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Wednesday, November 30, 2005

Deposit Insurance System and Southern Bank take over

Malaysian's banks have been merge to 10 anchor bank after Asia Financial Crisis. The size of a merged bank are so huge that it is difficult for Central Bank or Bank Negara Malaysia to rescue a bank in the event that bank collapse or insolvent. Thus, Malaysia launch a Deposit Insurance System where in the event that a bank collapse. A depositor can claim his/her deposit from a insurance company up to RM60,000per account per bank. Central Bank or Bank Negara Malaysia no longer compensate a depositor in the event of a bank collapse.

Government claim that maximum amount of RM60,000 able to cover 95% of the depositor. It is true that my Bank account never exceed RM60,000 until now. Thus, I will be cover if my bank collapse. But majority of the employer I work for have more than RM1,000,000 in their personal bank account. Clearly, the Deposit Insurance system is disadvantage for wealthy people. They able to recover maximum RM60,000 only for RM1,000,000 they deposit (or more). The only thing they can do is to spread the money with more bank.

However, with the proposed take over of Southern Bank Bhd by Bumiputra Commerce Holdings Bhd. One bank will be eliminated if the merger proposal go through. Thus, public with more than RM60,000 would have less one bank to spread over their deposit. This merger is disadvantage to the public deposit especially the wealthier.

Further, which bank have the likely possibility of collapse? Southern Bank Berhad under the present CEO Tan Teong Hean at least has successfully go through two economic cycle or two recession. However, Bank Bumiputra, a bank form the merged Bumiputra-Commerce Bank have at least collapse twice. First, BMF scandal and second, 1997 Asia financial crisis. With such a bad record. Do you think I will deposit money in that bank?

Of course, people might said the new management of Bumiputa-Commerce is under previous management of Bank of Commerce, not previous management of Bank Bumiputra. But Bank of Commerce previously under Renong Group( now UEM World Bhd). Now, Bumiputra-Commerce Bank is a Government Link company. Like Bank Bumiputra previously.

Further, Bumiputra-Commerce Bank new chief, Nazir Razak is a Merchant Banker at CIMB Bhd. He do not have track record manage a Commercial Bank. Would you like to place your deposit with a bank manage by Tan Teong Hean, a banker with track record of survive two economic cycle or two recession? or place your money with a green horn in manage a commercial bank?

Ex-Finance Minister Tun Daim Zainnudin have a policy where he prohibit politician holding a director position in a bank. That is the reason why now appointment of senior management of financial institution required Bank Negara clearance or approval. This is to prevent politician used their position as a banker to buy vote or create influance by simply approving a loan to his supporter. This type of loan usually uncollectible and cause the collapse of a bank.

Nazir Razak, a brother of Deputy Prime Minister Najib Razak, is deem related to politician. How can Bank Negara give clearance or approval of a person related to a politician to manage a commercial bank Bumiputra-Commerce in the first place? He should remain in CIMB as merchant banker only. How Bank Negara able to prevent a brother of Deputy Prime Minister approval of certain loan it Bank Negara feel is not secure?


Monday, November 28, 2005

Can bloggers charge Singapore's reader via i-mode?

Singapore's StarHub rolled out its i-mode mobile internet services on 18 November 2005. It is a platform that allow internet website to monetize their traffic by charging it reader via telco in Japan.

Singapore's StarHub offering more than 100 website to its subscriber. Among the content providers are Far East Flora, Golden Village, Singapore Press Holdings.

I was curious whether blogger able to charge it Singapore's reader via StarHub. A reader of my blog keropokman, a Malaysian working in Singapore stated that he had to pay S$2 when he wants to subscribe to a website, and blogger might get S$3per subscriber per month other than the S$2 one off subscription fee.

Theoretically, blogger should be able to charge it reader via i-mode according to reply by Keropokman. However, I unable to find a Content Provider Sign-up page on StarHub home page.

The question is:

Can a Singapore blogger able to charge it reader via i-mode? If such reader choose to read the blog via mobile phone.

Can an overseas blogger able to charge Singapore reader via i-mode?

If every subscriber choose S$20 monthly fixed rate subscription. How StarHub divide the fee among all the content provider?

Related Link: La-Di-Da


Friday, November 25, 2005

Giordano founder Jimmy Lai get his seed money from stock market

Malaysia public familiar with Giordano brand which has numerous fashion apparel outlet in major shopping mall. Its founder, Jimmy Lai is a well known figure in Hong Kong as he operate a popular newspaper Apple Daily in Hong Kong and Taiwan. Apple Daily is the first newspaper in Hong Kong that emulate UK's The Sun. Which expand readership via gossip news on celebrity.

Before Next Magazine and Apple Daily published in Hong Kong. Journalist is a respected profession. Now, people view journalist equal to a gossip writer who often break into privacy of celebrity, like causing Princess Diana death in Europe. However, all newspaper in Hong Kong have to follow the trend and culture of Apple Daily now or have to close down. Remuneration of journalist also has been better compare with industry without Apple Daily as Jimmy Lai used to pay his staff above market rate.

Few people know, Jimmy Lai actually get it seed capital from share market speculation.

