Newbie Lessons - All your questions answered

[Sir Osisofliver]

And therein lies the problem with T/A for newbies. We are all controlled by our biases. If you are new to the game T/A isn't much better than a dart throw for predicting future movements. If you have seen the game 1000s of times you're more likely to be biased by the pattern and general market rather than hope. Just like any field, what counts is experience not the tools.

So newbies this is a great comment..and welcome to the discussion TH.

This comment is about the impact that our emotions and experience have on our trading. A positive experience means we tend to have positive bias and go looking for the same or similar, a negative experience colours all similar things negatively.

Because we are all different, with different mindsets, time frames, tools and experience, we perceive and weigh things differently.

How important is this emotional context in our decision to sell?

What can we do to offset this emotional bias?

Sir O

 

[Sir Osisofliver]

Sir O I might not even go as far to say that indicators should confirm your analysis. If your analysis is good, who cares if some indicator doesn't confirm it. You could go to a software package out of 400 indicators and find one that fits your analysis. If your indicators are constant and your indicators disagree with your assumptions about price action, I think it's prudent to find out why. For example, indicators may signal downwards action but the price, volume, resistance, and support as well as news/announcements may point you in a different direction. Indicators do not confirm your original analysis and should not make you feel safe but they may help you point out an anomaly if something is clearly wrong. For example, you should probably have a good reason if you're choosing to sell once your stock breaks through the upper Bollinger band. It's not that bollinger bands are special, they just tell us that something is rising quite far, depending how many standard deviations you set your bands too. We don't normally sell into markets that are actually rising (as opposed to markets that just were rising and stop - that's a good time to sell).

Indeed Valued...who cares if an indicator... (how much credence should you give) to an indicator that disagree's with Price action. Similarly I find that if Price action and pattern point in one direction, and indicator goes against it, invariably the indicator is incorrect as to the direction of the price action.

For me the why question...as in find out why the indicator disagrees...it generally for me boils down to using imperfect mathematical tools to attempt to predict the price action.

This does not mean that indicators are worthless though...experience frequently tells you when the correct signal is given.

As you did not require provisioning of staples, you had run a very loose stop loss strategy! :
I would have thought a trailing stop would have been more appropriate.

So Burglar...why would I make a hard rule (trailing stop as opposed to discretionary stop) when analysing something that exhibits chaos?

You and I are not in this game to make a
nice Profit.

I'll take a nice profit over a nice loss any day of the week

Only if you wanted to!!
I suspect it did not fall in with the original plan i.e. squeezing the shorts.
It would therefore require a new plan.

Correct...the original reason for my entry was that JBH was heavily shorted, and that these short positions would inevitably unwind as price increased. By tracking the short positions I was able to tell how much potential buying pressure remained in the share price....

This also provides a part answer to one of my questions...Why didn't I sell in May? (In May there still remained ~15% of the issued capital in shorts). In addition to this the peak of $17.56 fell short of my target at that time of $18.11 (an amount outside of noise probabilities). Once I had the reference points in June and July, my stop was moved on the basis of my indicated ascending support line.

Cheers

Sir O

 

[burglar]

... So Burglar...why would I make a hard rule ...

Cheers

Sir O

When you started this exercise, my brain went mushy.


Thank you, I am now a slightly more educated vegetable.

 

[Samtheman]

Read the entire thread thanks sir O good insight!

 

[Ken Oath]

Hi All,

Finally got to the end of this thread after several side tracks due to recommended reading along the way. As a result I am firstly kicking myself for taking so long to discover you all were here helping confused newbies like myself. With a property background but big interest in financial markets I always found them too technical and confusing and at times frightening. Not that that's changed but I now have a sense of the direction I want to travel.

Most helpful reading outside this thread for me so far has been 'Taming The Lion'. Can't recall who recommended it but thankyou. Couldn't help but think of this books focus on economic trends whilst going through the JBH section. Comparing other charts JBH were similar to most stocks during the last 6 months of last year BUT add the analysis and experience (ie well refined system) of the likes of Sir O to identify an opportunity and the results are AWESOME!

