Earn in ALL market conditions

If you know the trend, you can invest to earn in all conditions including up trend, down trend and even side trend... (tbc)

On an Up Trend, simply buy when the price has rebounced slightly after touching the bottom line - the support.  When the price drops a bit after touching the top line - the ceiling.

One very important reminder is NOT to spot the LOWEST nor the HIGHEST point.  Technical analysis or trend info obtained this way is not the right tool for that.  Indeed, we observe if it rebounce or breach through the expectation to confirm previous trend analysis.  If fail to get confirmation then re-analysis is required.

People who get dissapointed with Technical Analysis are the ones who were trying to use it to spot the Exact points !

On a Down Trend, you may sell first buy later - Short.  Basically it means you promise to sell item A at price A but you don't really have item A yet.  So you would need to buy item A at a later time at price B in order to fullfill your promise earlier.  If price B is lower than price A then it still matches buy low sell high concept.  The only tricky part is buy low later, sell high now.

Performing short in zzzz stock market is not that common.  I am quite sure all online trading accounts wouldn't be able to do that by regulation.  So if you really interest in short, you may need to use an experience agent or broker.  Make sure you enquire the detail process of short and what goes behind it.  Each agent may have slightly different tricks and may affect your shorting strategy.

Without ability to short, you may still do long during a down trend with higher risk.  For this scenario - do long during a down trend - you may need to learn a few more methods to identify fake and real rebounce.

Most people know how to trade during up trend.  Some people knows how to trade during down trends.  Almost no one would advise you how to trade in a side trend.  That is because when the trend goes side way, it is as good as gambling.  ( don't forget the mother of technical analysis comes from gambling methodologies )

So the best you can do is to apply some strategies on your investments.  Below is one example.

At any point of time during a confirmed side trend, do both long and short at the same time.  Short position should be higher than long position.  If the trend goes up, you can close your long position to take profit.  Keep the short position until the trend goes down, then close the short position to take profit.  Earn twice in a side trend, one sooner than another !

Don't get too excited yet if this is new to you.  If reverse trend earning method is complicated (as shown in down trend example above), then ofcourse this side way so called gambling methodology would have much more dangers hidden in it.

Anyway, the idea is not to limit yourself in investment.  You can almost always earn money in all conditions if given the right tools and methods.

Now, lets finish the first sentence of this article.

If you know the trend, you can invest to earn in all conditions including up trend, down trend and even side trend... if  the trend continues.

Know the Trends

Anything that has the posibility of repeating pattern has a trend.

A trend analysis is trying to determine what pattern will occur next base on historical occurance.  Sounds familiar ?  Indeed it is, historical records do NOT guarantee future result.

Performing simple trend analysis is simple and straight forward :

First plot the pattern in a graph,

Then try to connect all the low points using a straight line,

Likewise do the same with all the high points.

Not ALL points can be connected perfectly.  You will have to use your judgement to 'best match' them.

Do not make guesses or judgement when drawing these 2 lines.  ONLY connect all the LOW and HIGH points, no other adjustment is needed ( at least not for now ).

So by drawing these 2 lines, you can tell if it is in ;

UP Trend

Down Trend 

Trend Sideway or 

No Trends

When you are having a tough time to draw any of the line following above method.  Then its a No Trend iendified condition.

Once you know the trends, you can 

chase the up and down trends

trade with care on side trends and

do NOT trade in no trends

Chasing up trend is also called Long where you buy now sell later which is what normally stock investment is.

Chasing down trend is Short : sell now buy later, usually used more in derivative market.

How to Gamble to Win !

One of the most common things we do during Chinese New Year is gambling.  As a matter of fact its part of Chinese culture for good or bad.  The bad is gamblers always lost more than they can affort.  The good is the casino owner earns enough to do charity for the society.

Usually gambling is consider a bad thing, especially in finance planning.  However, it is NOT all Evil in this finance blog.  Lets look into gambling and see what it is and what we can do with it, just like any other potential finance tools we come across.  We will analyse the mathematical way, the finance methods WITHOUT the emotion factor.

For the simplicity of this write up, lets assume the type of gambling we talk about here is a 50-50 chance game, like flipping of a coin.  Its either Head or Word, all other occurances are considered void and demand a replay until a Head or Word shows up.  This chances of winning is called probability.  Bear in mind that ALL games in casino are NOT fair chance in real life.  

Method 1 : Doubling Up

Start bet with the smallest betting unit ie. $1.  If you win, bet again with $1.  If you lose, double up your bet to $2, $4, $8 etc.

In this method, you are almost guarantee to win back your initial $1 in one last win even after losing in a long series.  However, in that situation, you would win back 1 unit while risking losing 2 ^ n.  

For example, at the 4th bet, you put down $8.  If you win, you get $16 back minus out your previous bets $ 15 ( 1 + 2 + 4 + 8 ), your net win is $1.  But if you lose, you will lose the whole of $8 or a sum of $15.  Subsequently to win back your $1, your cost is $31, $63, $127 ... Imagine you are using $127 to earn just $1 only at the 8th round ...

So with this method, if you have unlimited capital and the environment allows you to make unlimited betting amount, then this method will eventually help you grow your capital one step by one step.  This method is using unlimited capital to earn one single unit of increment in each series.

If you do not have such capital and if there is a limit of betting amount, this method will mostly cause you to lose because the risk and reward are just not balance.

Win Lose ratio is 1 : 1

Risk Reward ratio is unlimited : 1

This also says : The more you use this method, the longer you use it, the worst it will get.