Jimmy Lai , arrived in Hong Kong from the mainland as a penniless youth. He was jobless initially and have experience 2 days without food and cry on friend shoulder after he meet a friend on the street. He later work as general worker in a textile and apparel factory.

Although he only have education until primary school. One day, a foreigner invite him to become a General Manager of his textile factory after talking to him. However, he is still an employee.

He read a lot of book on stock market trading. He spotted an opportunity when the Hong Kong stock market is on the bull run in 1973. When everybody is buying. He want to short selling instead. As he know a friend working in stockbroking company. He able to pay HK7,000 to open a margin account when the minimum requirement is HK10,000. And the HK7,000 he paid is borrowed from friends!

He start short selling and the market crash. That is the famous 1973 stock market crash.He earn HK700,000 on the incident and used that seed capital to buy his first textile factory. Thus, from an employee, he is now become a his own boss, at the age of 27.

At that point of time. There was no quota on textile export to US and Europe. He quickly earn his first million and diversified to retailing by founding Giordano, a Gap-like retailer of casual clothes that is now one of Asia's top brands.

Later, he founded Next Media and launched a flashy weekly magazine, Next Magazine. Later launched a newspaper Apple Daily. Apple Daily has launch a Taiwan version call Next Daily.

When ask how he able to predict that the stock market is going to crash. He said he had read every available book on stock trading in book store. One of it is Reminiscences of Stock Operator


Wednesday, November 23, 2005

The most competitive bumiputra CEO in Malaysia 2005

I intend to do an article on "Top ten most competitive bumiputra entrepreneur in Malaysia" rather then doing the most competitive employed CEO, because I feel that to solve the high unemployment rate of graduate in Malaysia. Unemployed graduate need to venture out as an entrepreneur rather than ask politician to pressure private sector to employ bumiputra CEO.

However, one of the bumiputra entrepreneur that I respect Tan Sri Dato' Seri SM Nasimuddin of Naza has been alleged by our ex-Prime Minister Tun Dr Mahathir in deceiving him to approved Nasional Car status to his company. Tan Sri Dato' Seri SM Nasimuddin has since choose to remain silent and never defend himself on this issue. Government also did not clarified whether the new NAP has legitimate his move. This cause I unable to rank the "Top ten most competitive bumiputra entrepreneur" until this matter is clarified.

The reason I write this article is to provide a benchmark for aspire bumipuitra CEO on what is competitive CEO base on merit. Thus, to promote efficiency base on merit and improve the competitiveness of our country. This article also intend to provide awareness among non-bumiputra company that we do have competitive bumiputra CEO.


The person must be a bumiputra holding CEO position in Malaysia company. However, such person must not be an entrepreneur nor related to the major shareholder of the company he attached to.

The person must leading a profitable company. Preferable a company that have strong growth in profit. However, such profit growth must not be at the expense on the country economy. If a company profit growth via price increase, tariff hike, increase in fare, or compensation by government. This company cannot be consider a competitive company.

PLUS Expressway Bhd achieved highest return on turnover during the year. Higher than MISC and Maxis but it profit mainly from price adjustment and compensation by the government. An incompetent CEO also able to achieve such profit.

The Most Competitive Bumiputra CEO in Malaysia 2005.

Category:Government Link Company (GLC)
MISC CEO Datuk Shamsul Azhar Abbas

aged 53, is the President / Chief Executive Officer of MISC Berhad (formerly known as Malaysia International Shipping Corporation Berhad). He sits on the Board of MISC and is the Chairman on the Boards of MISCÂ’s major subsidiaries and associate companies. He is also the Chairman of PETRONAS Maritime Services Sdn Bhd and a Director on the Boards of Bintulu Port Holdings Berhad and NCB Holdings Bhd.

DatoÂ’ Shamsul Azhar bin Abbas holds a degree in Political Science from Science University of Malaysia, a Masters of Science Degree (MSc.) in Energy Management from University of Pennsylvania, USA and a Technical Diploma in Petroleum Economics from Institute Francaise du Petrole (IFP), France.

He joined PETRONAS in 1975 and has held various senior management positions in PETRONAS including Vice President, Petrochemical Business, Vice President, Oil Business, Vice President, Exploration and Production Business and Vice President, Logistics & Maritime Business.
On 1 July 2004, he was appointed as the Managing Director/Chief Executive Officer of MISC. He is also currently a member of the PETRONAS Management Committee.

MISC Bhd rank as the highest net profit company in Malaysia by Malaysian Business on it 16 October 2005 issue. It rank the second highest return on turnover by Malaysian Business after PLUS Expressways Bhd. MISC record a profit of RM4.8billion for the year ended March 31,2005, more than double RM.3billion made the year before.

Category: Non-bumiputra controlled company
Maxis Communication Bhd CEO Dato Jamaludin Bin Ibrahim

Y. Bhg. Dato Jamaludin, aged 44, a Malaysian, was appointed a Director of Maxis on 23 April 2002. He is also the Chief Executive Officer ("CEO") of Maxis. He served with Maxis for about 6 years having joined in early 1997 as Director of Corporate Strategies and Development and was later promoted to Chief Operating Officer in September of the same year. In October 1998, he was appointed as the CEO of Maxis.