 

[Ironik]

Hi All,
This is my first post here.
I am currently paying off my PPR which I bought couple of yrs now on an average single income.
After reading all the posts by Sir Osisofliver and other contributors in this thread, it makes more sense to have bought an investment property in the first place. I cannot change anything now as I'm quite happy with my purchase of the PPR.
My plan is to have some liquid assets(mostly shares) work for me as I learn how the market works, using the equity of my PPR.
I have diligently paid slightly more than the minimum required for the mortgage.As I have no real savings to put towards the other asset class(mostly shares), I was wondering how best to structure a line of credit from the equity of my PPR so that it is tax deductible for share investment.
I also understand that this would be general advice as I will have to do my own research after some inputs from folks here.
I would like to take this opportunity to thank Sir Osisofliver for his contibution here. Really a great resource for newbies.
I have a general idea of how the ASX works and how to do some basic chart reading through my new online broker( E-trade). (I do bank with ANZ and easy to transfer funds to E-trade.)
Would like to add that I have read all the pages on this thread once, I might have to go over it a second time in the future.
Thanks,
Ironik

 

[bluey99]

Hi guys n gals and Sir Beerlover

Well, it would seem that I have finally found the place to learn about this vehemoth, Day Trading.
Can anybody give me actual real proof that a person can earn money sitting at a computer all day dredging through all the stock charts and what not?

As you can tell, I am a newbie at this. But I am willing to learn.

Bluey99

 

[Sir Osisofliver]

Hi guys n gals and Sir Beerlover

Well, it would seem that I have finally found the place to learn about this behemoth, Day Trading.
Can anybody give me actual real proof that a person can earn money sitting at a computer all day dredging through all the stock charts and what not?

As you can tell, I am a newbie at this. But I am willing to learn.

Bluey99

Welcome Bluey99.

The answer to your question is a not so simple...yes. There are people who can indeed make a living from day trading (and even people who do it professionally), but and its a big but...

...is day trading right for you? Answer these questions to see if it is...

• Am I comfortable that I have a system that provides positive expectancy?
• Am I comfortable using a highly leveraged derivative instrument?
• Am I comfortable in transacting in an unregulated market?
• Am I comfortable in loosing 40% of my money?
• I understand Risk management..
• I understand position sizing
• I understand stop losses
• I understand what drives my chosen instrument or space
• I know what and where to look for data
• I have a plan that includes the activities that I will do daily/weekly/monthly
• I have the time it takes to do these activities
• I understand the importance of evaluation
• I understand my own strengths and weaknesses and how to design a system that enhances or minimizes these things
• I understand that good trading is as boring as watching paint dry.

These are just some of the things you'll need to know. I suggest you have a good solid read of these forums and learn some more before trying to decide whether day trading is something you want to do.

Cheers

Sir O

 

[CanOz]

Hi guys n gals and Sir Beerlover

Well, it would seem that I have finally found the place to learn about this vehemoth, Day Trading.
Can anybody give me actual real proof that a person can earn money sitting at a computer all day dredging through all the stock charts and what not?

As you can tell, I am a newbie at this. But I am willing to learn.

Bluey99

You might want to read this from ASF's undisputed king of the screen, Trembling Hand....

Nothing to something scalping system

TH is now a professional trader, has been for a few years now. He is a day trader in that he is flat at the end of the day.

 

[Wysiwyg]

Hi guys n gals and Sir Beerlover

Well, it would seem that I have finally found the place to learn about this vehemoth, Day Trading.


As you can tell, I am a newbie at this. But I am willing to learn.

Bluey99

Years ago I had a crack at day trading ASX stocks using the Commsec Pro-Trader trading platform with streaming live data, market depth, order pads, charts etc. Being a self taught, DIY type of person, I was one of the many scrambling for a parcel of shares when a positive company announcement came out. There was a jockeying for positions to guarantee your parcel before the trading halt was lifted. When the stock opened I had to decide when to sell. Sometimes the price would keep going up from the open and other times it would reverse from the open. I can tell you that it was a rush when I won but I lost more often so stopped playing the game.

Nowadays I have a dabble on the CFD Indices and FX markets. Not betting a lot to lose but still mentally challenging and sleep depriving on those late nights/early mornings.

