BY Den Somera
After sixteen weeks of the trading lab, I believe we have seen the eight most important trading principles one needs to know to get started in stock trading and investment. Let me hasten to add, however, that in order to tip the balance of both winning a trade in your favor and making money in the process, you still need to get a good handle of the nuances of these trading principles, which we will try soon after all the other supplemental trading principles are covered in the trading lab.
With the exclusion of the 8th trading principle, textbooks divide these important principles into three main categories: trading system development, money management (position-sizing), and sound reading of market psychology. The result of the 16th week (February 27 - March 3, 2006) of the trading lab provides a good sample as to which of the three acknowledged categories really matter in winning a trade.
The Hunt: Market Psychology
Last week was a surprising picture of market confidence as it gained 60.45 index points week on week. On Monday (27 February), stocks rose by 19.44 points at 2,089.36 level of the PSE composite index (Phisix) despite a shaky Sunday afternoon that almost led into an uprising against GMA but later downplayed as a simple internal command problem by the Marine branch of the Philippine Navy. Turnover volume and value also stayed strong until Thursday (2 March), with average trade ranging from P333.60K to P365.34K. The Phisix reached a high of 2,137.61 on Thursday before finishing lower on Friday (3 March) at 2,130.37, due to selling pressure attributed more to profit taking.
In the following tables you will notice that, in general, our players did something clearly similar notwithstanding the Rock's slightly stretched effort. Everyone unanimously consigned their fate on what stocks the market would favor and support. Thus, everyone essentially just let their stock picks and risk matrix to stay as is. Why? Let's review each account.
The Samurai did not trade at all during the week but his investments grew to 111.51%. This is his highest and the highest in the leader board. It is also 0.8% better than his best performance of 110.36% ROI reported in the 14th week of the trading lab. This is because "market psychology" (or sentiment) establishes stock prices and price direction. A sound judgment on market psychology, therefore, could lead to winning trades - this explains why you can really "win the trade even before starting it."
The Phantom, being also old in the game, played the way the Samurai did. From a 97.23% ROI performance the week before, he now stands second at 104.73%.
The Rock converted his very small OPM (Oriental Petroleum & Minerals Corp.) holdings into cash. Other than that, he likewise relied on his major stock selection as the main basis to winning his game.
Lastly, the Trading Coach is definitely not also a newcomer when it comes to trading. But as I have pointed out last time when I quoted that endearing line from Spiderman - "Punch me, I bleed" - our trading heroes are just human. He and the Samurai selected LR (Leisure & Resorts) in their stock picks. He also shared PX-B (Philex Mining) with the Phantom as a major stock position.
But LR and PX-B did not recover that well in last week's market rally compared to others. I could, however, almost hear an echoing retort: "The game is not over yet." And why not, LR and PX-B prices may just soar soon.
Secrets of the Past
On the basis of their role as keys to trading success, contemporary books place these stock trading principles in the following order of importance: trading system development (10%); money management or position- sizing (30%); and market psychology (60%). Accordingly, the sound reading of market psychology would lead to winning trades while position-sizing would spell the difference on how big or small your profit will be - this is why the Market Reader maintains that "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
Insider Lies
Insiders also would like to add a constructive "lie." Getting a good grasp of market psychology is nearly as impossible a task as forecasting future prices. Make the most of devising a trading system that may have a 35% to 50% reliability success rate, then use position-sizing the way gamblers do, and this will lead to another route to beating the market. This alternative, however, i s no different to "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.
With the exclusion of the 8th trading principle, textbooks divide these important principles into three main categories: trading system development, money management (position-sizing), and sound reading of market psychology. The result of the 16th week (February 27 - March 3, 2006) of the trading lab provides a good sample as to which of the three acknowledged categories really matter in winning a trade.
The Hunt: Market Psychology
Last week was a surprising picture of market confidence as it gained 60.45 index points week on week. On Monday (27 February), stocks rose by 19.44 points at 2,089.36 level of the PSE composite index (Phisix) despite a shaky Sunday afternoon that almost led into an uprising against GMA but later downplayed as a simple internal command problem by the Marine branch of the Philippine Navy. Turnover volume and value also stayed strong until Thursday (2 March), with average trade ranging from P333.60K to P365.34K. The Phisix reached a high of 2,137.61 on Thursday before finishing lower on Friday (3 March) at 2,130.37, due to selling pressure attributed more to profit taking.
In the following tables you will notice that, in general, our players did something clearly similar notwithstanding the Rock's slightly stretched effort. Everyone unanimously consigned their fate on what stocks the market would favor and support. Thus, everyone essentially just let their stock picks and risk matrix to stay as is. Why? Let's review each account.
The Samurai did not trade at all during the week but his investments grew to 111.51%. This is his highest and the highest in the leader board. It is also 0.8% better than his best performance of 110.36% ROI reported in the 14th week of the trading lab. This is because "market psychology" (or sentiment) establishes stock prices and price direction. A sound judgment on market psychology, therefore, could lead to winning trades - this explains why you can really "win the trade even before starting it."
The Phantom, being also old in the game, played the way the Samurai did. From a 97.23% ROI performance the week before, he now stands second at 104.73%.
The Rock converted his very small OPM (Oriental Petroleum & Minerals Corp.) holdings into cash. Other than that, he likewise relied on his major stock selection as the main basis to winning his game.
Lastly, the Trading Coach is definitely not also a newcomer when it comes to trading. But as I have pointed out last time when I quoted that endearing line from Spiderman - "Punch me, I bleed" - our trading heroes are just human. He and the Samurai selected LR (Leisure & Resorts) in their stock picks. He also shared PX-B (Philex Mining) with the Phantom as a major stock position.
But LR and PX-B did not recover that well in last week's market rally compared to others. I could, however, almost hear an echoing retort: "The game is not over yet." And why not, LR and PX-B prices may just soar soon.
Secrets of the Past
On the basis of their role as keys to trading success, contemporary books place these stock trading principles in the following order of importance: trading system development (10%); money management or position- sizing (30%); and market psychology (60%). Accordingly, the sound reading of market psychology would lead to winning trades while position-sizing would spell the difference on how big or small your profit will be - this is why the Market Reader maintains that "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
Insider Lies
Insiders also would like to add a constructive "lie." Getting a good grasp of market psychology is nearly as impossible a task as forecasting future prices. Make the most of devising a trading system that may have a 35% to 50% reliability success rate, then use position-sizing the way gamblers do, and this will lead to another route to beating the market. This alternative, however, i s no different to "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.
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