He has over 17 years of experience in the IT industry prior to his appointment in Maxis. He was the Managing Director and CEO of Digital Equipment (M) Sdn. Bhd. (subsequently acquired by Compaq Computers Malaysia Sdn. Bhd. and later Hewlett-Packard Sales (Malaysia) Sdn. Bhd.) from 1993 to 1997. He spent 12 years at IBM Malaysia, from 1981 to 1993, initially as a systems engineer and moving on to positions in sales, marketing and management. He was a lecturer at California State University, in the United States for a year.

He attended Maktab Sultan Abu Bakar before graduating from California State University in the United States with a Bachelor of Science, Business Administration, and a minor in Mathematics in 1978. He obtained his Masters in Business Administration from Portland State University, Oregon in 1980.

He was named Malaysia's CEO of the Year 2001. The award was jointly presented by American Express Corporate Services and the Business Times. He was also named Business Person of the Year 2001 by the Asian Academy of Management.

He is a Board member of Malaysia Venture Capital Management Berhad, HeiTech Padu Berhad and the World's GSM Association, an international wireless trade association body.

Maxis Communication Bhd is a company control by a non bumiputra Ananda Krishnan. It is the largest market capitalize non-GLC listed on Bursa Malaysia. The company is the highest net profit non GLC in Malaysia and highest return on turnover among non-GLC. The company achieve it profit not via price increase. In fact, the company is driving the price down by involve in a price war like the price war among prepaid segment recently.

Category: Women CEO in GLC
KPJ Healthcare Bhd Managing Director Datin Paduka Siti Sa'diah Sheikh Bakir

Aged 52, Datin Paduka Siti Sa'diah has been the Managing Director of KPJ Healthcare since 1 March 1993. An Economics graduate from University Malaya in 1974, Datin Paduka began her career with JCorp in the same year. She has been directly involved with JCorp's Healthcare Division in 1978. She was the Chief Executive of KPJSB, the holding company of KPJ Healthcare, from 1989 until the restructuring of KPJ Healthcare in November 2002.

Datin Paduka is also currently the Chairman of various hospitals in the KPJ Healthcare Group, as well as being a Director in other companies within the JCorp Group, such as Kulim (M) Berhad, Puteri Hotels Sdn Bhd, Willis (Malaysia) Sdn Bhd and JMF Asset Management Sdn Bhd, as well as Klinik Waqaf An-Nur, a nongovernmental organisation dedicated to the provision of healthcare services to the less fortunate. Her commitment to excellence in healthcare has driven her to be active in professional organisations, such as becoming the Vice President of the Association of Private Hospitals in Malaysia (APHM), from 1994 to 1996, and the President of the Malaysian Society of Quality in Health (MSQH), since its inception in 1997.

Datin Paduka has also been a Board Member of MATRADE since 1999, Chairman of the Audit Committee of MATRADE since 2003, a member of the National Productivity Corporation's Consultative Panel on Healthcare since 2001, and a member of the National Patient Safety Council, Ministry of Health since 2003. Since 10 April 2004, Datin Paduka was elected as an Independent Director of Bursa

KPJ Healthcare Bhd is control by Johor Corporation Bhd. A company control by Johor state government. She is the only women CEO at holding company level that I able to find among all GLC.

10 days free course on stock trading


Monday, November 21, 2005

Singapore StarHub launch i-mode, a setback to Malaysia MSC

On the same day I have commented on i-mode. Singapore StarHub launch its i-mode mobile Internet service on last Friday, offering more than 100 websites at which users can buy flowers, book tickets and read news , buy and sell stocks, and find the shortest route home with an online street directory.

This would be a boost to Singapore internet industry and it ecommerce. Even US also unable to have such technology and provide such service.

Singapore telecommunication industry would be able to combine the telecommunication and internet now

Malaysia's Multimedia Supercorridor(MSC), however, still one step behind Singapore again.

Telekom Malaysia Bhd fail to form strategic alliance with NTT Japan and other company. Ananda Krishnan's Maxis, which try very hard to get such a technology over the year from DoCoMo but fail.

However, Singapore StarHub able to secure a deal with Japanese cellphone operator NTT DoCoMo in January to bring i-mode to Singapore.

Now, Singaporean would have the opportunity to try this technology first, at least earlier than Malaysian. Who is working in Singapore?

Related Link: La-Di-Da


Friday, November 18, 2005

Does China involve in copper speculation?

There is a rumor said that a commodity trader, Liu Qibing representing China's State Reserve Bureau (SBR), went missing recently after he built up massive short positions in London Metal Exchange that traders claimed ranged anywhere between 100,000 and 600,000 tons.

This is second loss of China government in commodity Future Market after the mainland's Singapore-listed China Aviation Oil went under when it was forced to seek court protection from creditors after revealing it had lost 550 mln usd through derivatives trades that turned sour in late 2004.

Chinese authorities however, have rejected reports of any link to a trader who was said to have worked for Beijing but vanished after making wrong bets on copper futures contracts that could potentially cost hundreds of millions of dollars.

Speculator however, keep on buying copper in London Metal Exchange sending the copper price to record high on Monday.