There is really no good way to mitigate this risk.  The best you can do is to start with a fix amount of money that you plan to give away anyway.  Then divide this money into a series of fix amount.  

For example, start with $100 and set each day limit as $8.  That way, if you lose continously for 4 times in a day, you lose all your day limit and you should stop.  Start the next day with $1 again.  This way, you can bet for 8 days in worst case scenarios.  On good days, you stop after you win $8.  What you are doing here is using the money that is not to be kept anyway and buy some experiences with it before losing them all.  If practise exactly as describe above, it may take much longer than you think before you lose all capital.  Hence its relatively a not so bad way to kill time if your other habits cost more (reminder : only when emotion is not a factor ie. you are a robot).

Method 2 : Follow Last Result

Start with a fix amount of capital, determine the smallest bet unit and each time bet on the last result.

For example, start with $100 and bet each time with $1.  So you can bet at least 100 times.  If the last result is Head, then this time you bet on Head.  If last result is Word, then you bet on Word this time.  Like wise, this time result will decide what you bet on the next time.

This way you will win if the pattern repeats no matter Head of Word.  However, you will lose if the pattern Never repeats.  Each time the chance to win is 50-50.  If you win, you earn $1 and if you lose, you lost $1.

Win Lose ratio is 1 : 1

Risk Reward ratio is 1 : 1

Since you have initially set minimum bet amount as $1 with $100 capital, then the worst case scenario is when the pattern continues to switch 100 times then you would lose all in 100 times.

Since what you want is 'repeat patterns' and avoid 'switching patterns'.  Then what you can do is to analyse previous patterns before starting your bets.  

For example, every time the pattern switches, you stop betting.  If the pattern repeat once then you follow in 2nd repeats instead of the 1st one.  This is one method of 'predicting' the pattern but you may eventually find it work sometimes and NOT working for other times.  So eventually you may need to come up with many different analysis methods in different situation if possible at all.

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Just in case you still think this is just a gambling talk, I have already implicitly cover the concepts of Money Management, Stop Lose, Profit Target Setting, Trending and Technical Analysis ...

Fundamentals are Noises ?

Very frequently investors who believe in Technical Analysis say that Fundamentals are useless and they treat them as noises !

Actually they are refering to Published News which they think are fundamentals but actually NOT.

Usually this group of people thought a good figure report should bring the price up but realized it did not and caused them to lose money.  Thats why they decided 'fundamentals' are noises.

Put aside speculation and rumors, it is a fact that sometimes Official Published Info does NOT affect the market price the way it should ... and this is why.

The fundamental of a business does not change Instantly.  Before the official report is published, the person who run the business already know the 'health' of his business.  Even people who work in that company would have an idea how the business is doing without any reports.  Suppliers, customers, contractors would also know something too although at different context and extend.  All these form an Expectation !  

Fundamental of price movement is Supply and Demand.  When the Published News exceed the Expectation, Demand will rise.  Like wise when the report did not meet the Expectation, demand falls.

So if you only look at and wait for a report to be published without first understanding what the expectations were, you really need to learn more fundamentals.  Else no matter how good your technical analysis is, it may harm you as much as you think it helps you.

The real Fundamentals are;

1. What is the business doing and why can it be success for another 10 years ?
2. Who is running the business that you have confident in ?
3. How much is this business worth, its real value ?
4. etc.

Fundamentals don't change just because of one announcement but can be observed through a series of events.

An example of fundamental analysis is When to Buy at What Price.

Technical Analysis - Candle Stick

I brieftly mentioned Technical Analysis vs Fundamentals before, I also mention the #1 danger of using Technical Analysis, now lets look at one of the most common Technical Analysis -> Candle Stick and what you can get out of it ...

First of all, lets take a look at candle stick definition !

if the color of the bar is white, then the top of the bar refers to closing price.

if the color of the bar is black, the top of the bar refers to opening price.

this is because white refers to up trend and black refers to down trend

Sometimes different colors are used to represend the trend too.  For example, red refers to down trend and blue refers to up trend etc.

When a few of these candle sticks align to each other, certain patterns will form.  Some patterns can help you predict what will come next.

However, bear in mind that NOT all prediction are Equal.  Some are more reliable than another.

After studying all the basic candle stick patterns, these are the few ones with High Reliability.

When you see these patterns, it is almost guarantee the trend is going UP next !

      or          

Morning Star above indicate an upcoming UP trend while Even Star predict Down trend.  Other down trend patterns are as follows.

       or        

Once getting used to these patterns, it can help you to identify the right timing to enter or exit an invesment.

One point to emphasize is make sure you are very clear about the X axis.  For example, speculator may want to use 1 or 5 minutes candle sticks to obtain daily income.  On the other hand, a daily candle stick may be used to obtain weekly or monthly income.

Danger of Technical Analysis

If you know charts, then you probably should know there is a X and Y axis.

In technical charting, X axis is usually Time.  The Time can be month, week, day or even minutes.

Understanding the reasons behind technical chart is tough, but using it is very simple.

For example, chart below has 3 graphs in it.

1.  the top graph show the price info, its called candle stick ( don't worry, will be shared more later )

2.  The below 2 graphs are analysis telling you when to buy and when to sell

3.  when the red line cross above, BUY.  when the red line cross below, SELL.

Now back to the danger part.  Below chart is shown in a 5 minutes X axis.  Both signals are asking you to BUY

However, below is another chart showing exactly the same stock but in 1 minute duration.  In this chart, the signal is telling you to SELL !


Although this may be confusing but even the best Technical Analyst in the market sometimes make mistake forgeting to counter check the X axis and recommend wrongly.