2014 Jan-Feb Review ~ Trade Records, experimenting with programming trades & why every trade rules failed 100%, my next phase of trading...

As previously promised, I shall reveal my trades; and even better, let you into my "trading room" by showcasing a trade along with my thought process on how was it done.

My experimenting with Chartnexus XpertTrader backtesting, programming

Before I show my trade records, I like to update on my recent experimenting with programming trading rules, backtesting them and so on. One common dilemma faced by traders is whether to follow the rules or not; otherwise known as discretionary trading and programmed trading.

Discretionary trading refers mainly to trading by individuals, whom may decide whether to stay on a trade, or exit, entirely upto their discretion. Some may have certain trading rules, some may change their rules, some may ignore & trade entirely with their gut feeling. This camp, typically may look back & see some profit left on table, or suffered certain higher losses so on, and one possible fault they may blame themselves is that they should have followed this rule or that. How nice was it, if one could simply programme the trading strategies or rules into a computer, and let it trade on behalf, afterall our emotions cloud our judgements… right? Wrong!!

Now comes the programmed trading, in programmed trading basically you programmed a series of trading rules into a computer and the computer will execute the trade based on the rules. Sound good? It’s a disaster!

I tried 10+ trading rules, from famous Impulse systems, moving averages, MACD, RSI, parabolic SAR, mixture of trend following tools & oscillators and so on. Well not much time, about 4 hours of tweaking & back testing… the result? Every programmed trading rules failed over the long run of 1 year. Every one ended lesser than the initial capital, most of them lost more than 90% of it.

Perhaps I haven’t back test them enough, perhaps I should only back test them on a handful of stocks and not the entire SGX stocks (exclude) warrants, but even with money management rules say exit when loss exceeds 2%, profits exceeds 25%, setting a period of gaps before executing another trade and so on. The results are the same. If trading rules that we read from famous authors, popular gurus, do not work, then what for are we still trading? How come there are still so many people who made it with their trading strategies when programmed trading’s backtesting results showed that everyone of them failed over the long run of only 1 year.

I believed the problem is simply programmed trading is dead, they are not human, without humans’ greed & fear, and thus programmed trading are unable to react to changing circumstances. For example, when a trading rule did work, and your trade accumulated a paper gain of say 25%, but over the next few days, something was wrong, the price gap down, or started spiralling up and down in a roller coaster ride or whatever it is, fear will come in to want to protect the remaining profit before it evaporates away. But programmed trading is based on the formula, if your exit rule is not triggered, the trade will simply ride all the way down until it become a loss.

Another common trading error I faced, which I am experimenting to adapt it, is supposed you programme a trade to be execute when say moving averages are crossed and both trending up. Well a human being would be able to see from the chart that, perhaps its increasing with momentum and hold on, but bang! Some news came, and the price fell on the day, then the next day the price open higher and seem to resume, a human may wish to hold on and wait, but the programmed computer would exit the trade based on the rule that the moving average decreased the day before, and thus exited without a profit or more likely a small loss due to fees. And with time to come, the stupid programmed computer will keep repeating stupid trades, following rules blindly at every precise 0.1 change, resulting in many trades but little profit or many small losses.

Then you might asked, we already have a computer chess master which beat the world chess master; soon we will have a supercomputer that will beat the world wealthiest guru like Warren Buffett or George Soros… Chess could be programmed within say 100,000 of chess parameters; after all there are only 20+ chesses, 100+ boxes to move around, but what about market participants? What about booms and crisis? What about buyouts? Can human behaviours be calculated and thus predicted to be traded on, and profit? Maybe, but not yet. Until that day arrives, and robots probably replace human, then traders could retire to graveyards… I would only use trading rules as guide, chart patterns for analysis, but I myself, the sole decision maker; master of my own trades…

2014 Jan-Feb Review ~ Trade Records
As usual, there were stupid trades that I should have hold on such as Keppel REIT where I exited right at the recent lowest, and the next day, price begin to recover. Today its already close to my cost (price $1.175, cost $1.18).
Also, most warrants trade were exited at 1 bid difference, this is due to fear as a intra-day fluctuation is rather limited, and reversal is common intra-day.

“Come into my trading room”, sample of my trade
As you can read from my trading comments in the picture, its not easy to trade in warrants, as its rather fast & furious and at the same times slow & frustrating.

By fast & furious, I meant if the price move against you, your warrant price will collapse like hell, and you suffer easily 10% loss or more.