 

[bluey99]

Years ago I had a crack at day trading ASX stocks using the Commsec Pro-Trader trading platform with streaming live data, market depth, order pads, charts etc. Being a self taught, DIY type of person, I was one of the many scrambling for a parcel of shares when a positive company announcement came out. There was a jockeying for positions to guarantee your parcel before the trading halt was lifted. When the stock opened I had to decide when to sell. Sometimes the price would keep going up from the open and other times it would reverse from the open. I can tell you that it was a rush when I won but I lost more often so stopped playing the game.

Nowadays I have a dabble on the CFD Indices and FX markets. Not betting a lot to lose but still mentally challenging and sleep depriving on those late nights/early mornings.

On the subject of CFDs, do any of the online brokers offer an Indicator for trade volumes within their online trading tool?.
I find that trying to trade without real-time volumes is like trying to drive a car without a steering wheel.

Much indebted to anyone who can help me
Bluey

 

[Activeproject]

Re: Newbie Lessons - Chapter Two - How to manage your Bank Manager (secrets from the

Not sure if you want a seperate stickied chapter Prawn - I think this might be better if it's all in one place.

Chapter 2 - How to manage your bank manager... secrets from the inside.​

This is gonna sound a little like bank bashing - and there is a reason for that. Simply put...when you go and see your bank manager does he have YOUR best interest at the front of his mind or THE BANKS' best interest? We know the answer to that one it's the Banks best interest - otherwise your bank manager is out of a job. Yet the bank manager as an employee of the bank will do his or her best to appear to be your best friend and trusted banking professional who saves you money.

So when your bank manager appears all friendly and uses sales techniques against you - just remember - he or she works for the bank - not for you.

Ok so what are the sorts of things that they do to ensure that they work in the banks best interests?

Bank Secret number 1.

Ok this is something that EVERY bank will do and by doing this will save you THOUSANDS. When you get a mortgage, they will ask how frequently you want to make payments. If you say monthly...
they'll say 'No Problems" and continue.

If you say Fortnightly.... they'll say "no problems" and continue.

If you decide to pay fortnightly (AND YOU SHOULD), when you get your mortgage documents, if you are paying attention and haven't gone glassy-eyed from reading all the legalese, you will see that they will amortise your fortnightly payments across the year so that you pay exactly the same as someone paying monthly. You pay exactly the same over the course of a year.

Now ask yourself why would they do that? Go ahead - ask your bank manager (and remember that he'll use sales techniques against you) you probably won't get the REAL answer.... Here it is.

There is 52 weeks a year, 26 fortnights a year...but only 12 months. So by choosing to pay fortnightly (AND NOT AMORTISING THE PAYMENTS) you are in effect making 13 months of payments in a year. You are making EXTRA payments (even though the difference to you is about the cost of a cup of coffee every fortnight).

By not amortising the fortnightly payments, over the course of a 30 year mortgage, you will make an additional 19 payments earlier than you would normally have done so, and save yourself...72 mortgage payments.

Wait 72??? How is that possible I hear you cry? Because when you start paying your mortgage - for the first decade or so when you make a payment, the largest portion of that payment is paying off the interest - not the principle. Extra payments reduce both the principle and interest portion of the loan - and hence you pay it off that much faster. Don't believe me? Go ahead ask your bank manager. I haven't found one yet who'll give me a straight answer - but they will all blush when they realize they have been caught out.

Bank Secret Number 2 - Banks and interest

DEBT VS LIABILITY
Ok this relates a bit towards Budgeting. Remember when I said that if you want something you plan for it in your budget? A LOT of people of course don't do that - they use Debt. Debt is VERY different to Liability. Let me explain.

Debt
Lets say you want to go away on holidays to Fiji and laze by the pool drinking Pina Colada's. You haven't budgeted for it but you really need that holiday and so you use debt to fund it. Debt is paid for from income that you have not yet earned. Remember to take plenty of pictures when you are on holiday - because you will be paying for it for a LONG time if you use debt.

Liability
Lets say you borrow money to buy an income producing asset. Lets say property. At ANY TIME if you choose you can sell that piece of property to remove the liability associated with it. This is very different to the holiday in Fiji. You cannot sell your memories and holiday pictures to clear your debt.

What has this got to do with the bank?

