The conclusion of the matter

Good evening,

It has been a long journey – this site, trading, and life through the duration of this site. I started this website in 2009, with the aim of finding out my pathway in trading, and also to share my views publicly – which I explain in the “About Site page“. I like to write in general, so writing about technical analysis provides an avenue for introspection: mulling over different techniques, methods, styles; looking back to check the outcome of a prediction (as much as I try not to use this word); and just a virtual journal to record my opinions, observations, thoughts, etc. At this point, if I ask myself whether this website has been a success, the answer is a resounding yes. From my first post to the latest ones, there is a definite improvement in my writing, command of the language, and most importantly, my brand of technical analysis, and trading (though I made sure not to share much about my trading because this is not the point). I set out as a young trader who has been given the technical analysis ropes first, and through my experiences analysing and trading, I have found technical analysis to be my pathway in the financial markets – much like a non-first-generation religious person who was born into a certain religion but reaffirms his beliefs through life experiences. At this point, I feel like I have found my sweet-spot in a map of all the different styles and methods of market analysis. I have read many books and online articles during my younger days, and I have applied different techniques to chart-reading; it has been all, if not mostly, documented in this website. After years of trading and looking at charts, I am confident that I now have a trading philosophy to carry with me from here onwards; bearing in mind that as with many things in life, outside of dead-end work, there is obviously no such thing as a concrete, set-in-stone template of “standard operating procedures” that produces timeless success – especially so in the dynamic world of financial markets.

After years of trying out different techniques and thinking through the rationales and philosophies of them all, I have decided that trend-following is the way to go. Before I delve into trend-following I will explain why I do not pore through financial statements and other information under the wing of fundamental analysis. First, it is not so much that I discredit it; as explained in one of the paragraphs above, I started off with charts, and enough success and reason kept me in the technical analysis camp. Second, there are reasons why I do not feel the need to use fundamental analysis but this is a whole story by itself, and there are pages in this website where I talk about this matter. There are other sources around that explain why there is no need for fundamental analysis. Another school of thought apart from the two traditional sides is trading with statistics and computers. The reason why this school of thought (it actually sounds inappropriate to use this term since there is not much thinking involved in exploiting inefficiencies) does not fall under either technical analysis or fundamental analysis is because it does not have anything to do with making educated guesses about the future. Being a retail trader with very basic infrastructure at home, there is no way I can rely on technology solely to make money from the market. Also, I am a discretionary trader rather than a mechanical one since my IT skills are subpar in the trading world. What all these mean is that I end up with just the chart in front of me and executing trades. Some people may say that gone are the days where you can make money as a recluse at home: “the markets are rigged by the banks,” or “you cannot fight against the big boys.” However, the way I see it, my analysis can always point me to the direction the “big boys” are taking; why does it have to mean that I will always be on the side on the losing minority? And, do the minority always lose?

I am now a proponent of long-time trading. By long I mean more than six months – which is just an arbitrary number, honestly – or basically entering and not having to monitor the market regularly. When I first started trading, I played around with forex simulators, and day-traded very frequently. As time went by, my time-frame kept getting longer to the point I was settled with week-long or month-long positions. Years went by, and I kept getting frustrated with how such a time-frame coincided with market movements in a negative way. Philosophically, I am now a much longer-term trader. The reason behind this is that I think trading on shorter time-frames means more fights with the “big boys”. The short-term movements in the market do not indicate the true direction the market will take in the long-run. For experienced traders, the term I am referring to is whipsaw. So many times you may have been stopped out of a trade only to see the market reverse and go “according to your initial plan”. It has happened too many times to me; hence by results and reasoning, I have decided that long-term is the way to go. Every day, money flows from one hand to another; for every buyer there is a seller. The market moves very quickly, and it is alive. For a small retail trader with only a “home computer” to aid in trading decisions, how can I possibly predict what is going on in the market for one day – even worse, one hour – or a few days, or even a few weeks? How is it possible? I have experienced success before, but looking back, it has been mostly luck. At the essence of it all, the market can either go up or down after you enter – fifty-fifty. You can throw in all the indicators in the world, but the market does not have to listen to them! In the long-run, luck will not sustain – it does not for me, at least. Over time, I realize I need to get over all that noise, all the haziness of short-term plays. In-and-out, in-and-out, dodging bullets, fighting fires, limit hit, stop-loss hit, profit, loss, profit, loss, loss, anger, denial, false hope, even more anger, resignation, anguish. At some point, I have learnt that a good trader should be emotionless. That I have done, but it only becomes frustrating when the losses pile up and eat away into the profits, no matter how detached I am from making decisions emotionally. Slowly, I have begun to realize that longer-term set-ups have been lifting me up out of all the short-term noise in the market. The load of false signals in a trend are so many – so many booby-traps lying in wait for the short-term trader. Of course, this does not mean that long-term trading is so clear-cut and without pitfalls; but from a philosophical point of view, long-term set-ups help the trader to fly under the radar and avoid most of the commotion.

