Fundamental Analysis Workshop Series Trading Psychology and Risk Management Session 14 6.15PM
NUS Students Investment Society
DISCLOSURES & DISCLAIMERS This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NUS Invest. The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material. INTRODUCTION REVERSAL PATTERNS PRACTICE Q & A
DISCLOSURES & DISCLAIMERS Nothing in this research material constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this research material are subject to change without notice. CHART INTRODUCTION TYPES CHART REVERSALSUPPORT & CONSTRUCTION PATTERNS RESISTANCE TRENDLINES PRACTICE & CHANNELS PIVOT POINTS S Q & Q A& A
Profile BBA1/ARS1 Investing since 2008 Equities, Forex, In-Game Items FA/TA and more recently Statistical and Psychological Analysis First official trade HiP International, 2008/2009 Tactical Asset Management INTRODUCTION REVERSAL PATTERNS PRACTICE Q & A
Agenda What is Trading Psychology? Case Studies Live Analysis (If there s time) Key Takeaways: 1. Know Yourself 2. Know the Crowd, and be Rational 3. Plan and execute the trade well.
Trading Psychology GREED FEAR
Can you see the Psychology?
Super Group
USD/JPY
Hypothetical Case Study It has been a few months and you have had - $600 in your trading position (short term ) Recently, a piece of good news related to your stock occurred You find yourself profiting by $250 It is 11 am, Singapore time, the stock is a company listed in SGX
Risk Management Stop Loss and Take Profit levels The concept of RISK Risk management strategies 2% vs Fixed Dollar method Simulation and Excel modelling as a tool.
Osim International Ltd (BUY) Ticker: OSIM SP Last Closed Price: 2.26 12M TP: 2.7 Upside/Downside Potential: 19.48% Entered at 2.22, exited at 2.42, then reentered at 2.38 then
Bad news: On 17/2/14 around 8pm there was a news release regarding one of the TWG founders suing Osim and its directors for using corporate actions to dilute his stake in TWG Tea.
The Plan - SHORT Price SL TP Risk Reward Ratio Comms Lot Size Dollar Profit Dollar risk 2.37 2.4 2.3 0.03 0.07 2.33 60 5000 290 210 Possible scenarios: 1. The trade goes well. I gain $290 2. The price goes up for some freak reason. I lose $210 3. The price doesn t move, I cover my shorts and lose the commission of $90 ($30 for exiting my long position and $60 for initiating and exiting the short trade in the day
What Actually Happened The Short order only managed to clear 2 lots or 2000 shares for me. Detrimental because it meant I would need a steeper price drop to overcome commissions and make a profit. For SGX, short sells must be covered on the same day with a corresponding buy order equal to or exceeding the short sell amount Basically meant I needed a substantial drop in price in 1 day by 5pm
The Reality Price SL TP Risk Reward Ratio Comms Lot Size Dollar Profit Dollar risk 2.37 2.4 2.33 0.03 0.04 1.33 60 2000 20 120
The Exit 1530 hrs Price SL TP Risk Reward Ratio 2.37 2.4 2.34 0.03 0.03 1 60 Comm s Lot Size BUY Dollar Profit Dollar risk 3000 30 180 In one day: Made $30 Repositioned my Previous Long Entry from 2.38 to 2.34 (higher upside potential) Exited long entry upon testing of resistance at 2.51 (somewhere during Finance Midterms)
Know yourself are you being greedy or fearful? Know the crowd are THEY being greedy or fearful? Have a plan Monitor your trading plan adjustments to plan should be made ONLY IF NECESSARY AND IN A RATIONAL, EMOTIONLESS MANNER.
The 2 Pillars for Consistent Profits 1. Your Hit-Rate How often you make winning trades. Depends on your trading skills. (FA, TA, SA, etc) 2. Your Trading Psychology and Money Management How much you earn when you make a winning trade and how much you lose when you make a losing trade.
Thank You!
Session Fourteen Money Management Puah Yong Kin NUS Invest, Research Analyst
DISCLOSURES & DISCLAIMERS This research material has been prepared by NUS Invest. NUS Invest specifically prohibits the redistribution of this material in whole or in part without the written permission of NUS Invest. The research officer(s) primarily responsible for the content of this research material, in whole or in part, certifies that their views are accurately expressed and they will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this research material. Nothing in this research material constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. The research material should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this research material are subject to change without notice.
