Personal Notes Series 014 : Of Something and Nothing

2017

Ahhh.. It's been such a year and so many things happened that I feel like my mind is still in such dissarray.

I've always wanted to travel and see the world when I was younger. I still do. And this year, I've dedicated most of my days travelling - you know, spending a week or two in one place and try to experience the place and culture as a local. I guess one of the best things you'd gain from the experience aside from the scenic views and great food, is a deeper understanding of humanity and your place in this world. 

Maybe you've noticed ZF isn't the usual ZF that he is anymore when he started. Well, to tell you honestly, I've been starting to feel burnt out.

Before when someone messages in the ZF page asking for help, I'd normally come to their rescue and give a friendly reply. Now, there's a 70% chance I'd scold the person or give cold replies. Am I getting too old for this?

One time, me and Celeste were talking about how our favorite TAP and other groups have been leading newbloods astray with their so called "trading systems." 

"Okay lang yan. We need a diversified market. The more ignorant traders there are, the more money for us." I replied. Have I turned bad? I remember this statement from Two-face in Dark Knight : 

Have I become a Villain? 

Thinking about it now, I guess I've neglected my inner child and forgot to have more fun than I should - releasing all my worries and not giving a single care in the world. Maybe I've taken more responsibility than I should and could handle? I don't know.

I would like to thank Rooting For Celeste for keeping my emotional health in check. If it weren't for you, I'd probably act like some old bitter fool ranting all the time.

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This season, where our Filipino culture dictates that families spend time together, I decide to be alone. It's my first time to break tradition. I think I've experienced a glimpse of how OFWs feel being all alone working their assess off during this time of the year, in a foreign country for the sake of their family and loved ones. My heart aches for you people.

Nakakamiss din pala yung mga nakakainis na walang kamatayang tanong at statements ng mga aunties at uncles like : 

"Saan ka na connected ngayon?"

"May Girlfriend ka na?"

"Kelan ka ikakasal?"

"Tumaba ka yata?"

Kakaakward. Kakainis. Pero Kakamiss.

And you know what I've realized?

In order to fully appreciate something, you must first know what it's like to have nothing. And if you have it? Lose it. Then get it back all over again. Because even with all the money, recognition and authority I have, It still won't beat being with the people I love.

Trade Travel Vacation

If there's one thing I've realized during this long and running 3 months traveltradecation, it's this :

You can do all three at the same time - travel, trade and vacation. And that's good. Looks and sounds nice too when you talk about it to people. But don't expect to maximize the experience if you do. One, two, or all three would suffer if you aren't fully present for the experience.

Some cake anyone?

The Greatest Equalizer Man Has Created

Of all the games I've played, the stock market has been the greatest equalizer man has created. It does not care about your race or gender, if you are rich or poor, or whatever life principles you stand for.

Come unprepared and you will be slaughtered. Come with the right mind and skill, and you will be rewarded.

Now I want you to take a good look at your port and understand this: Whatever you see in there right now is what you deserve.

Don't expect to earn 100k or 1M in the markets if your mind's capacity is only at 10k.

You want a 1M day change? Then work hard and become worthy of that value.

What the FAQs : Cut vs Trail

Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. This is my truth and you are free to disagree with me. 

3. What is the difference between cutting losses and executing trail stops? How and when do you set these?

In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital.

By now, you've probably noticed how I do things in tranches. Because executing your buys and sells in tranches lessens your impact on price swings.  

When cutting, I make sure I have two cut points: the first cut point is within the 2-3% range where I lighten up positions, and yes tax and commissions are included in this computation. The 2nd is my maximum cut point of -5% which means that if my position reaches or falls below this level, I cut ALL my positions regardless of the time of day - this rule applies to ALL my trade setups.

"Ayaw nyo hintayin yung closing sir? Baka tumaas pa! Why not sell on the bounce?"

What if it doesn't? Always expect the worst case scenario.

 "Pwede ba sa 20ma ilagay yung cut point?"

Never confuse a trail stop for a cut loss point. Here's an example of what can possibly happen if you do.

-5% vs -18%

 When my cut levels are hit, I make sure that by the end of the day, I have no positions left. Why? Because whenever you violate your rules, it damages your trading psyche. Imagine if you held on to the loss for the night or drag it on for days and months. You'd have a hard time consoling and convincing yourself if what you did was right. And trust me, this is going to mercilessly torment you.

"Should you have cut? Would it go higher? Maybe if I break my rules just this one time..."

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As for trailing stops, I usually have two sets. One for moving averages and another for Darvas - this is for me to maximize the potentials of both worlds. 

Assuming that my average entry price (AEP) is already far away from the current price, only then will I set my MA trail stop. I usually do this when my positions are at least 10% distance from my designated MA stop. For example:

Having an AEP equal to your MA stop is impractical. If you do this, I won't be surprised if you say "Pera na, naging bato pa!" 

So here are two alternatives that I frequently use in setting stops. The first is set just several flucs below previous closing price. So if MAC's previous closing was 19.2, then I'll set my stops at 19.1. The second is set on the nearest darvas support. Sometimes, much of your profits get eaten on this stop, but if you're banking on the possibility of a continuation since you're following the trend, you might just get more out of the trade. So carefully weigh your odds.

If you owned this port, what would you do?

In both scenarios of cutting and executing trail stops, whenever I'm loaded with volume and have a hard time selling intraday, I always sell my final tranche during the matching of prices EOD since that's where bulk of the buyers show up. If the last traded price was at 19.2, I'll sagasa sell 10-20 flucs down.   


