Treating every trade as a business

I know many of you work for a living and do not trade day in day out because face it even a top notch trader or fund manager do not trade every single day so why should you be trying to do that? Out of the 52 weeks in a year i would say about 40 weeks are tradable,there will be about 3-4 months worth of period(they may not be continuous) that is best to stay sidelines be it in Forex or Stocks.

There are a couple of rules in trading and rule no 1 is liquidity in the market because you want to be in a market with strong volume because for 1 the market will not swing suddenly against you by 4-5 bids within 30 minutes - 1 hour.

Next comes the selection part,you know that your indicators will not show what will happen correctly all the time so how should you solve this problem? It is important that you combine your indicators(RSI is a must,you will be amaze at the frequency it's right when combine with Fibonacci retracement) that said you need to be looking at it correctly for it to work. Fibonacci is a very good way to filter out bad trades but it is also a very wide topic to cover that i wouldn't be able to cover in a post but at least i am pointing you all to look up in the right directions,should you have anything you do not understand,feel free to ask me

A good book to read up on would be Forex Conquered which you can get it from the National Library,it is not related to stocks but it's more towards forex but the part about the technical analysis parts work in stocks as well,very comprehensive study on Fibonacci is inside which i am certain will benefit you all.

A lot of people tried to find the holy grail and looking for a sure win system. Today i'll act as the bad guy and burst your bubble,there is no holy grail how well a system works all depends on you,it is UP TO YOU to decide when to take certain trades and when to skip the trade,what a system is for is for a clear cut entry and exit rules that you should stick to to avoid DISASTROUS LOSS You can be right on 80% of your trades but you can still be not making much money or a loss even because the 20% are all big losses. So don't waste your time trying to the holy grail,instead ask yourself how you are going to plan such that when you take a trade it has a high probability that it will result in a profit.

You do not need many trades to make good profit you just need to make the right trades to make good profit.

Risk management is something that all should work towards to nonetheless there is no easy route for this because it is all based on your judgment and only by combining knowledge,experience and technical analysis will you be able to escape from steep loss and be on the road to accumulate wealth.

What is risk management?
I will just put it across as a general point of view,basically all of you all know that you should not put all your eggs in 1 basket this is true both for trading and for financial planning. I will first talk about it from a trading point of view,you will realize after this that there are a vast difference between them.

If you all following the above,combining Fibonacci with the indicators,i would say that UNLIKELY your trade will go against you for 10% or more. Does not mean it is impossible but unlikely it should go down that much. And the way you control your risk is ensuring you do not risk more than 10% of your capital per trade in a way it means 10% = Cut loss. However you need to know what is the prevailing market condition at that time as well. As you go on,you'll encounter many types of condition be it trending up,trending down,sideways or steep rise or steep drop,whatever you name it,it can happen,this part you will have to depend on your judgment but as a rule of thumb you do not want to still be holding a position that is sitting on 10% loss because 1 if you are down 10% that means many others along with you + people that bought even higher than you are waiting to sell when it goes back up,that creates resistance.

Next how you determine your cut loss also depends on your time frame,are you buying for long term ( more than 2 years) mid term (6 months) or swing trading ( 3-14 days ) Naturally for the time being i preferred swing trading as oppose to day trading because i because at this market,anyone that can make money consistently based on day trading is very skilled indeed that no matter what kind of market condition will be able to reap in the profit,i don't mind saying that i can't do day trading in this type of market and be able to generate consistent profit which is why i did not take this route. Which brings me to the second part,you do not need to follow what other people are doing,you just need to be doing something that makes money for you and you are comfortable with it.



Risk Management in Financial Planning has a somewhat different meaning but i believed many of you are distorted of what diversifying your trust means. Diversifying of risk does not mean putting your money in many different unit trust or funds. It is about spreading your money between different instruments. The Financial Market has created many instruments etc. ETF,Unit Trust,ILP(For my company it is Inspire which can be made at the same price as a unit trust but provides a guarenteed return 25% + the Invested amount upon Death of Terminal Illness),bonds,stocks To put it simply all instruments that require management by a third party(meaning you do not manage it yourself) has a cost etc. Unit trust,ILP,ETF that means it would be prudent that you do not have more than 1 of the same product. Example if you have 50k if you put it in 1 unit trust,your annual management fee could be 1.25% but if you spilt your money into 2 unit trust 25k 25k,your annual management fee becomes 1.25 x 2 = 2.5%. You may think that you are spreading your risk but the truth is you can spread your risk in 1 unit trust by assigning a certain percentage into 1 fund and the remainder in other funds. That in itself is already diversification. In short the more separate policies you have the higher the underlying cost to you so if you are looking to diversify,you should diversify across different instrument.


Risk Management for the individual
Basically i can divide it into the 2 portion below
Protection
Investment

Protection as it says is meant to protect you which i have already said the best way is to use a Term because the price is cheapest out of all the available insurance out there. This is meant to protect yourself and your family so that in the event anything unexpected happens,although the emotional side nobody can heal for them except time but at least financially they will not be burden by your loss because as you all should know in your lifestyle millions of dollar pass through our hands should you not be making the millions because of passing away before you made those money it is a financial loss for your family be it your parents or your wife or children,without your income without your contribution,where are they going to find the money to carry on? Costs of living as you all know goes up 9 out of 10 years because of inflation. So is it important to have protection? Although many of you may be deterred by it but it is still a very crucial portion. For people that are young the good thing is that if you plan well and sufficiently when you are young your cashflow will not be choke up just by paying the insurance premium and when your salary goes up when you have more work experience your % of the premium per year as opposed to your annual incomes becomes lesser and that is something only a young person has the privilege to so why do so many not make use of it? You will need to pay a high price when you enter your 30s or 40s.

Investment
1 thing about investment with ILP or unit trust for that matter is that they do the sales charge beforehand then when you wish to take out the money they do not have any charges but this only means 1 thing,a ILP and a unit trust are designed to be LONG TERM instrument,when i mean long term i mean that you should be paying for it for as long as possible a recommended time frame is at least 15 years. Why do i say this? Because you are being charged when you put in,supposingly you take out all your money and buy again then you are being charged again!!! So the common way of using unit trust/ILP is that they are for retirement planning that they will pay and do not terminate till they want to retire,with a timeframe of 30-40 years and if you are putting in 2400 a year. It is possible that you have a million or more in your account by the end of 30-40 years but it does not mean you should just chunk it 1 side and be paying for it throughout the 30-40 years i can tell you if you do that,you'll be VERY DISAPPOINTED with the returns. You still need to allocate your unit trust/ILP according to the prevailing market condition but you will not need to do active management of it,you will probably be looking to shift your money once to twice a year.

For the time being i am not very sure of the details but my company will be coming out with a new investment product in January that has a guaranteed percentage returns. I will have to wait for the launch before i can determine if it can cater to people that wish to plan for their retirement with a certain degree of assurance that their money will have a minimum amount when they want to retire.

My motto is Buy Term Invest the rest and i believe i could cater to people that has the same belief as me. As mentioned my company actually has a product that is as competitive as a unit trust in terms of the charges but there is a guaranteed sum assured should you pass away while you have the policy and that is 25% + 100% of the AMOUNT you put in and not the CURRENT value in the fund + units that you have which is how much a unit trust will pay to your family should you pass away,if your fund price has dropped 50% basically you get back 50% lesser. This in itself i believe no matter how you look at it a ILP beats a conventional unit trust.

Today is just a opener for more to come in the coming Friday. I couldn't touch much on the psychology part of trading yet instead i am talking more about risk management because this part is a important part that 1 should know before they start to venture into stock market or trading.