On Monday, London Metal Exchange copper price hit USD4132 after a sharp rise last Friday. Before that, copper price has rise 30% from the beginning of the year.

On Wednesday, copper price continue to rise price rise continuously for fifth consecutive day. It is suprising that non of the mainstream English newspaper in Malaysia report such news. I only see Oriental Daily and Nanyang doing report on such incident


Blog that link to my site 2

This is just an update from my previous post.

A lawyer Miracle8 recommend my blog on her blog Memory Lane on item No 7.

"Old Man" (Note: Not Good Man), a Malaysian living in UK and regular commentator of this blog make some posting on Brain Dancing. Initially I thought he is iomar (I think he is a doctor if not mistaken). But iomar write and said that he is not Old Man but he said my blog is nice.

On 23 October 2005, a Finance Manager also recommend my blog on his blog I've.....seen things .

Tony Pua's blog Education In Malaysia also provided another link from one of his post Universiti Sains Malaysia: Equally Clueless? to one of my article University Sains Malaysia should benchmark against National Chiao Tung University in Taiwan .

Thank you. All of you.


Guide To Trading With Discipline & Confidence (Advertorial)

Day 1 - Introduction
The goal of any trader is to turn profits on a regular basis, yet few people ever really make consistent money as traders. What accounts for the small percentage of traders who are consistently successful?

Day 2 - The Basics of Analusis and Rational Trading
For a number of years, fundamental analysis was considered the only real or proper way to make trading decisions. Today the opposite is true. Almost all experienced traders use some form of technical analysis to help them formulate their trading strategies.

Day 3 - Basic Principles
To operate effectively in any trading environment, you need rules and boundaries to guide your behavior. It’s a simple fact of any trading, no matter what “system” you’ve developed.

Day 4 - Characteristics of Successful Traders
Successful traders have a few things in common. Developing these characteristics and habits will help make you a successful trader.

Day 5 - Playing to Your Strenghts, Overcoming Your Weaknesses
Every individual has different behavior patterns that make them unique. By understanding your own habits and behaviors, you can greatly improve your trading abilities and your ability to accumulate wealth.

Day 6 - Winning Psychology
Most traders who are successfully initially end up losing all their gains – and more. To be successful, you have to acknowledge this pattern… and then break it.

Day 7 - Avoiding Common Pitfalls
Most markets have predictable trends and repeated patterns. Why? Because most things that happen in the markets are a results of the motivations of the people in those markets.

Day 8 - Sound Money Management
If you don't use good money management by locking in profits, taking small losses on the picks you're wrong about, and controlling your use of margin, eventually you'll lose it all, no matter how good a trader you are.

Day 9 - Trading Systems
There are many ways to profit from the markets. There is however, one common element all successful traders have: they approach trading in a systematic way.

Day 10 - Final Words
Trading is a means to an end. Trading is not an end in itself.

Technorati Tag:


This course is for general information and not prepared for a person's specific investment objectives, financial situation or needs. It is published on the understanding that nothing contained herein is to be construed as a specific advisory recommendation or invitation to trade any securities, contracts or any financial products. It should be noted that trading in securities, futures contracts and any other financial products involves high risks and anyone who buys or sells any securities or contracts are doing so at his or her own risk. Please consult a licensed investment advisor before making any investment decision. Further note that no method of trading is foolproof and past performance is no guarantee of future results. We do not guarantee the accuracy, reliability or completeness of the information in this guide and nothing contained herein should be made the basis by anybody for any claim, demand or cause or action.

Thursday, November 17, 2005

Ananda Krishnan's empire missing link

Ananda Krishnan's empire comprises telecommunication company (telco) Maxis, pay TV operator Astro All Asia Network, satellite company MEASAT and Tanjong Public Limited Company, which operate in gaming industry and cinema. His fortune was said from petroleum industry.

In China, an American Idol type program get huge response from Chinese youth. It contestant's name are among the top ten search in Chinese search engine. All contestant have their own website with their own profile. A lot of blog in China also cover the incident. Discussing and debating the outcome.

China, rule by communist. Do not have chance to vote. Now have an opportunity to vote their leader now have the opportunity to vote their idol via sms.

TV operator who conduct the show get a lot of sponsorship and advertising money.

Telco also gain from sms. With such a huge population in China. Telco are laughing all the way to the bank.

Internet company in China, some list on NASDAQ also gain from such program.

Thus, some social commentator said the next generation business tycoon comprises person know how to combine the power of 3 industry .......TV, telecommunication and internet.

Ananda Krishnan business empire comprises at least two pillar ......TV (Astro) and telco ( Maxis). Thus, the missing link is internet.

Most reality show in Malaysia now are conducted by free TV network rather then pay TV network. Pay TV Astro however air free TV via their network. A lot of subscriber of Astro actually viewing free TV via Astro. Thus, Astro has indirectly gain from it.

Free TV company do not own telco. Thus, Maxis, being the largest mobile telecommunication company in Malaysia is the biggest gainer.

