Tuesday, October 30, 2007

Young fan

Okay, I got a young fan that keeps asking me question :p

From my experience, playing stock can sometimes be very disruptive to our daily job. Why? We tend to follow the ups and downs on our screen. We are happy when it goes up, worried when it goes down. Most beginners will tend to follow this daily up and down. Every opportunity we have, we will check our favorite counter price. If you are in the office, you keep a screen on all the time. If you are on the move, you subscribe to sms services or check through your smart phone etc. I have been through that stage before until I trade using a longer time frame. If not, cannot get any job done lor. Boss will be angry ler.

Making money is not that easy as advertised. This is a money sucking industry. The stock exchange take some of it. Your broker take some of it. You win, you pay them, you lose, you still need to pay them. This is a minus-sum-game. No wonder they need new blood, if not how can sustain their profit? If making money is easy, why do the majority of us still hold a job? So that to sustain our trading blunders!

Furthermore, the stock market is not a same level playing field. In football, you have the premier league for the best of the best, then 2nd division for the average and the 3rd division for amateurs. In stock market, the amateur is fighting straight on with the fund managers, the hedge fund traders, the day traders, the contra traders and all sort of people. It's like Malaysia playing Brazil! Without any foundation, one will sure to lose money.

The amount of capital must be large enough. Using the 2% money management rule, to have any meaningful stop, one need at least 10k. With 2K, you can only afford to lose 40 per trade, where 26 is already the commission that you must pay.

As with any other profession, the foundation is important. One needs to learn the theory. With theory, one develops a system. The system is to prevent us from acting inconsistently/irrationally. Then we add a little bit of money management just in case we are caught by the black swan. To execute our trade, we need to have the confident to pull the trigger, that is to train the mind.

So, to my young fan. Learn this 3 important pillars. Google it, buy a book. But read, think, analyze. There are many resources you can get. I'm just too lazy to re-write it down.

I will not encourage you like Bursapursuit. I'm not Dennis Richie that can train you out of the farm. You need to learn it by yourself. I can only give you some guidelines based on what I know. I'm not a guru. So my advice should be analyzed properly.

For the rest of the questions, I decline to answer as I would prefer to remain anonymous.


Hao said...

You have more than one fan :)
I am totally new to stock , and sometimes I wonder what stock to buy . I've been playin the bursapursuit game too . Learn a few basic knowledge about stock . Been making up and downs with penny stock . But don't have the time to buy sell at correct time :S Btw nice site :)

Anonymous said...

where is your friend michael2007?

Lawpan said...

You mean michael2005? He's bitten by along and in hospital. Shouls be released anytime now. May go into hidding though.

Hao said...

Hey .. do you think pbb is like a cup handle now ? or going to be a cup handle pattern .. Please advice