Banks prefer you to have debt rather than liability

What? Why would they do that? Because generally debt based products attract a higher rate of interest than liability based products. Your credit card has a high rate of interest in comparison to your home loan. (The bank will tell you that this is because risk assessment says that your credit card is a higher risk of default than your home loan). So why then when you borrow money from a bank do they structure it in such a way as to make it easy to get a credit card, and hard to alter the terms of your mortgage?

Two reasons. 1) With a higher rate of interest they get more money and 2) It limits their ability to lend

You might scratch your head on that last one so here it is in more detail.

Lets say you have a piece of property worth $1M and you want $100,000 to go invest it into the share market. You rock up to your bank manager and make the request and he says something along the lines of..."Hmmm investing it into the market? I'm not sure, let me see what I can do I'll have to ask head office." (This by the way if you can't recognise it is a sales technique). Inside the bank manager is jumping up and down, because for loaning $100,000, they now have as security a $1M asset. This security then lets the bank lend out about a further $812,000 to other lenders. You are most valuable to a bank when you have large assets and small liabilities, because they get to use your assets to make more money on top of the interest that you get charged. Neat eh?

Secret number three - When to borrow from the bank.

I'm probably preaching to the converted here on this forum but Timing is important. It's important as well when you decide to borrow (or more correctly to receive approval to borrow) because of the way ecomonic cycles work.

Right now (when the share market is crap, the economy facing recession, unemployment up etc etc) trying to borrow money is bloody hard. Yet when should we be buying quality assets? When the bulls are running or the bears savaging?

It is of course better to buy quality assets when the markets are rubbish - but as I said, it's bloody hard to borrow right now. So when should you seek pre-approval on an line of credit against your assets? Answer is when the market is BOOMING. You'll then have the capacity to invest at the bottom of the cycle that those who don't have your foresight do not.

Once again be very careful of your bank manager - They will be happy to lend you money at the top of the cycle, just make sure you are getting a facility that you don't pay interest on unless you draw the funds. You want the capacity to draw, not have the money sitting in the bank account earning less interest than you are paying.

OK - once again I'm going to stop there and seek comments, flames, and requests for more information.

Sir O

Hi there,

I think your comparison between making fortnightly payments over monthly payments is a bit unclear.

I think your statement to do fortnightly payment is based on an assumption that the mortgage is for a "fixed" period of time i.e 30years fixed mortgage of a fixed interest rate? If this is correct then your statements are logical and may be correct.

However, mortgages that are not time fixed are chosen to allow more frequent repayments .. so if you pay fortnightly your principal goes lower every fortnight and so does your interest .. you would not want to do a monthly repayment in a non fixed time mortgage at all because you would want to appear to be borrowing for the least time .. so if i can pay a bit of principal (as small) as soon as possible ( over a fortnight then in a month) I should do so since I will pay lower interest on a smaller principal next fortnight.

Yes! at the end of 12 months you would have paid more "number" of repayments that is if you are just comparing this to "number" of repayments over a year.

BUT you would save more "money" by doing fortnightly repayments then monthly "repayments" and for a non time fixed type mortgage..

I think its crucial to specify what mortgage is time specific or not .. if yes then you may be correct if not then you appear to be incorrect..

Could you discuss this please .. I would like to know what you think of it..

 

[burglar]

Re: Newbie Lessons - Chapter Two - How to manage your Bank Manager (secrets from the

Could you discuss this please .. I would like to know what you think of it..

Hi Activeproject,
Welcome to ASF!

The post by SirO, to which you refer, is about one of the foundation stones in your financial education.

... when you go and see your bank manager does he have YOUR best interest at the front of his mind ...

By discussing a variety of vagaries surrounding the savings of Fortnightly over Monthly repayments, you would be missing the point.

The point is this:
You need to know what questions to ask your bank manager! (Also read Stock Broker or Financial Manager)
You need to check his answers.
You need to know what is important and what is not.

 

[HawkNZ]

Correct...the original reason for my entry was that JBH was heavily shorted, and that these short positions would inevitably unwind as price increased. By tracking the short positions I was able to tell how much potential buying pressure remained in the share price....

Hi Sir O

Noob here,
Firstly I have just finished getting through 41 pages of this thread which has been enormously helpful, thankyou.