In Malaysia, another gainer is Music and entertainment industry. Actually, it is the music and entertainment industry that make used of the three sector (TV , Telco and internet). In Malaysia, music and entertainment industry able to get an idol or star that have ready market like Academi Fantasia's Mawi and Malaysia Idol Daniel. Recently, a blogger Dawn Yang sign up by a modeling agency in Singapore. This is how the music and entertainment industry make used if internet after threaten by MP3 and other peer to peer program.

Malaysia, which majority of it population is Malay or bumiputra. Vote a non-bumiputra as their idol. This might signify that youth in Malaysia is not racist.

Link: Malaysia-Today
Competitiveness of Indian Community in Malaysia
Malaysia's richest 40


Final Words (Advertorial 10)

Trading is a means to an end. Trading is not an end in itself.

Why are you trading?

Of course, you’ll probably answer, "To make money." That’s why we all do it. (If you’re not trying to consistently make a profit, you shouldn’t be trading.)

But why do you want to make money? You may want to simply supplement your income, or perhaps someday trade as a professional, meaning that trading provides your sole source of income. That's great ― but hopefully trading, and the money you make, will be a means to help you live a better life: to follow your dreams, to help others, to provide a better life for your family. Always stay focused on the things that are most important to you: none of those things should be trading itself; trading should simply be a means to help you better enjoy the things that are important to you.

The rules and mental discipline we've discussed to help you be a successful trader can also help you in other areas of your life. Most of the principles apply to success in other areas and pursuits:

1)You learn self-discipline. People who are successful in any area of life are able to focus on a goal and do what they need to do to reach that goal. That can mean refusing to take the easy way out, resisting urges or impulses, and adhering to a routine or a plan. Trading teaches you to take responsibility for what you do, and who you are. Successful traders understand they are responsible for everything they do, and they act accordingly.

2)You learn to take a long-term approach. Success requires perseverance over a long period of time. You won’t get rich after a week of trading – trying to do so will cause you to lose money because you’ll take excessive risk. Successful traders make profits steadily, and they watch their assets grow over a period of time.

3)You continuously learn. Markets change constantly, and so do strategies, techniques, and approaches. Successful traders adapt, are willing to look at new ideas, and actively watch for ways to improve and learn. Continuous learning can help you in any area of your life.

4)You adopt a winning attitude. Traders who expect to lose, or who think they will probably lose, usually do lose. If you don’t think you can win, you won’t put out the effort necessary to win. People who expect to win believe in themselves enough to do whatever they need to do to succeed. No matter what your goals, you should always approach them with a winning attitude, knowing you can succeed.

5)You learn to accept success. Successful traders often make huge profits on individual trades. After all, that’s how you become a successful trader: you limit your losses and consistently take and protect profits. Learning to accept success, and to feel you deserve it, is a skill many people don’t acquire. They assume their gains were due to luck, or to circumstance, and they become unfocused and undisciplined. If you feel you deserve to succeed, you’ll stay logical and focused when you do succeed. And success creates more success.

We sincerely wish you the best possible success as a trader, and in your life as a whole. Stay focused, stay disciplined, and you can be a successful trader, whether you’re a beginner or a professional. Remember, winners stay focused when those around them can’t – the best opportunities are found when everyone else is thinking emotionally. If you stay focused, learn from your mistakes, and maintain a positive attitude, you’ll succeed. And you’ll develop skills that can help you in any area of your life.

"What Takes Some Successful Traders A Lifetime To Achieve Could Take You Just A Few Days... Or Less!"

Get these reports for free

Advertorial 1 - Introduction
Advertorial 2 - The Basics of Analusis and Rational Trading
Advertorial 3 - Basic Principles
Advertorial 4 - Characteristics of Successful Traders
Advertorial 5 - Playing to Your Strenghts, Overcoming Your Weaknesses
Advertorial 6 - Winning Psychology
Advertorial 7 - Avoiding Common Pitfalls
Advertorial 8 - Sound Money Management
Advertorial 9 - Trading Systems
Advertorial 10 - Final Words


Maxis SK Telecom in Malaysia

SK Telecom in South Korea is one of the largest market capitalization company in South Korea Stock Exchange after Samsung.

South Korea is a country with largest broadband user per population in the world. SK Telecom, one of the Internet Services Provider in the country has contribute very much in that area. The fact that SK Telecom in telecommunication services also contribute much on popular handphone usage among it young people and also contribute very much in the success Samsung Mobile phone.

SK Group in South Korea start from Petroleum industry, then only diversified to telecommunication industry.

Similarly, Ananda Krishnan of Maxis also start from Petroleum industry. Then only venture into telecommunication industry. Maxis is now the largest market capitalize non-GLC in Malaysia.

Maxis, however, used to benchmark against Japan's DoCoMo. However, Docomo, is a company under government control NTT, thus it is considered a GLC in Japan. DoCoMo is more similar to Telekom control TM net.

Although DoCoMo is more advance technically. They even more superior than US ITT, AT&T in term of mobile technology especially their i-Mode technology. But it is difficult to get transfer of technology from Japanese. National car Proton fail to obtain technology transfer from Mitsubishi while Maxis has numerous attempt to court DoCoMo but fail.

I feel that Maxis should benchmark against SK Telecom rather than DoCoMo.


