Blog: Trading Tips

When it comes to trading, most people think that trading is stressful and boring because it involves staring at a screen the whole day and watching prices move, and then having to execute trades at lightning speeds to make any profits.

That is quite often what is shown in the movies, and very much dramatized.

In reality, there are many different kinds of trading, and here is a simple infographic depicting the main categories.

Source: Forex Useful

Generally, what you see in the movies tend to depict scalpers and day traders, which is the most stressful kind of trading. I myself tried it for a couple of years, but it started to take a toll on my health, which I decided was not worth the money, even though it was pretty good.

Position trading is more useful in timing the market to build your long-term portfolio, as I mentioned in my previous blog post: https://synapsetrading.com/how-to-build-a-1m-dollar-portfolio-by-30-the-practical-stuff/

Hence, I find that the most useful kind of trading for anyone who is doing it part-time, or does not want to get too stressed out, is to use a swing trading approach. This means taking tactical positions to capture the medium to long-term trends.

With just 15 minutes a day, it is more than enough for me to place and manage my swing trades, which leaves me more free time to focus on the things that matter in life.

Of course, there are some drawbacks to swing trading as well, for example your income will be more lumpy as compared to intraday trading, and you will need a ton of patience in waiting to enter the perfect trades, and also waiting for trades to play out.

In summary, the type of trading style really depends on each individual personality and amount of free time, but personally I prefer to use the swing trading approach because it gives me the best returns for my time and effort.

Do you know what is your preferred style, and does it play to your strengths? 😀

Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.

How to Build a $1M Dollar Portfolio by 30 (The Practical Stuff)

monthly portfolio updates October 2016 1

This is the dream of many millennials, to build a million-dollar portfolio as soon as possible, so that they can live off the passive income, and focus on pursuing their dreams, interests or hobbies, without having to worry about money any more.

When I was in my 20s, that was my dream as well, which was why I read over 2000 books ranging from investing, trading, psychology, motivation, philosophy, biographies, businesses, digital marketing, finance, accounting, etc. And that was when I realised that most of wealth creation boiled down to 3 simple core principles.

1) Multiple sources of Cashflow

The first thing you need to get started is a solid base capital, so at the start if you do not have much capital, almost all your time and resources should be focused on generating as much cashflow as possible to build up your ammunition.

If you have a well paying job, then you can start saving aggressively, but to speed up the process, most people will seek to generate multiple sources of income or cashflow. Some examples include working a side job, starting an online business, etc.

For me, I decided to use forex trading, because it did not require much capital to start, and also because I did not have much spare time, and could only afford to spend 15-30 minutes a day. Now, it provides me a steady monthly cashflow, which allowed me to move on to step 2.

2) Timing your portfolio purchases

Once you have sufficient capital and consistent cashflow, the next step is to start building your long-term portfolio. Start by having a rough idea oh what your ideal portfolio is, and what kind of risk/return profile you are looking for. Look out for assets that have a good chance of capital appreciation, as well as passive returns in the form of dividends or rental yield. Over time, I tend to favour having more “passive income” type of investments.

Do not be in a hurry to buy everything at once. Watch and study the market cycles, and aim to buy stuff only when they are cheap or “undervalued”. This can be done easily by looking at the charts of any product over the past 50-100 years of history. There is no need to spend hours reading financial reports or analyst reports. Remember, our goal is to get the most out of our limited time.

3) Re-invest the passive income

As your portfolio grows, and you continue to add to it via your monthly cashflow contributions, the real kicker is when the effect of compounding kicks in.

The best way to do this is to also re-invest the passive income which you get from the portfolio itself, creating a snowball effect which will literally grow your portfolio exponentially.

Once you have assembled your ideal portfolio, all you need to do is to check on it once every 3 months or so, and do some rebalancing. In the meantime, you can pretty much enjoy the fruits of your labour, and focus on living your life instead of having to worry about money.

For me, this means travelling around the world (50+ countries to date!), and sharing my knowledge to inspire and help others do the same.

Now, are you ready to start building your own portfolio?

How to Combine Price Action with Multiple Timeframes

One of the simple yet powerful techniques I use to allow me to quickly identify trading opportunities with minimal time and effort (typically 15 minutes a day), is to use this Excel table which combines price action with multiple timeframes.

To create this table, I observe the daily and weekly charts of various products (forex, stocks, cryptocurrencies, commodities, etc), and list down whether I think it is bullish or bearish on each timeframe. For the weekly chart, I only need to update it once a week, and for the daily chart, this takes me a few minutes a day.

