Yesterday, I was invited to speak at the SMU Open House, as an Alumni of the School of Accountancy and School of Business. It was a great honour to contribute back to my Alma Mater, and inspire the next generation of students to greater heights.
Full photo album for the event:
Once again, a big thanks to SMU for inviting me back, and also to the professors who have supported me along the way, and everyone else who turned up to support me yesterday! Cheers! 😀
If you listen frequently to the mainstream media, or take advice from friends and family who are not traders themselves, they might give some good-intentioned but ill-informed advice, which could harm your trading results.
Such dangerous myths about trading might seem to be “common knowledge” because they keep getting repeated frequently, but have you stopped to consider whether they are really true?
Here are some common myths:
Do these sound familiar?
Today, I will tackle 3 of the most common myths.
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(Reality: Trading with leverage reduces capital required, but risk can be kept the same.)
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 though, 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, using leverage is actually a standard practice. When you use 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 your trading size small.
Also, trading with higher leverage allows you to take multiple positions with little capital. 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.
(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 only 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.
(Reality: Risk is independent on the product, and forex actually requires less capital.)
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 easily make many trades and rack up trading experience by “trading 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 fixed commission charges (stocks tend to have a fixed minimum fee regardless of trade size), making the ‘tuition’ fees a lot less than trading in stocks.
Another great thing about forex is that thee market is open 24/7 on weekdays, so you can decide when to trade based on your schedule. That helps people who have busy working 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.
Lastly, with regards to price movements, stocks tend to see bigger gaps between days. Here’s what I mean:
Forex pairs/currency futures tend to have less gaps between bars; bars close and open at roughly the same price.
Most stocks have gaps between the candlesticks/bars, due to the opening and closing of the market every day.
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.
If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”
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.
To register, please whatsapp +65-9772-4280 or email info@synapsetrading.com with the following details:
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! 😀
Many people do not realise that small things add up. Like how a small river can cut through rock and form grand canyons, small habits can add up over time to produce vastly different results. This means that quite often, a small change in the way we do certain things can result in huge leaps in improvement. So here are some things that rich people do differently:
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Trading is boring. Ask any seasoned trader in a proprietary fund, and they will tell you the same thing. It’s all about doing the same thing over and over again, and it is surprisingly difficult to do something simple over a very long period of time.
Some of the richest people I know own very humble businesses. One example is the typical food hawker; it’s unexciting, it’s repetitive, but hey, it gives a very stable source of income, week in, week out. It is virtually impossible for good food to become irrelevant to the typical consumer, and hence this source of income is one that will last a long time.
In trading, it’s the same. Small wins add up over time, and instead of being diligent, many aspiring traders choose to take the easy way and just look for that one quick way to make money. Although the news always glorifies the one-hit wonders, like Zuckerberg and other billionaire tech founders, the majority of the rich are not overnight successes, and they know this rule best: small wins add up over time.
I’ve seen many traders do well on small accounts, only to blow up with larger accounts because they have not drilled the ROI concept deep into their minds.
If you can make 3% a month, that’s $30 for a $1000 account, $300 for a $10,000 account, and $3,000 for a $100,000 account. Go figure. If your focus is on % ROI, you will not have an issue growing your wealth quickly.
This point is probably the easiest to write about:
Gambling = negative expectation
Investing/trading = positive expectation
“I bet I can stop gambling!”
Gambling gives you hope, which is false and always gets dashed.
Investing gives you certainty, which is true and rewards the skillful.
I think that’s enough said. If you’re gambling for the thrill, treat it as expenses. As a trader I always think in probabilities, so since the expected return from gambling is negative, the rational decision is to not participate at all.
In addition, 1 in 5 gambling addicts attempt suicide. It destroys your family, your friendships, your sense of sanity, and your work ethic. I think it’s enough to let you realize it won’t get you rich; even the seemingly innocent TOTO or 4D that you buy is not a rational attempt for someone to earn big money.
Quite often, people will go to great lengths to save money, for example spending hours hunting around for cheap shopping deals, when all you save for your hours of effort is a mere $10-20. Rich people know the value of their time.
One important question to ask yourself is, “what is the $ value of 1 hour of your time?” If 1 hour of your time is only worth $2, then spending an hour queueing up for free ice-cream might make sense. However, if one hour of your time is worth $200, then taking a $20 cab ride to save an hour of transport will make a lot of sense. You get the idea.
At this point, you might have realised that one if the key ways to increase your net worth is to gradually work your way up by increasing the value of your time. After all, everyone has 24 hours in a day, but the more value you can create in one hour of your time, the higher you will be paid for it, and the higher the value of that hour will be.
It’s sad that most people are thrifty in things that do not matter, but silly when it comes to investments of thousands or hundreds of thousands of dollars. I’ve seen people scrimp on their daily meals, yet when it comes to investments, blow $50,000 on an investment fund they do not understand, or buy into a multi-currency deposit that doesn’t even make sense.
Home purchases, which make up the bulk of most people’s expenditures, tend to be bad decisions. People buy houses that they cannot afford, spend money on renovations that don’t matter, and waste money where it doesn’t bring returns.
Most people are smart with small sums of money, but unwise on big decisions
Rich people buy things that appreciate in value, while poor people don’t. Electronics generally don’t appreciate in value. If you consider buying electronics, buy quality electronics, and keep them in tip-top condition so that you can resell them at a decent price. And… just because it’s the latest gadget doesn’t mean it’s quality. You’ve got to do your research and think about your purchases if you are serious about your money.
Wine does appreciate in value, and so do quality branded goods. Some Louis Vuitton bags appreciate in value, and it would do you well to consult experts if you are intending to use these products.
Other things that are not worth spending on include:
Yes. It might hurt to read this, but if you need a total personal finance audit, then it helps to do a reality check on yourself.
If you are excited to get more life hacks, also check out: “Beyond Financial Freedom: An Unofficial Guide to Living Your Best Life”
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