By slow & frustrating, if you get in with a call warrant in an intra-day uptrend, you may be right, but the STI is fluctuating up and down like crazy, when its over MAs are up, but the average price moves slowly until finally hours later, if finally move high enough for the market maker to move its bid. Some warrants move by 5 points, some 10 points (by 5, meaning say STI move 3000 to 3005).

Thus its important to familiarize with the derivative instrument one is using, and if price move against you, the risk tends to be triple to the potential rewards, as it shown on 20 Feb 14, when I exited at 1bid loss. The combined fee & loss takes me 2-3 successful trades to recover.

My next phase of trading...
There is a potential bear coming, I am watching it. As the saying goes, bull go up in steps, bear jump down the window. My next challenge is to catch a bear & slide down with a put warrant over several days.
It should be note that it is extremely dangerous to hold warrants for too long, as warrant generally expire worthless on its expiry date.

I am eager to earn trading profits to accumulate for my longer term goals such as buying a house, rent it, be a landlord etc. It will be hard and long journey, but saving at 0.2% pa interest can never get there, thus I must be good at investing. Most average traders suffer losses, I was one of them; my hope is that I would become a professional good trader and make consistently good profits to compliment my job income and realize my dreams.

I now allocate my capital between intra-day trading ($10K) and mid-term investing ($50K, 1 week+).
Thus I only follow 2-3 positions at any one time, hope I would remember my trading plans & stick to my cut loss rules (2-5%) and realize my dream.

Look out for next post...

STI hitting its downtrend resistance soon

Just a quick post here. Hope most of you have escape the last downtrend & even better enjoyed the recent recovery of STI...


Next week I will be posting my trade records for 1st 2 months of 2014, moving forward I intend to post a bi-monthly trade record review... Some may be surprised that I have traded more often this year, & perhaps even shocked that I have gotten back into warrants despite my failed attempts previously...


More will be revealed...


Now, a quick caution for upcoming STI's movement.


As usual, should STI break above its downtrend resistance (around 3120-3140), STI would then have entered into a new uptrend. How long, we shall see... My gut feeling is that it will touch & exceed previous peak 3190 (I reserve my rights to change, should indicators show otherwise, in coming days).

However, if STI failed to break above, look out for sideways fluctuation or more likely a reversal & thus another downturn ride.

~ All the best & may the trend be with you ;)

2013 Review - My Trade Records

Its coming to the end of 2013, looking back I realise my trading style is different compared to 2012.

In 2012, I have a few large speculative trades in penny stocks like GemsTV, SingXpress Land, New Wave when they were trading under 10cent, some under 1cent. While there were some big profits $1K-2K within few days, there were also similar large losses too.

I spent 4+ hours of digging out my SGX Contract Statements, and keying into the Excel Template (template adapted from Alexander Elder's Spike Trade blog, do visit their website, template & free guide is available for registered users, Free-of-charge).

Feeling a sense of pride, as I finally managed to get myself to be serious enough to compile my trade records.

After reviewing my trades for 2013, I realise the following:

1. Lesser penny (less under 10cent, more above 10cents) & Warrant trades
   I finally convinced myself the danger of trading the volatility of such speculative counters, after all like what Warren Buffett often says (& I often ignore) somewhere along the line "no ones can predict the price of the days, weeks & months to come; one simply attempt to pay a good price for the value in the company".
2. My Dividends save my losses, maybe buying on the premise of ex-dividend rebounds work for certain markets & counters...
3. Less play on "market mass psychology", more on value plays
   In 2012, some of my bets were on market behaviours such as a company announce large dividend (above 33%) or trading a penny counter's narrow range of say 0.8-0.9cent..
   In 2013, notably GP Hotel, Popular and Suntec REIT, were more mostly due to their value & dividend payouts. While some maintain their corporate performances, luck still plays a part, after all no one can confidently says a business could maintain its growth in earnings (eg. Popular which seem to face some challenges in its properties & bookstores businesses).
4. If you believe in the "appraisals", then ignore the price & hold on to watch the business play out...
   I still have a few counters, they are still under my cost price, but I decided to hold on, believing they will play out fine, if not, hopefully there's still dividends that I could rely on for my returns.

Reviews on my holdings:
1. Medi-Flex, 30 Dec 13 is the AGM & EGM to vote to approve the buyout by its mother company "Top Glove Sdn. Bhd." at $0.15, since its takeover party already owns 79.91%, I hope there wont be any stupid resistance to block the delisting. An additional bonus is the dividend 0.12cent, which will yield me $324.27, a 2.49 % (or about 7.47% annualised) return on my capital of $12,981.33 (better than fixed deposits).
