Agenda Self Introduction What is Money Management Why Money Management Money Management for Investors and Traders Summary
Profile Year 1 Pharmacy Student - 1 year plus trading experience Trade in both Singapore and US markets Focused on Technical Analysis
http://www.investmentmoats.com/budgeting/earn-6000-a-month-yet-broke-at-35-years-old/
What is Money Management The process of budgeting, saving, investing, spending or otherwise in overseeing the cash usage of an individual
Why Money Management Be the master of YOUR life Control your own finance Streamline on spending Savings for rainy days Investment Financial Freedom Passive Income > Active Income
Getting Started Clear Objectives I want to get my own house in 8 years time Get Organised Money inflow and outflow Tracking and streamlining your expenses Budgeting Savings and Investment Continue Tracking and Modify when necessary
Example Items Amount budgeted Transport $100 Food $300 Shopping $100 Birthday Presents $100 Savings $200 Investment S200 Total $1000 Example of a pharmacy scholar under MOHH not staying in school
Investors and Traders Different kind of beliefs so different money management strategies One thing in common Do not put all your money in one basket Split into at least 3 portions
Investors
Investors Find ROI Dollar Cost Averaging
Rate Of Investment(ROI) A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.
Dollar Cost Averaging The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.
Class Part 1 Assuming that you want to invest in Company ABC and you have $7200, by applying dollar cost averaging, you will split your money equally into buying shares over 3 months Jan Price: $1.00 Feb Price: $0.80 Mar Price: $ 1.20 Calculate how many shares you can buy each month.
Class Part 1 Jan 2400 shares Feb 3000 shares Mar 2000 shares Tedious right? However.. Price Per Share = (Total Amount Invested)/(Total Number Of Shares) = $7200/7400 = $0.97 Price now is $0.97 instead of $1.00 if you choose to invest all at the start
Traders Cut Loss Risk Reward Ratio Number of shares to buy Profit-taking Scaling In
Cut Loss Cut your losses short and let your winners run. The objective, therefore, is not to avoid losses, but to minimize the losses. Realizing a capital loss before it gets out of hand separates successful traders from the rest. 5%-8%
Cut Loss Assuming that you buy 1 share at $1.00 Cut Loss 8% = $0.92 To gain back your $1 in your next trade, $0.92 x 109% = $1 Cut Loss 20% - $0.80 x 125% = $1 Cut Loss 50% - $0.50 x 200% = $1
Risk Reward Ratio(RRR) A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. RRR 1:n, (n>2) RRR = Amount Risked : Returns Expected
Number of Shares to Buy Calculate the number of shares you can buy using the amount of money you are risking in the trade and not by expected returns Number of Shares to buy = Amount at risk/(buy Price Cut Loss Price)
Class Part 2 Price of ABC stock is at $1.20 per share now. Given that your risk is $300 and you practice 5% cut loss level, how many shares can you buy? Number of Shares to buy = $300/(0.05 x $1.20) = 5000
Scaling In Art of increasing your profits Target Price - $1.30 Risk Reward Ratio = 1:3 Current Price - $1.00 Cut Loss - $0.90 Assuming the amount you risk is $100, Number of Shares to buy = $100/$0.10 = 1000 shares Total Cost of Investment = $1 x 1000 = $1000 Profits = $1.30 x 1000 - $1000 = $300
Scaling In End of 1 st Day Price - $1.10 Profits after end of 1 st Day = $100 Price Bought - $1.00 Cut Loss - $0.90 Scaling in, Number of Shares to buy = $100/$0.10 = 1000 shares Cut Loss now set at $1.00 => Risk = $0
Scaling In End of 2 nd Day Price - $1.20 Price Bought - $1.10 Price Bought - $1.00 Profits after 2 nd Day = $300 Scaling In, Number of Shares to Buy = $100/$0.10 = 1000 shares Cut Loss now = $1.10 => Risk = $0 Cut Loss - $0.90
Scaling In Target Price - $1.30 Price Bought - $1.20, 1000 shares Price Bought - $1.10, 1000 shares Price Bought - $1.00, 1000 shares Cut Loss - $0.90 Profits on Day 3 = $300 + $200 + $100 = $600
Scaling In Advantages Increase your profit margin Risk is reduced Disadvantages Need capital Incur more brokerage commission
Summary Money Management What and Why Getting Started Money Management Investors Traders
Compounding