Wednesday, March 15, 2017

The Case of Liquidty

Have you ever heard one of your trading buddies, tell you off by saying "wag mo bilhin yan! illiquid!"

Then you look at the board and think "okay naman ah"


This can mean either two things. Either (A) You are correct and your friend is just a dumb-ass who got the same scolding from a trader with a bigger port size. Or (B) Your dear friend is right and you haven't experienced getting trapped on an illiquid stock.

To visualize this, let me tell you a story of two traders named Bravz and Andy.

Andy is not your ordinary trader. Aside from being an expert in cutting his positions he is also a rich kid.

One day, he decideds to allocate 5M in one trade. He thinks to himself, "Rich kid ako eh. I can afford." So he goes on and buy 1.385k shares of MEG at 3.61. By the middle of the day he realizes that he wanted something else, something faster. So he sells all of his shares at 3.6 with ease. Commission loss doesn't bother him. Rich kid kasi eh.

He then proceeds to buy LMG because his favorite guru told him.... "30% Discount! This is syurbol backdoor! Okadah bombah!" So he buys a million shares of LMG at 5.

By the closing hour things turned sour, supports didn't hold and Andy's -5% cut levels were hit. He was in shock! Prices were diving down faster than that racer reached the next tower in Fast and Furious 7.


 He couldn't sell all his shares because there weren't enough buyers.

Prices went lower and At 4.3 he was now facing a 700k Loss. If he sold down everything before and during the market's closing, at what price would LMG reach? At this point he understood that he was trapped and that it was impossible to cut without incurring much damage. 

To give you a better image of Andy's situation and to the hundreds of traders who don't know how to sell their shares due to illiquidity, observe the following GIF :

So Andy decides to just hold all his positions because it was now too late and too deep to cut. He then thinks to himself : "Anyway Syurbul Backdoor naman toh. Okadah Bombah!" 

Does this sound like someone you know? 


Now, Bravz was the same as Andy. He was also hyped by the Okada Rumors. Hindi nga lang siya rich kid. But instead of allocating all of his funds on a single play,  he decided to be a good boy and only allocate 25% of his whole port on the LMG play.

Just enough to get his balls wet.

Bravz is training to be a Knight Class Trader btw, holding only a maximum of 4 stocks at a time. Where a single stock has a budget limit of 25% of his whole portfolio. So he then proceeds to put in 50k at 5. Why 5? Monkey see, monkey do! Best buddies sila ni Andy eh.

Now at the moment that his cut loss levels were hit, Bravz was able to sell his 10k shares easily because his allocation allowed him to be liquid enough for this specific play.


Not all traders are equal in size. Liquidity is Relative. There are huge sharks with 7 to 8 figures. There are Whales in the 9 Figures. And of course, let's not forget the cute little plankton traders that are just starting out by the 4-5 figures.

So how can we know if a stock is liquid or not?

I don't know about you and what other experts would say but I would classify a stock Liquid if I am able to use 100% of my total port, to buy or sell the stock at current prices and be ABLE to close positions on the SAME DAY without single handedly creating a 3-5% swing.

To further visualize this, if you had to buy 1 Million worth of shares within a minute without causing prices to fluctuate too much, between DMC and SPM, which one do you think would be able accommodate YOUR size?

Using our super powers, the common sense, we'd all agree that if we had to buy a million worth of shares, DMC is the liquid choice.

But if the stock I wanted to play was SPM and obviously it's illiquid for my size, I could always adjust my allocation so that it becomes a Liquid Trade. Instead of buying 1M worth, I'll just allocate 30k worth.

Because by the end of the day what matters is how you adapt and trade accordingly to your size. 

Don't be a whale swimming in shallow waters.

Tuesday, February 7, 2017

The Superman Effect and thoughts on Maximizing Profits

Borg Plays are Love.


I've sold all my ALCO shares on those two ports as my trailing stops were hit. Average sell for both accounts were near 1.35 - it's a bit tough to sell when you've got conviction volume that could influence the market Up or Down. The high for the day was at 1.67

One person was asking me why I wasn't able to maximize my gains by selling everything at the 1.5-1.6 levels.  I told him...

"It's not about maximizing gains. 
It's about maximizing your system."

Who would have known that 1.67 was the top? No one can consistently predict and trade the tops and bottoms of the market. If you were able to sell all your ALCO shares at 1.67 successfully based on your gut-feel, then good for you. But would you be able to sell at the tops on the next trade? And how about the one after that? 

As human beings, our emotions will most likely be consistently inconsistent, which can lead to flawed trading decisions. But a trading system, with constant practice, can be consistent.


You know that feeling when you have successive bad trades and you feel your confidence levels drop? It's a terrible state and  sometimes you'll find yourself stuck in what we call makabawi syndrome. But you know what's equally terrible? 

The Superman Effect.

This happens when you've "hit the jackpot" by winning several or few trades with conviction and you gain some sort of high - you feel like you're indestructible, that you'll be able to replicate your trophy trade on to the next one with ease. There's some sort of immense control you feel over the markets as if it would do your bidding.

You execute trades that are high risk because you feel like you can take the punches. After all, you've gained a good buffer of gains to offset potential losses.

"Okay lang malugi. YOLO. Afford ko naman."

And you know what the worst part is? When you come to a point that you've lost all your gains because of over trading and you don't realize that you're slowly transitioning into the Makabawi Syndrome.

So after selling my ALCO positions, I decided to impose a 24-hour purge and trading ban in my port to be damn sure I won't get high with my profits and go Superman! I sold all other positions and I've decided not to think of the next trade (if possible) and just relax my mind.

Always remember, don't trade when you're excited or fearful. If you're under the Makabawi Syndrome or the Superman Effect, purge until your emotions are at Zen - and you won't be able to do this if you're still holding existing stocks, following your favorite guru, or that noisy facebook group, and that useless subsrciption.

Trade when you are ready. Body, Mind and Soul.

3.X M in 4 days. Not sure how much I gained exactly too lazy to compute right now. 

Not bad right?