As a final reminder,

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Related posts on Cutting and Setting Trails
(Please do post on the comments section the links I've missed)

http://zeefreaks.blogspot.com/2014/11/trading-101-art-of-cutting-losses.html
http://zeefreaks.blogspot.com/2012/10/apm-rise-of-borg.html

What the FAQs

Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. I am a high risk trader that loves volatility. This is my truth and you are free to disagree with me. 

1. What are your top trading tools and indicators?

In ZFT, we only use Moving Averages (MAs), Darvas Box Method, Fibonacci and the RSI (Relative Strength Index). Many might be surprised how we only have these four in our arsenal. 

"So you telling me, yan lang? Wala bang secret indicator?"

"Well, Wala!"

I'm not saying other indicators aren't going to make you money. I'm saying mastery is key. A person who has an understanding and can use 10% potential of 10 different martial arts will never match up to a person who has a 100% mastery over one technique.

2. How do you buy and what time of the day is it best to buy stocks?

Whatever the setup or play, I always buy in tranches - 3 tranches to be exact : Before, During, and After breakout point. The volume for all three can be equal or different depending on your risk appetite. The tranches can be done in weeks, several days or all in one day.

Here are some related posts to this topic

http://zeefreaks.blogspot.com/p/the-trend-followers-guide-to-money.html

http://zeefreaks.blogspot.com/2016/10/the-trend-following-astronaut.html

http://zeefreaks.blogspot.com/2016/04/bodega-and-law-of-equivalent-exchange.html

This is a good risk management strategy as it can minimize potential losses in case of a fake-out. This would also maximize your time and lessen your opportunity loss when your current stock hasn't broken out yet with your initial tranche while other stocks are moving. Wouldn't it be such a shame if you were fully committed on a stock that isn't moving and suddenly a super play appears?

As for when is the best time to buy, that would depend on your risk appetite. 

If you are a risk-taker, have the time, then buy during the intraday breakout and cross your fingers the trade won't explode. If the breakout happened in the morning session, expect a lot of price fluctuation and get ready to cut loss when necessary. If the breakout happened in the afternoon, there's a good chance momentum will continue until market close. 

The safest to buy is during the matching or run-off at 3:15-3:20 PM since at that point, the possibility of a whipsaw is close to none. Only problem is if prices have already gone beyond your levels of comfort. If that happens, then just say NO to that trade.

I personally buy sets of my tranches between 2:30 - 3:20 PM since this is the time where prices would likely show their true intentions - whether they would like to break-out, break-down or stay boringly put.


3. What is the difference between cutting losses and executing trail stops? How and when do you set these?

In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital.

If you owned this port, what would you do?

Read more by clicking on this link.

If you have Questions that aren't in this post (click here), feel free to post it on the comments.

The Victim Mentality

I remember this one late afternoon when I was still a 1st grader. My tutor asked me why I flunked my exam. I told her "Hindi kasi ako nagcheat, yung mga classmates ko, lahat sila nagcheat."  I still remember that very moment because deep inside, I knew I was wrong and it was such a lame excuse. That instead of admitting that I didn't study for it, I put the blame on everyone else. 

The Victim Mentality - "I can give you a hundred reasons why it isn't working, and not one of those involves me." This is the very reason why a lot of people stay as losers in life. 

I guess it's human nature. 

Side comment : Some say this could be the reason why a lot of women can't make up their minds when choosing what to eat. Last time they did, they doomed humanity.

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Many pursue trading and investing because they believe it can be their ticket to financial freedom. Oh you've heard the countless stories of successful people in this field, so you try it out. Maybe you'll get lucky. But most probably you won't. If the stock market was an easy game, everybody would be doing it. But it ain't.

At this point, you've come to realize that you need to make a decision. How badly do you want to pursue this idea of freedom?  Well, here's an acid test for that : If you find a single excuse not to win in this game.

"I'm too old.

"It's too complicated."

"The market is rigged."

"I don't have insider information."

"My work schedule doesn't allow me."

"I have too little capital."

"I don't have a mentor."

If you want to be a success, stop with the excuses. And give yourself a chance. When was the last time you were so passionate about flying with your ideas that you forgot about the fear of falling?

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."

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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.

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.

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(Click here to read the thread)

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. 

Stock Market Support Groups

This post is dedicated to all the traders who believe in technical analysis. If you're a fundamentalist, don't waste your time reading this post because this doesn't apply to you.

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I was browsing my feeds this week and I saw this

(Click Images to Enlarge)

Side Question : Why wasn't it given the same attention when it first broke out (1)?

Here are a few other notable groups I noticed.

And this one is my personal favorite because of the Description. I admire the honesty.

I would understand true fundamentalists who are in these groups because that's just how it is with fundamentalists - you consolidate all the news and information you have in one "drawer" and that's fine. But for anyone else who isn't a fundamentalist?

Strength in numbers. This is the most common mistake people think works in the markets. "If we group buy the shiz out of this stock, this will definitely go higher." 

But you know what? The market doesn't work that way. 

And I've seen groups where popular gurus, company owners and CEOs are present and give buy recos with outrageous target prices on their stocks - AND then dump shares to your face. 

You think these people care about you? 

The market is like the government. You can lock arms, hold hands, protest and rally all you want with your buddies. But by the end of the day, the market does what it wants, regardless of anyone's opinion or feelings.

Photo Taken From Google Images (Rappler)

If you want to survive in the markets as a trader, follow these two principles : Never trust anyone with a buy reco. And take everything you hear with a grain of salt.

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"

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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.

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 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? 

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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.

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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.