2. GP Hotels, bought since 4 Jun 13, the stock languish at $0.245 until recently along with the "Santa Claus rally" rise back to $0.26 on 27/12/13's closing, hopefully it will continue to rise during the "January effect".
Otherwise, I am hoping for a dividend at the end of its fiscal year.
This counter is 58.62% owned by its Chairman & Billionaire Koh Wee Meng, and he continued to spend millions almost monthly to buy its stock. If the owner is spending millions buying, whats the worries with my thousands following?
Another foreseeable boost is its new hotel development at 165 & 167 Tyrwhitt Road currently under construction is targeted to open for business in 1H 2014. Upon completion, the new hotel will boost the Group’s hotel portfolio by another 270 mid-tier hotel rooms, a 15% boost to its current 1,738 budget-tier rooms.
Rolling PE: 14.78
NAV: $0.39
P/NAV: 0.65 (35% discount to its NAV)

3. SuntecREIT, with the opening of its phase 1 of Suntec City and first overseas acquisition of 31 storey office building in North Sydney CBD, build & rent by Leighton Group; this REIT is one of the best value among the REITs in the SGX. While there are concerns over rising interest rates, I doubt interest rates will rise beyond the US 30years interest rate of 3.94% in 2014, as FEB's official interest is still near zero, and its roll back of monthly purchase ($85bil. to $75bil.) will take a year at least to full roll back the QE3.
Back to its business, the structuring of North Sydney acquisition also means that the REIT has tied in a constant DPU growth over the next few years and fully funded by loan, there is little need of cash call in the near future.
Lastly with its quarterly distribution of about 6.1% DPU, one should be able to comfortably hold on to it for foreseeable future.
Rolling PE: 8.71
NAV: $2.05
Price/NAV: 0.75 (25% discount to its NAV)

*All ratios above are extracted from Shareinvestor.com.

SMRT's "imminent" fare increase, how a 10% revenue increase could equates to 150% profit increase

Its out, the hints are there, the bitter medicine is unavoidable...
Public Transports Providers (aka SMRT & SBS Transit) are stand to stem the fall of its price for the past 3 years. With limited sneak peaks into the recommendations by Fare Review Mechanism Committee (FRMC), a number of "shock cushions" have been announced such as concessions, monthly travel pass and more importantly "A More Responsive Fare Formula Compared to the previous fare adjustment formula, the proposed new formula will have a new Energy Index (EI) component - See more at: http://ride.asiaone.com/news/general/story/public-transport-fare-review-committee-wants-more-concessions-commuters?page=0%2C2#sthash.mVAJZZVF.dpuf"

I did a base scenario of 10% increase using SMRT's Q1 Financial Highlights released on 1 Nov 13:

I realised a 10% revenue increase could easily leads to 150% increase in operating profit; the following is how I derive:

($m)	Revenue (2QFY14)	Increased Figures	Change in $m	Changes in %
Revenue	S$296.3	S$326.3	+ S$30	+10%
Operating Expenses	S$285.8	S$285.8	same	NA
Operating Profit	S$20.0	S$50	+ S$30	+150%
Basic EPS (cents)	0.9	3.28	NA	+364%

Assume all else remains the same, with 10% revenue increase as a result of say 10%-15% fare increase and / or funding from government; I took S$50m divided by 1,523,410,000 shares (extracted from Q2FY14 result, 1(b)).

With a EPS per Quarter of roughly 3cents, the EPS of Full Year will go back to 12cents of its "glory days", this will makes its current share price of $1.29 looks like a value to buy (PE 10.75).

As for Technical view, a second convergence of 50D MA with the shorter MAs (7d & 20d) marks a congestion area which may imply potential reversal. A rejection of new low on 1 Nov 13, and 5 Nov 13's green parabolic dot may mark the start of a new uptrend. MACD lines have been on a slow uptrend below 0, bars are above 0; but not much to imply since it has been on downtrend for past 2years.

All in all, the imminent fare increase announcement should provides a up spike, reversal or not, depend on the actual amount of fare increase announced.

My view is, the companies have been "forced reduced to non-profits" over the past years that any increase in revenue will provide a multiplier effect to its EPS and thus may boost the counter share price to adjust accordingly.

