with financial losses. It is at this point where your mettle is truly tested; is this what you want? Are you willing to sit through heartache and tough lessons to get where you want? Is the life you left behind really worth going back to? Do you still believe in the dream you have?

When that business fails, would you stand up again and start all over? When you family doubts you and the pressure to provide hits you, will you continue to stand by your dream? People want the glory without the trials and training. Just take a look at the infographic below that I found:

33Source: Anna Vital (Founders & Founders)

I also came across this interesting quote, which I thought was very useful in clarifying what we really value. Millionaires invest their money and make investing a priority, while poor people spend their money first and make spending a priority.

5Source: Gecko and Fly

Always, always seek to make investing your primary objective. Invest your time, invest your money, invest in your team if you are running a business. Invest, invest and invest.

Is investing your primary objective, or is spending your primary objective? Would you be willing to delay gratification, in order to enjoy a lot more in the future, far more than you can ever imagine?

  • Do not quit. Ensure that you have made a commitment. Tell your friends, and engage people to keep you on this path.
  • Invest your money, your time, and in your team. Investing is what multiplies your returns in the long-run. Keep at it!
  • Prioritize learning, rather than earning. It pays to be more proficient at what you want to do. When you are starting out, make learning a priority, and the profits will come eventually.

Don’t give up on your dreams!

555

Feel free to share this with people you know who are working hard toward their dreams, and striving to build their first pot of Gold. And with these 5 actionable steps, you’ll be one step closer to your first million! 😀

Bonus: Download free ebook: The 7 Best-Kept Secrets of Professional Traders

RESEARCH SOURCES & REFERENCES

vulcanpost.com/593788/in-forbes-2016-asias-richest-families-list-we-see-some-prominent-singaporean-names
businessinsider.sg/habits-of-self-made-millionaires-2016-3/#rJDS8hCPPhHm5qpK.97
fastcompany.com/3052770/how-to-be-a-success-at-everything/7-habits-of-self-made-millionaires
allbusiness.com/slideshow/9-smart-habits-of-real-millionaire-entrepreneurs-16769866-1.html
huffingtonpost.com/timothy-sykes/top-30-millionaire-habits_b_8260134.html