12.0 Wave Lessons 2

There goes the Ghost of August and hopefully it will not come back as the Spectre in September. The month of August left a psychological scar in my trading skills. There were days I looked at graphs with a blank stare bludgeoned to submission by an unforgiving market. As a neophyte trader who had just completed the Certification for Stocks Specialization Course, I found myself questioning whether I learned anything at all or if indeed such Technical Tools are useful in stock trading. Looking back, I may have misinterpreted certain signals but a deeper soul-searching revealed surprising lessons. These are hard lessons I wish to share to my fellow neophyte traders, classmates, and friends who dabble at being a stock trader especially during these highly volatile, unpredictable, and oppressive times.

1.       Be in the Market. When you want to trade, you have to be in the market 100%. This means that you have to be present when the market begins actively trading between 9:30 AM and 12:00 noon at the very least. The stock price is a moving target and it moves fast. If you are not in the market when the action happens, chances are that you are going to miss your target price. That is a guaranteed failure. If you are buying, you will probably end up buying high and if you are selling, you will probably end up selling low. This is contrary to the first principle in trading which is “Buy Low, Sell High”.

My problem, shared by some of my friends, is that by force of circumstance I cannot be in the market 100% of the time. In the morning, I drive my wife to her office and my daughter to her school. All in all, that leaves me only about an hour and a half of discontinuous trading time. This presents a real challenge in executing my trading plan. Fortunately, my online broker offers an off-hours trading solution. But even this does not address the problem totally. I keep missing my buying and selling targets and have to settle for second best.

2.       Book in Profits at First Sight. This is especially true in highly volatile regime like we have now. The technical signals do not work best as price movement becomes highly erratic. Do not be greedy expecting for more gains during these times or you will be whipsawed mercilessly. You will end up with a real bad case of a trader’s remorse if you do not heed this advice. A 5% gain within a week is good enough. If the stock price goes up even higher after that, do not regret it. What is important is that you have already booked your gains then turn around for another winning trade. A 5% gain repeated many times over is better than a 20% gain in one trade because the probability of the latter in happening is not much higher during these times.

3.       Do not Chase Price.  The bull is dead and we are now drinking the soup of what is left of its male significance. Since we are definitely not in a bullish trend anymore, do not expect the price to continue going up. When the stock price has already risen past your target price, do not chase it thinking it will continue to rise like the good old times. Remember that we are in uncertain times and the stock market is highly susceptible to external forces abroad. One day it is up, the next day it is down, and the following day it is dead. The bad thing is that the upward movement is grinding slow while the downward movement is quickie fast.

I have a friend who sold a mining stock for a profit of P30,000.00. That was good. What was bad was that after seeing the stock price move even higher she chased the price and bought it back. Then after a day, the mining stock went down and my friend ended with a losing position to this day. This kind of trading behaviour happened to me too. So my friend, you are in bad company.

4.       Listen to the Buzz.

I do not mean that afternoon Sunday showbiz show that spews out inanities and banalities mankind has ever known. Read the business sections of magazines, business news on TV, and above all corporate disclosures at the PSE website. A show that does not have a good story to tell will not capture any audience. Ergo, a company that is creating a lot of noise will soon attract investors and traders alike. Traders and investors are like children. They go where the pied piper is. When the music starts, the dancing begins. Hence, if you did not hear of the music, you won’t be part of the celebration.

5.       Learn to Jump.

Not off the building of course! Far from it my dear loverly! When you hear of a real good stuff about a company like a MOA, a private placement, a merger, and the likes, put some premium to your buying price. Do not bid by simply quoting yesterday’s closing price. Jump ahead of the queue by giving an opening bid three to five ticks above the closing price and support it with a volume.

When I was just starting, I wonder why my opening bid price was often edged out by other traders. Every time I read a good news or disclosure, the opening price almost always makes a long jump creating a gap between yesterday’s close. Take for example the case of VUL and ICTV. When both companies disclosed that each had signed a MOA with Chinese investors, the stock prices of both companies jumped on September 6, 2011 and September 7, 2011 for ICTV and VUL respectively. However, a word of caution is in order here. When the opening bid is too close to the ceiling price, expect the market to close the gap soon after. So, it may be better to wait for the market to close the gap first before buying the stock. Remember, do not chase the price!