STI Index - the "pivot" point

Hi there,

Today I received a friend's enquiry on my view on STI index's direction, to be frank, I don't have an answer as the STI is currently in a pivot point, so all I can say is if it goes above e "pivot" it should continue its uptrend, if it goes below, it may only be a consolidation stage or if it breaks below 50days MA, then it will go downtrend.

So what is this "pivot" point I am referring to? It is the Fibonacci 78.6% line which I've drawn, based on the estimated "high" & "low" of STI's extreme in the most recent 2 years.
If you see the chart below, you can see that 0% Fibonacci line basically is the point when STI was 2521 on 5 Oct 2011, and 100% Fibonacci line is when STI was 3464 on 22 May 2013.

Let's "zoom" into our next chart below, to see the 6months view of our current STI.

As one can see, we are at that dotted Fibonacci 78.6% line, just a tiny bit below, this line is a important resistance that I called "pivot" point. If you look at 12 Jul, 24 Jul & 2 Aug this year, when the STI "flirts" around the pivot, but its candle never fully above or below the pivot. Now we are back at the same point, thus I would prefer to sit at the sideline to watch for clearer signals on the direction of STI before I consider my next trade.

 

1 signal to note below, the Force Index technical indicator, the bullish force seem a little stronger than the previous Force "peak" where my arrow source is, at 2 May 13. This tends to imply a higher potential for more upside to come.

 

In terms of RSI, which measures only potential peak & bottom for a "consolidation" price movement, such as the past 5 months, we maybe due for a peak. To note, this apply on for consolidation movement (where price move up & down, without a major trend), a major upward movement such as STI between Nov - Dec end 2012, the RSI will fail, as RSI slowly move down to 70% but price shoot up from 2950 to 3190 at end of 2012.

 

Last few things to consider, fundamentally STI current Price Earning Ration (PE Ratio) is at 13.34, this is around the median point of STI's PE ratio. STI's past PE has fluctuate to under 10 to around 25, during dot-com bubble it went even higher. So 13 suggests a reasonable, value PE to enter.

Still this is a lagging measure, as earnings are only reported a quarter later, so even if price remains, earning drops, PE ratio will still rise.

 

And lastly, October 13 is the "showdown" between Obama Democrat government vs Republican controlled Congress, when the government has to ask for increase of debt ceiling again, to fund its Fiscal 2014 budget. Expect a roller coaster, not sure if it will be similar to how 2012 was...

 

Locally in Singapore, housing markets seemed to be "choking" with the leverage been tightened by SG government, lesser people can borrow enough to buy the new launches, resales are worse with low volume and Cash Over Value (COV) reduced to manageable under $20-30k range. We may soon see discounts by developers soon, to clear their launches, and should there be any economy hipcup, prices may finally start to drop a little. Right now, it is hard to go higher, without the support of leverage.

 

That's all for this post, good luck trading!

 

Regards,

Tony

 

Sound Global make Offer!

Singapore Blue Chips Bargain? My views on JMH & DBS

To my dearest investment club readers!

Its some times since I last wrote about my thoughts, recently I read a article by a local SG Online Investment Forum Editor's article about blue chip bargains (http://www.fool.sg/2013/08/22/singapore-blue-chip-bargains/), these blue chips are all above $4 at least. In case you wonder, Motley Fools is a popular investment forum website in United States, and they launched a Singapore "startup" version with selected articles contributors. These articles writers frequently dispense nuggets wisdoms on shares investments along with REITs, Trusts and so on.

Now back to the blue chips, I found as (described in the above article) several blue chips have fallen to quite attractive price, I've attached some charts (a pic speaks thousands words).

The line I've drawn, basically connects all the major bottoms in the past 1-2years, and hint at current price of Jardine Matheson Holdings Limited, JMH 400US$ (J36) & DBS near their potential bottoms. Of course, this assume we are not entering into recession cycle, and thus the price should bounce off around the "support line" and continue its long term uptrend. In the long term, the inflation would mean that the stock prices will continue to rise, as long as the companies maintain its growth (at the same rate will do!).

If you are wondering, how rich I must be, to afford 1 lot (1000shares) of JMH whose closing price on 22 Aug 13 was US$54.89 & cost US$54,890 per 1000share... The answer is no, I cant afford that,but  if you ask around, there is an option to trade "unit share" which is basically mini-lots at 100share per mini-lot. This allows investors to trade even the dearest blue chips in Singapore & be a shareholder in the company.