Last but not least, the reason I have settled on a very simple trend-following method is that it makes sense to me. It makes sense to ride on one long wave than to go in-and-out of the haphazard zigzags, and getting burnt occasionally (or usually!). It makes sense that if I am wrong with a long-term play, I am probably dead-wrong (lesser chance of whipsaws). For those who want to know the exact parameters of how I define a “playable” trend, there is none – or not for now, at least. I have tried to objectify in very specific ways on the trends that I consider strong enough to warrant an entry, but after a while, I find that there is no way of telling for sure whether a trend can last. Of course, it is a game of probabilities, and by now, I favour certain conditions and circumstances; however, I think it should not be rocket-science to figure out whether a market is trending or not. At the essence of it all, I identify a trend, then consult my money management strategies to see if the chart is good enough for trading – analysing is one thing, trading the analysis is another – after which, I execute and wait.

There are a few reasons why I decide to write a the-conclusion-of-the-matter post. I have noticed in the last two years or so that my monthly post count has been dropping. Although I can say that my life outside of blogging has become quite packed and cluttered, I have to admit that I am running out of things to say, and I attribute this to attaining a mature understanding of how I should approach trading. There are two ways a company can grow: organically – which comes from within, and inorganically – which comes from the external. Similarly, after years of deep thinking and learning through external sources – and a mixture of both at the same time sometimes – I feel like I have reached some kind of end. Is this just a way of saying I have struck the jackpot recently and so I have nothing more to gain from the financial markets? Or, have I gone bankrupt and given up on trading? The answer is neither of the two. Rather, in a philosophical way, I feel like I have learnt all I am meant to learn, and I am now more sure of my beliefs; but, I will sound very foolish by thinking that I am done with learning, so what I mean is that I am done learning the “foundation stage” – a certain stage where there is so much information and so many different decisions to make, that ultimately results in a base that is tailored to whatever that will be built on it. This may not make sense to some of you as it may seem paradoxical or outright nonsensical contradiction. Nevertheless, I am sure of what I am saying. To use a cliché phrase, this seems to me like an “end of the beginning”.

I realize that my future posts will all seem the same, which makes it quite boring and pointless in some sense. Also, I have decided to devote more time to writing about other topics outside of financial markets. Trading is not the only thing that I do. I have many things that I pursue as passionately as I do with technical analysis, and in some ways, trading and analysing the financial markets has shown me parallels to other fields. If you have been on this site for a long time, you will know how much I like parallels, the analogies that can be drawn, and how certain things that mysteriously agree with each other hold true in the end. I have spent much of my time trading short-term and writing about technical analysis over the last several years; but as you may have observed, my trading time-frame has gone up, my analysis time has gone down, and trading volume has decreased too. By no means are all these a result of dampening morale because of piss-poor trading performance; rather, I perceive it as maturing and growing into the trader that I am supposed to be – finding my style.

NON-TECHNICAL SIDE

I devote this section to the non-technical side of technical analysis and trading. The principles of any field should not, and do not, stand entirely alone and independent of the other areas of life. My experience has taught me that there is more relation between different planes and fields in life than how much people usually think so.

I like the idea of long-term profiting rather than getting rich quick. Greed drives us to want to amass fortunes very quickly, and enjoy life until death after that – who will not want that? But is life always that easy? It may be for a few individuals in the world but not me, at least. I know some of you may wonder how a moral principle has anything to do with technical analysis or trading, but my approach is a very holistic one. When I first started trading, I often had the mentality that “if things went according to plan”, I would double, triple my account in a certain short period of time. The feeling was the same as when I once received an “Ang Bao” (Chinese New Year tradition in Singapore) from a person outside blood circles, and there was a “Toto” ticket inside. Since I never had anything to do with Singapore Pools (only Singapore Exchange Limited!), I thought that I was destined to win the lottery because the opportunity was given to me by chance and it was my first. I told my friends, “I sincerely think I am going to win!” Of course, they gave me the “nevermind-you-will-know-soon-enough” look. Similarly, when I was trading, I would have the same naïve, foolish, and greedy mentality: I often saw in my mind how my account balance would make somersaults upwards, and then all the wishful thoughts of material wealth would start appearing: the car, the house, the holidays, the VIP treatment everywhere, the status, the popularity, etc. Is this not the mentality of most beginner investors and traders? Many years on and I now know the reality – but not as soon as I would have wished for.

