Thursday, September 21, 2017

The Two Kinds of Traders

If you were given a million pesos today to trade one stock and were to choose between these two stocks and with only their charts as available data, which one would you pick?

Stock A

Stock B

Remember your answers because today, we'll talk about the two kinds of traders represented by Bob (A) and Carl (B).

Let's start! 

Bob is where majority of traders belong to. He focuses on stock prices and declines, and see these events as buying opportunities. A fire sale that would give him profits in the long term.

But what exactly is long term for Bob?

No one knows exactly how long it is. It could be a year, 5 years, 10,  Indefinite? who knows? For the answer to this question is very subjective. But the most common answer Bob has is this:

Time isn't much of an issue. Price is. Or more accurately, feelings are. Basta feel ni Bob magsell, then he sells. And for this example, he sees the highest price as the reward. "Pag bumili ako ngayon at BUMALIK to sa 16, makakabili na ako ng (insert bucket list item here)"

Most of the time, this is where speculation and fundamentals start to creep in and play a major role in Bob's mind. Because these two things give him the justification for his decision and the hope he needs for his long term dreams. 

A year and several months pass and we check on how Bob is doing...

. . .

"Okay lang kahit hindi na hit yung TP ko. Long term naman ako dito at magandang companya naman tong ininvesan ko, (Insert future company plans here.) Babalik din to sa 16! Buy and forget! #ProudInvestorHere"

These are the most common lines you'll hear when traders of this type end up with a stale or a losing position and do not want to move on. Add to that their collection of quotes and wallpapers from Lolo Warren to give them encouragement and strength for the coming years.

"I am a patient trader. I will hold until thy TP come."


Let's go to the 2nd type of trader, Carl. Now, unlike Bob, he puts a premium into trends rather than prices and feelings. For him, there is no such thing as an expensive or a cheap stock. Only trending or non-trending stocks. 

Carl understands that even if prices have appreciated significantly but still follows the trend, there is still plenty of room to make money. He doesn't care about buying the stock at a cheaper price like Bob so he could feel good and feed his ego, he cares about feeding his portfolio and managing his time well.

When it comes to trading, understanding trends is as important as breathing in real life. We all know there are 3 types of trends right? 

Uptrend. Downtrend. Sideways.

Trends don't change overnight. OK sometimes it does, but that rarely happens. And Carl understands this fundamental principle : That if a stock came from a long downtrend, it first has to reverse by consolidating into a sideways trend, then slowly transition into an uptrend. Obviously, this takes time - days, weeks, months, years? Who knows?

So instead of buying into sideways or downtrends and waiting for these lengthy transitions to finish, Carl instead focuses on buying a stock that has an established uptrend. He knows that if he does this, he will save a lot more time. And as the popular saying goes: The Trend is Your Friend. 

And in just a few months, here's what happened...

91% in 115 days.

So what are you saying Zee?

I'm saying perspective is everything. If you want to make money the faster way in our market, buy stocks that are already trending up and making new 52-week highs rather than waste your precious time buying downtrends and waiting out the transition period.

Not saying you won't make money with Bob's method. But just saying... a moving train is faster than one that's just starting its engines for the day.

Exhibit 1

ATH Stock. Holding Period : 6 Trading days.

Thursday, August 17, 2017

The Disease of The Mind

When we enter the markets, we aren't just spectators of events that unfold right before our very eyes. We are first and foremost, participants in a non-ending battle arena. And there are no allies nor are there friends, there is only you and the beast that is the market. But not everyone knows this. Most of us are taught from the very beginning, the fundamentals of loving beautiful beasts. That if you love these big, unfailing and mystical beasts long enough, you will be rewarded.

Dahil may forever... 

... sa friendzone.


For those of you who want to know how much that trader has lost, it's around 1.1M. I know tons of traders and investors who have lost more. I've read countless of letters like these. And if there's one truth that the market tells us about these stories, it's Learn before you Earn

These losses don't become the dreadful numbers that they are overnight. They always start as a small, tolerable disease. And rather than finding a cure and dealing with it immediately, beginners let it run the course.

"Liit lang na paper loss to. Kaya pa."

Then one day, you find yourself paralyzed and in the verge of death. "I'd like to trade and learn. But it's too late for me to cut." So you accept your sorry position and leave everything to fate.

But it hasn't have to be this way.

Imagine for a second that traders are warriors. Do you think a warrior can fight effectively with a dreaded disease? Definitely not. The most they can do is spread the disease to the enemy - which is funny because this is what's happening to a lot of stock market communities. Damn. I've such a dark sense of humor.

Before one can learn how to fight properly, the disease must be stopped.

This is where the purge comes in. Purging isn't just selling everything in your bloody portfolio. It's also cleansing of the mind. Because trading isn't a physical game but a mental game. How can you move on if you are bringing a ton of emotional and mental baggage with you? 

Selling everything in your portfolio ensures you have nothing left in the physical and absolutely nothing to worry about in the markets. It's a painful process but it is necessary. 

And after clearing your portfolio, the next thing you'll have to deal with is bitterness. You know you were wrong. You were humbled by the markets and you paid the costly price of ignorance and falling prey to false gurus. But in order to move forward you will have to forgive yourself and accept where and what you currently have in the present. Forget about the losses you made. Face the markets once again as if it was your first day to see it.

From here, you are ready to learn how to fight. The only things you'll have to deal with are the bad habits you caught before you started purging - Listening to market gurus, rumors, tips, the reading of disclosures and news, and all your misconceptions of the markets and the fears from the scars you presently have.

Don't listen to those who can only talk. Don't fall for it again. For it is too easy to quote wisdom of old. Seek out people who can talk about winning and back them up by consistently showing you how they are made. 

And how would you know if you are right this time around and what you're learning isn't another disease? Here's a simple acid test: If what you learned makes you money, that is truth. If it doesn't, consider it cancer.