Secondly, could you explain what is meant by "heavily shorted" & "short positions" etc, I see these terms often but don't understand it, I don't recall it being covered anywhere here previously,

Thanks Again

 

[payday]

Hi Sir O

Noob here,
Firstly I have just finished getting through 41 pages of this thread which has been enormously helpful, thankyou.

Secondly, could you explain what is meant by "heavily shorted" & "short positions" etc, I see these terms often but don't understand it, I don't recall it being covered anywhere here previously,

Thanks Again

Shorting simply means profitting from a stock when it's price falls. So there was probably a lot of people short JBH hoping for a fall in price, but when price kept rising, their losses presumably kept increasing hence leading to some people having to cover their short positions which would put upward pressure on the price since they have to buy back their position

 

[brty]

Hawk,

A short, going short, means selling stock you don't own. This can be done by borrowing stock from another entity with the agreement that you will replace the stock. There is usually a fee involved, negotiated between the lender and borrower of the stock.

Once you have borrowed stock, you then sell it, with the intention of buying it back later at a cheaper price, hence making money by "going short".

Hope this helps.

 

[Sir Osisofliver]

Hi All,

OK so It's time to visit the newbie thread again and talk about something that's been a topic of discussion for a while now in an ongoing attempt to bring clarity to the newbies...not that more experienced posters aren't welcome, but please give the newbies a chance to think about the questions posed and don't be harsh with someone still learning. If anyone wants to do an analysis on the below, happy for it to happen, but I will not be commenting in order to abide by forum rules...that said....

Disclaimer: This is NOT ADVICE. DYOR stands for DO YOUR OWN RESEARCH. You heard me. Don't make me break out the legalese. Remember the forum rules about stock ramping. I want this to be clean and I DON'T want to get Joe in trouble. If I see a post that skirts the grey area I will ask a mod to remove it. Clear? In this discussion similar to the first time I will be pre-empting a potential trade in the absence of a signal in an effort to give clarity.

I'm hoping that this discussion brings the newbies out to ask questions, but also brings out the more experienced traders/investors to comment. Lets keep this discussion clean and task focused people.

Waaaay way back on page 31, on the 4th of June 2012 I introduced the a discussion about turning an IDEA into PROFIT. This was an attempt to show the process of turning an idea into a system or strategy, showing the steps along the way. I challenged newbie posters about their methodology and tried to guide them to making conclusions about making a system that was designed for them.

I demonstrated the idea (a short squeeze), showed the steps to evolve this into a system, and then introduced a potential target of said system with a stock, JBH at that time. On the 12th of February 2013 Burglar pointed out that JBH rose 17% in post #724.

On the 20th of January 2014 post #774 I came back and discussed JBH again, within the context of how/when to exit, and included a share chart at the time on post # 790, showing my exit and posed questions about why I exited, and why hadn't I exited earlier? And why hadn't I re-entered? We didn't get as much discussion around the exit as we had for the system design and entry portion of this long running discussion...despite the critical nature of the exit decision. So now with some more time and hindsight it's time to revisit the process.

My first chart was prior to my entry, my last chart was after my exit....

It's time for another chart and some questions........



Since November 2013 I have not held JBH, nor has any of my system's scanned JBH as a potential trade. This does not mean that there have not been any trading opportunities in JBH. There have been respectable price movements of $3-$4, easily profitable, particularly when using leveraged instruments.

Question: Why am I showing you this now?

Question: With the benefit of hindsight was my decision correct?

Question: What do you notice about the price action, prior to and after my exit point?

Question: Why have I said this is a potential trade and what kind of trade am I looking at?

Takes a Scotch over to the corner and waits for responses....

Cheers

Sir O

 

[burglar]

....Question: Why am I showing you this now? ...

JBH is in the news today.
They have just reported:

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01541349

Earnings are within expectation.
Despite that, they are trading approx. 8% lower today.

 

[Sir Osisofliver]

JBH is in the news today.
They have just reported:

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01541349

Earnings are within expectation.
Despite that, they are trading approx. 8% lower today.

I am of course aware of this Burglar.....I'd happily encourage analysis of that report and the price action, (even though I won't be analysing myself), did you want to have a go at the questions? Don't be shy.

Cheers

Sir O

 

[crypto]

Are you suggesting that now is the price to buy into JB? Perhaps based on the green line across the price peaks in January, May and this month?

Cheers.