“To every thing there is a season…”. Life is full of trends, or more commonly, many people use the phrase “ups and downs”. I have observed that many things in life can be “quantified” in a certain way and to a certain extent such that you can generate a chart; for example, a chart of personal happiness – how happy or sad you are every day. What I realize is that just like the financial markets, there are trends that appear most of the time. The truth about life – and the financial markets in particular – is that things go in a certain direction until something causes it not to. When you apply this principle to the financial markets, it is this motion that presents the opportunity to make a profit. Hence, this is yet another reason why I choose trend-following. The first component of the term is trend; this approach is only possible because of the trends that direct so many things in life. The second component is “following”. Character-wise, I am a non-conformist, I am actually the type who likes to go against the trend. But, in trading, I see the need to follow rather than resist. This theme of following a trend versus going against it is actually one that polarizes different trading styles. On one hand, there are those who believe in doing the opposite of what most are doing. It is well-known that Buffet says to buy when others are selling and sell when others are buying. I have seen people who think they are following the great investor by applying this principle to their own time-frame, which is much shorter than Buffet’s by many years! Needless to say, destruction ensues. The mentality of going against the herd can be very pleasing, especially in the financial markets when a person goes against the prevalent sentiment and ends up winning. I know this because outside of trading, I frequently go against the wave. It makes me feel special and different. It can make a person feel like he is smarter because he probably knows something that everyone does not. Socially, going against the trend just means that it is part of the kind of person you are. When it comes to trading the financial markets, this theme can cause havoc. This theme can be expounded greatly, and it will take a whole other post. For this post, I will only say that it is difficult to fight prevalent sentiment. For a trader to go against the market, he must know something that everyone does not. When a great investor does it, it is not a haphazard move; it is not just going against the trend for the sake of it. However, oftentimes, many amateurs do it because it makes them feel good that they are being different. Therein lies the incorrect application of the contrarian mentality. As for me, I admit that I am not a good economist; I admit that my foresight is not that accurate; I admit that I do not have the ability to gather enough information to conclude against prevalent sentiment. Therefore, I choose to have a trend-following mentality when it comes to trading. It may not be the most profitable strategy to enter a trend when it is confirmed and to exit it after the top has formed, but I know that this is the best way for me with the time and resources that I have as a trader. Many people are myopic to trends in life. In any given trend, there is the “noise” that goes on inside the main trend. The cause of the noise is largely from emotions running wild from day to day. I have observed some relationships among people in my life. When a relationship is going downhill, people do not seem to see the decline. Once in a while, there are encouraging moments that give them hope that things may change for the better (much like the corrections in a trend), and so they hold on. After a period of time largely dominated by negative events compared to positive ones, “explosive events” will erupt, and by then it is too late – the cost of the fall-out is much greater than it can actually be. Elevate yourself and see the forest for the trees.

I realize that as with many things in life, there is no one way to success in trading. I know that most of you have already heard this being preached in different words: “there is no holy grail”, or “all paths lead to Rome”, etc. However, I want to reiterate and beg you to see that there really is no one way to make money out of the financial Markets. There are so many successful traders and investors who each have their own way of extracting profits from the market. Of course, when you take out the exact numbers and rank them all individually, people will hail the number one and discount the rest. I will bring in an analogy from the world of professional sprinting: everyone knows Usain Bolt for what he did at Beijing in 2008: smashing the then world-record and celebrating even before the finish line; and not just that event but for the following years to come. However, do people not know of the other world-class sprinters who occasionally beat Usain Bolt when he does not run his best? How can we disrespect them for being milliseconds behind, or beating Bolt when he does not run a record timing? There are so many examples of how successful people in different fields do not have the same approach, training, style, etc, and why must it be any different when it comes to trading and investing? I think that if there is to be an ultimate lesson I want you to learn from coming to this website, it is that you have to find your style. You may need to imitate others in the beginning of the process, but whatever it may be, the end result is your own style that will make you successful.

My style is trend-following – technical analysis. I hope my beliefs will bring me bountiful profits in the time to come; and I will definitely help those who want to know more about my style. But even as I continue on my path, I know that it is not the only one.

ADMINISTRATIVE

1. While it may seem like this is a farewell post, it is not. More so, I am taking a different direction with this website – this site will no longer be written in a kind of diary or journal style. I intend to make this site a purely educational one – sharing my beliefs for whoever who cares to learn from my style of seeing the financial markets. From time to time, when I feel the burden to write on a certain topic, I will do so. Most likely, the article will be tagged under one of the menus at the top of this website as a “page” (as it is called in WordPress dashboard). So, I think the main difference will be that my articles from now on will  not have a time element to them.

2. Some of you may have noticed that I started work on a technical analysis course, and there is only one section out of a projected ten that is completed and published. I have realized that it will be much easier for newcomers to this website to know the style of technical analysis that I use if there is a course for them to look through. I hope to complete the publication of this course in time to come; it will not be easy and quick to full fruition, but I am sure my “manual” will be out when the time is right.

3. As it has been, my email, technicalanalysistalk@yahoo.com is always available if you wish to contact me.

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