Here are some chart examples:

This is the daily chart of the EUR/USD, and you can see that it just completed a pullback and is looking bullish. So under EUR, I mark it as bullish. For most products, I always benchmark them against the USD for easy comparison.

This is the weekly chart of the EUR/USD, and you can see that it is also very bullish, and rebounding off a large trendline. With the alignment of both the daily and weekly trends, this make the EUR/USD a very good long trade to be in. And since the GBP is also weak, going long on the EUR/GBP is also a good idea.

For the S&P 500, the long-term trend is bullish, but the short-term trend is bearish. In such a scenario, we will pass and wait for more price action. The goal is to take the best trades, not take as many trades as possible. Quality over quantity.

3 Crucial Lessons From Jesse Livermore – The Greatest Stock Trader of All Time

Jesse Livermore is known to be the most prolific stock trader. Several books have been written about him and his trading track record is legendary. His profits were so great that he was reported to have owned mansions in various places around the world, each fully staffed, complete with limousines and steel-hulled yacht for his holidays.

Some of you might have read that Livermore was worth $100 million after shorting the 1929 great market crash.

Above: Some of the books about Jesse Livermore, available in major bookstores.

What Guidelines Did Jesse Livermore Follow As A Trader?

Among the many quips he had about trading and investing, I’ve picked out some of the key ones that could make or break your trading account.

While many complain about the difficulties in trading forex, stocks, or commodities, there is a good minority that makes consistent profits in the markets.

What sets Jesse Livermore apart from his peers?

Buy rising stocks and sell falling stocks.

The above seems obvious, but many people fail to adhere to this rule. Many people like to ‘pick tops’ and ‘pick bottoms’. Now, professional traders do occasionally try to pick tops and bottoms, but they do so with very strict risk management, and always have a contingency plan for when the trade doesn’t work out.

Beginners often makes the mistake of trying to trade against the trend. While this can be profitable for some, talk to anyone in the trading industry and they will tell you that trend-following is the major money-making strategy that every trader uses. It’s simple, easy to add positions on, and it’s stress free. The problems come when beginners make a buck from trading with the trend, and start to explore ‘new ways’ to trade and invest.

2. Keep trades that show a profit, end trades that show a loss.

Jesse Livermore is famous for his humongous profits, but behind every profitable trader is the admirable ability to deal with a string of losses. It’s one thing to know that you need to cut losses, but it’s another to actually cut your losses when you are wrong. George Soros famously quips that it is not how many times you win or lose, it’s how much you make when you win, and how much you lose when you are wrong.

Cutting losses is a psychologically hard thing to do in modern society. We’re ingrained to be always correct, and never admit that you messed up, because it reflects badly on you as a person. However, with investing, no one is marking you for the number of losses; the profit that you make is the final report card that matters, and that’s where we want to be focusing on.

3. Never average losses by buying more when your stock has fallen.

Too many people refuse to be wrong on their investments or trades.

I have heard of people say this statement: “Even if the stock drops a lot, I’ll just keep it because I’m buying for ownership and dividend cashflow, not just for capital gains.” Sure, but what happens if the stock you hold drops by 70%? 80%? You’ll buy more?

Buying more when the stock has fallen is a sure-way to get your trading account to zero. It’s taking more risk when the odds are against you.

Think About This: Which of These 3 Guidelines Have Brought You Losses in the Past?

Many traders soon realize early in their career, that their trading accounts could have been profitable if not for silly mistakes. Avoiding these silly mistakes requires experience, maturity, the correct knowledge, and of course, proper mentoring.

I was lucky to be mentored by veteran traders early on in my trading career. Their advice, based upon thousands of hours of market experience, contributed greatly to who I am today, and I never fail to mention, during trading seminars or public events, that by tapping on their experience, I was able to quickly attain a level of success that kept me profitable.

If you’re currently struggling as a trader, ask yourself this question: “Which mistakes have I been making?”

Acknowledging trading mistakes is a continuous process of learning and growing.

The World’s 7 Greatest Currency Trades Ever Made – Key Lessons

Have you ever wondered, what are some of the most epic forex trades that went down in history? And more importantly, what crucial insights and lessons can we learn from these legendary traders?

1) ANDY KRIEGER – $300 MILLION PROFIT

Andy Krieger is a somewhat unknown trader who made his name at Bankers Trust. He was watching currencies in 1987 after the Black Monday crash, and he saw an opportunity for arbitrage in some overvalued currencies. He became famous because he shorted a few hundred million dollars worth of Kiwi (New Zealand’s currency), and he shorted so much that his position was said to exceed the money supply of New Zealand as a nation.