Trading Systems ( Advertorial 9)

Successful trading stands on three pillars: psychology, sound money management, and an effective trading system. We’ve covered the psychology of trading you need to adopt, and we’ve given you an overview of sound money management practices and approaches. Now let’s talk about trading systems.

Every successful trader has a winning system. (They wouldn’t be successful if they didn’t have a system that worked for them.)

There are as many systems out there as there are traders. That makes sense, because no two traders are alike. Some traders buy on strength and sell on weakness; others do the opposite. Investors like Warren Buffett have succeeded through a "buy and hold" strategy, seeking to purchase value to realize long-term gains. Some traders buy and sell constantly, seeking to make money off of short-term trends or momentum.

There are many ways to profit from the markets. There is however, one common element all successful traders have: they approach trading in a systematic way. By “systematic,” we mean they have developed a system that is effective for them, and they follow that system. The system may of course evolve and adapt over time, based on experience and lessons learned from past mistakes, but never due to emotion.

Your trading system must fit your personality in order for you to be successful. Good traders succeed because they develop a system they feel comfortable with and that provides proven results over the long-term. They develop a methodology that maximizes their strengths and minimizes their weaknesses.

How can you do that?

Define Your Objectives

Since every investor is different, the first thing you need to do is take into account your present situation. You’ll need to determine:

1)Do you need cash flow or capital growth? If you’re a part-time trader with other sources of income, you may simply wish to grow your capital. If you’re trading professionally, and your sole income is from trading, then cash flow is critical to you because you need the profits to live on.

2)Can you trade part time or full time? If you’re new to trading, or don’t have a lot of capital, part-time trading is a great way to learn, grow your skills, and develop a trading system. If you have sufficient capital to invest, and are confident in your abilities, full-time trading may be right for you. Only you can determine whether you’re ready to trade professionally or not.

3)How much capital can you invest? There are two parts to this question: one, how much capital do you have, and two, how much are you willing to risk? You should not risk more money than you’re comfortable with, or doing so will affect your trading and cause you to make mistakes. If you’re risking too much, nervousness and fear will affect your decision-making and cause you to make undisciplined errors. Only invest as much capital as you’re comfortable with – as your confidence grows, the amount of capital you’re willing to invest will grow, too.

4)What annual rate of return do you want? The higher the return, usually the higher the risk. If you want a 5 or 10% annual return, your investment style will be much more conservative than someone who seeks double or even triple-digit returns.

For example, if your goal is cash flow and low risk, buying or selling at extreme levels, like when you feel a position is overbought or oversold is not the right style to adopt. If your goal is to quickly grow your capital, and you can accept the high level of risk that can come with high returns, then buying distressed stocks, a contrarian approach, or gap trading may be a trading style you will adopt.

Trading systems can be as different as aggressive day traders looking to profit from small point gains, to value investors looking to capitalize on long-term economic trends.

In between, there are a wide range of combinations including swing traders, position traders, aggressive growth investors, value investors, contrarians….

Your style will depend on your level of commitment and on your personality. Here are a few examples of types of traders:

Day traders pursue an aggressive style with high activity levels, focusing on extremely short-term price movements. They make huge numbers of quick trades, tend to take small profits on each winning trade, and maintain tight stop-loss levels to protect their capital. Day traders are by default almost always professional traders, because they focus on minute-to-minute market changes. Most day traders make their money through a huge volume of profitable trades, so they need to be dedicated and focused. Day trading also requires a lot of energy and commitment, and is best-suited for people who like constant activity and change.

Position traders focus on short-term and intermediate-term price movements. They tend to trade positions they feel are likely to move over a one to six week period. Their level of commitment is still substantial, but it’s certainly less than the commitment required from a day trader. It’s possible to be a part-time position trader, but you’ll need to be willing to spend several hours a day studying the market in order to stay in close contact with trends.

Equity traders focus on longer-term price movements. Because of that, the goal of most equity traders is to increase their capital rather than increase cash flow, since oftentimes equity traders will hold a position for weeks and months – their profits can stay as paper profits for a long period of time.

Defining your trading objectives is critical, because unless your system matches your own criteria, you’ll never make big profits. If you’re interested in cash flow, but you choose a trading system that is focused on equity appreciation, you’ll never be successful because your goals don’t fit your system. You’ll grow impatient, make mistakes… and your system will fail. On the other hand, if you’re trading part-time, but you want short-term profits, you may struggle as a day trader because you won’t have the time available to make high-volume, extremely short-term trades.

"What Takes Some Successful Traders A Lifetime To Achieve Could Take You Just A Few Days... Or Less!"

Get these reports for free

Evaluating a Trading System

Once you’ve decided your trading objective, and what market you’ll focus on, you’ll need to develop a system. Hundreds of different trading systems already exist, and you can certainly learn about or purchase one. Or you can develop your own. What’s important is that you can objectively evaluate the system to ensure it meets your needs and that it performs well. Here’s how you can objectively evaluate a trading system:

1. Does it preserve my capital? Capital preservation is absolutely critical. If you don’t have money to trade, you can’t make profits. It’s as simple as that. Your trading system must preserve your capital or you’ll fail.