Andy shorted so much currency that there was not enough currency in circulation to support the short.

The kiwi fell tremendously while he was shorting it and made $300 million for Bankers Trust. Legend has it that a worried New Zealand government official called up Krieger’s bosses and made threats to him. Krieger later left the firm to work for George Soros in his quantum fund.

2) STANLEY DRUCKENMILLER – $2 BILLION TRADE

Stanley Druckenmiller made this historic trade as a trader working for George Soros’ Quantum Fund. He went long on the German mark because of the fall of the Berlin Wall, and the undervaluation that was going on during the reunification between East and West Germany. Legend has it that Stanley initially bet a few hundred million dollars, until Soros told him to raise the bet to $2 billion. That year, the Quantum fund brought in 60% returns.

Stanley is a rather unknown person, but the fact that George Soros hired him is worth noting.

Another trade that Stanley made was in the 1990s. He was buying German bonds, because he expected investors to move from British bonds to German bonds. It was also during the period where Soros broke the Bank of England.

3) GEORGE SOROS – $1 BILLION PROFIT IN THE POUND

George Soros became famous because he shorted the pound aggressively, in fact, so aggressively that he borrowed heavily and make $1 billion in the process.

At that time, Britain wanted to keep the value of the pound above 2.7 German marks, a key feature of the fixed exchange rate mechanism. Many speculators began to take up short positions in the expectation that this fixed exchange rate would not hold.

This was the famous ‘broke the British bank’ trade that shot George Soros to stardom.

Britain even raised its interest rates to double digits to try to attract investors and prop up the buying in its currency, however, the British government soon realized that it would lose lots and lots of money trying to keep the value of the pound. Soros made $1 billion for his fund on this trade.

4) PAUL TUDOR JONES – $100 MILLION PROFIT SHORTING BLACK MONDAY

The U.S stock market experienced its largest 1-day percentage decline ever on Black Monday of 1987. This was the most shocking fall the world had seen at that point, and even up to today, no 1-day decline has ever matched Black Monday.

Betting on a black swan event netted Paul Tudor Jones $100 million in profits.

The 22.6% drop in the Dow in 1987 has not been rivaled even up to 2017.
Source: stock-market-crash.net

Paul Tudor Jones shorted the stock market, tripling his money, and making US$100 million on that trade while the Dow Jones plummeted 22%.

5) ANDREW HALL – $100 MILLION PROFIT BETTING ON OIL

While working for Citigroup, Andrew Hall predicted a 5-year bull-run in oil from 2003-2008, and made the appropriate trades. Oil went from $30 to $100, and Hall brought with him $100 million as part of his compensation plan.

Andrew Hall made it big on oil in his career at Citigroup.

Aside from this brilliance, he reportedly bought 1 million barrels of physical oil in 2009, and stored it, hoping that oil would rise greatly. It did, and from 2009-2011, oil went from $50 to $100. However, his oil fund hasn’t been doing well in the past 5-6 years, and he has had to repeatedly explain the lack of profits to investors.

6) DAVID TEPPER – $4 BILLION PROFITS BUYING BANK STOCKS

David Tepper’s strategy was simple; buy low, sell high. In early 2009, he scooped up big banks like Citigroup and Bank of America, and saw them quadruple and triple in value from their bottoms in 2009.

Nothing spectacular; buy low, sell high.

These trades earned $7 billion for Tepper’s hedge fund. His personal compensation was $4 billion.

7) LOUIS BACON – 86% RETURNS BETTING SADDAM HUSSEIN WOULD INVADE KUWAIT

Louis Bacon went long on oil, short on stocks in the 1990s because of this geopolitical situation. Later, he also correctly bet that the U.S. would quickly defeat Iraq and the oil market would recover.

Bacon’s event-based bets rewarded him handsomely.

Louis Bacon explaining what he knows best; geopolitical event trading.
Source: Quotesgram

His hedge fund returned 86% that year because of these trades. Although his strategy is somewhat unconventional, he has excelled in it and carved a niche for himself.

KEY TAKEAWAYS

Many of these traders had decades of trading experience under their belts. Although they all seem like they had a great stroke of luck or a brief moment of brilliance, the preparation and practice that they went through was thorough and gruelling.

I hope that these stories of real traders would motivate you to continue at your game, brush up your skills, engage the financial markets, and stay up-to-date with what’s going on.