What does that mean? It means you can’t risk everything. As a trader, you’re looking for small, repeated successes. Your focus should be on consistently making profitable trades and limiting your losses on bad trades. A trading strategy that does not preserve your capital will quickly put you out of business. That’s why we recommend the stop-loss strategy: effectively using stops will keep you from losing your capital. In short, any system that can put you out of business is a poor system.

2. Historical performance is critical. Why? Because your goal is to make profits over the long-term and evaluating past performance is the only way to determine if a system, or if your system, is successful. It’s not important how successful a system might be; what’s important is how successful it is.

3. Success is determined by real profits, not by percentages alone. Of course, your percentage of gain is important, but only if it measures your true profits or losses. Money in your pocket is the only real measurement of success. Here’s how you should calculate success: at the end of the day, week, month, or year, do you have more actual money than you started with? By “actual,” we mean money that is liquid and can be accessed immediately. And if you do have more, what is your percentage gain? That’s the only true measure of success. The only way to truly show profit or loss is if percentage gains (or losses) are based on the amount of money invested.

Let’s say you’re a day trader. You start the day with $10,000, and when you’re done trading for the day, after closing out all your positions, you have $10,400 in your trading account. You’ve made $400. Your percentage gain for the day is 4%. That’s real, measurable success. If you measure historical performance in any other way you might not get a true picture of your success.

4. The system should be mechanical in nature. What does that mean? A good trading system must be automatic in nature, and should allow you to make decisions based on rules and parameters, not on emotion. A mechanical system is not one that’s based on buying every IPO. A mechanical system could be to buy stocks with a maximum price-earnings ratio two weeks before the ex-dividend date, with a 5% stop-loss set ― if you’ve determined that historical performance makes that an overall winning strategy.

5. The trading should always take place in liquid markets. An effective trading system should be aimed at liquid markets where sufficient daily volume exists to easily and consistently execute orders. For example, the S&P 500 Index Futures Market is highly liquid, whereas the Orange Juice Futures market is far less liquid. You want to be able to make trades as quickly as possible, and as close to the intended price as possible.

6. A good trading system will work in up or down markets. (If it doesn’t, you may be sitting on the sidelines during market run-ups if your system only works during a bear market.) It should have the potential to generate successful trading performance in all market conditions; bull, bear, and sideways trading range.

7. The maximum drawdown should fit your personal requirements and situation. An inherent characteristic of investing in general ― and of trading systems in particular ― is the maximum drawdown potential in account value from the most recent peak. No trading system is perfect; you’ll make some trades that are great, and some that will be bad. If the potential loss on bad trades in your system exceeds your tolerance for risk, and puts your capital in jeopardy, then it’s not the right system for you.

8. The system fits the capital you have available to invest. You have to be able to feel comfortable with your system, and if most of your capital is at risk, or the risk levels are too high for your comfort, you’ll make emotional decisions instead of logical ones.

The key to a good trading system is that it allows you to make rational and logical decisions, not emotional ones. Most successful investors develop their own systems because they need a workable formula that suits their own individual temperaments and needs. What works for one person will not work for another. If you like the action of day trading, and are excited by the thought of making large numbers of trades every day in search of small profits on most of your transactions, then equity investing won’t work for you – you’ll become bored and will make trades based on emotions, not on logic. By the same token, if you like to carefully consider trades, and don’t like to feel rushed when making decisions, day trading is a poor investment style for you to adopt. You’ll quickly be overcome by the “action” and will make mistakes that will deplete your capital.

A good trading system also manages risk responsibly. There’s risk inherent in trading, and your system should allow you to ensure your risk to reward ratio is favorable on every trade – otherwise, you shouldn’t be making the trade. Remember: Your goal is long-term success, so try for consistent profits, limit your losses, and make decisions based on reason and logic, not on emotion. Any system that doesn’t allow you to operate that way is a poor system for you to use.

"What Takes Some Successful Traders A Lifetime To Achieve Could Take You Just A Few Days... Or Less!"

Get these reports for free

Advertorial 1 - Introduction
Advertorial 2 - The Basics of Analusis and Rational Trading
Advertorial 3 - Basic Principles
Advertorial 4 - Characteristics of Successful Traders
Advertorial 5 - Playing to Your Strenghts, Overcoming Your Weaknesses
Advertorial 6 - Winning Psychology
Advertorial 7 - Avoiding Common Pitfalls
Advertorial 8 - Sound Money Management
Advertorial 9 - Trading Systems
Advertorial 10 - Final Words


Tuesday, November 15, 2005

Consistency on "Tudung" issue

A lot of blog was discussing about the "Tudung" issue recently.

While I agree that there should be freedom of speech. I feel that , however, a blogger or politician should be consistent with his view point.

Some blogger or politician opposed when Singapore prohibit it school children wearing tudung to Singapore's school but strongly support when International Islamic University (IIU) attempted to impose the tudung dress code on its graduate attending the convocation.

Where is the consistency?

While some Malaysian politician protest Singapore move even they are not Muslim. Their protest on IIU policy later view as consistent with their principal.

Similarly, when France government not too long ago banned the wearing of hijab by Muslim women in public institutions. SISTERS IN ISLAM opposed the ban because it violated the religious freedom and rights of French Muslim women. Their view point post on The Star today on opposing IIU policy seem consistent with their previous move.

IIU move contradict with Malaysia government's policy to promote non-bumiputra in Malaysia to send their children to National school so that all children, regardless of race study under on roof. When fail, government set up Wawasan school. Actually, non-bumiputra community still skeptical on Wawasan school fearing that there have to adhere to one dress code later.

While government motif is correct to promote national unity for all the school children study under one roof.

However, do you think it would promote national unity if issue on dress code like this keep on coming up, not from University but since primary school?

Updated:Don’t turn it into a religious issue


Sound Money Management (Advertorial 8)

One of the most difficult qualities of being a successful trader is learning to be a good manager of your own money. It's completely possible — and actually pretty common — to see people turn out to be right on a high percentage of their trades and still lose money. How is that possible? If you don't use good money management by locking in profits, taking small losses on the picks you're wrong about, and controlling your use of margin, eventually you'll lose it all, no matter how good a trader you are.

Protecting your capital is your first priority.

As a trader, the most valuable thing you have is your capital. Without it, you can't trade at all. Bringing in no profits at all is better than losing any part of your capital, because if your account is intact, you can always make a profit another day. If your capital has suffered a loss, you'll be wasting effort playing catch-up. The more you've lost, the longer it will take to get back to where you started from — both because you've got more to make up for, and also because with a smaller chunk of capital to work with, your profits for any given percentage return will be proportionally smaller. Making 10 percent on a $10,000 account earns you $1,000, but if you've lost half of that account and have only $5,000 left, making 10 percent on your money will earn you only $500. You'd have to do that twice to make the same $1,000.

Market corrections are inevitable, and will continue to occur from time to time. Traders must anticipate them and take precautions before they occur. Properly prepared, traders can even profit from corrections. Without proper money management, though, your account balance can be destroyed.

Goals of Good Money Management

Sound money management has two main goals: to avoid losing money, and to avoid missing profit opportunities by tying up capital in problem trades for long periods of time. Failing to avoid either of these will cost you.

Avoiding loss of money is pretty easy to understand: You want to preserve your capital and whatever profits you've accumulated. Not only do you want to keep it, but you want to trade with it as well, so that your capital continues to grow and makes your returns larger and larger.

Avoiding loss of profit opportunities isn't quite so obvious, but if you think about it, it's easy to see the point. Let's compare the outcomes of two money-management decisions. Trader A buys a stock, expecting it to go up, and finds that it doesn't. He's just sure it will go up eventually, and he's incurred a small loss, so he decides to wait it out. He ends up holding the stock for three months before finally selling it.

Trader B buys the same stock at the same time as Trader A, but once he sees that it isn't going up, he sells it at a small loss. He buys another stock and makes a 15 percent profit on it. His next trade loses 1%, but after that he makes 8 percent, 15 percent, and 30 percent on series of trades. Because he is growing his account, he makes these percentages on a larger and larger capital basis each time. At the end of three months, his account has grown by 48 percent.

Whose money-management decision turned out to be the best? While Trader B made a nice profit, Trader A not only lost time but also never made his money back. Even if he had made his money back on that stock, it's hard to see how this was a good use of his capital over the course of three months.

Keys to Sound Money Management

There are six important things you must do to manage your account safely and effectively:

1)Lock in profits.
2)Take small losses and make big gains.
3)Use margin with caution.
4)Go to cash when the market nears its top.
5)Diversify your portfolio.
6)Hedge risk.

You must do these six things consistently and without exception. The most important difference by far between successful and unsuccessful traders is money management.

Exercising good money management is the single most important thing you can do to improve your trading performance.

Lock in Profits

Lock them in or lose them. We can’t say it more simply than that.

One of the most common and frustrating mistakes traders make is failing to lock in profits. It's great to be up 35 percent on a trade, but it's only “virtual” money until you do something to ensure that it's yours to keep.

Remember one of our examples from the last chapter? A trader watched his stocks go up initially, failed to take profits, and then watched them go back down — and down, until he'd actually lost money on what had been profitable positions. There's no reason this has to happen. It will happen, though, if you have no plan and no strategy for locking in profits.

How should you lock in profits? Since price targets are guidelines, we recommend making a habit of selling half our shares at a more conservative target than the one you actually think the stock has a good chance of reaching. That way, you lock in a good chunk of profits, and whatever happens after that there's no way those profits can disappear. Sometimes, if you think the stock could travel a long way, plan several levels where you’ll take profits — first selling half your position, then half of what's left, then half of what's left of that. Often these selling points are near psychological barriers you expect the stock to encounter — round numbers like 10, 20, and 50, or percentage barriers like a 25% gain for the day.

Another way to lock in profits is to use trailing stops. By continuously raising these stops as the stock price moves up, you’ll lock in the profits you’ve made below the stops. You can also protect the entire position in case of a sudden downturn.

These strategies must be part of the plan you have before you ever buy the stock. After you're in the position, it's too easy to get either panicked or carried away by high expectations. Locking in profits is part of your exit strategy and as such is part of the whole plan for the trade.

Let's look at a shorting example. You short a position at 38 after it runs up 100% in a day on modest news. You calculate it could lose around half of its new gain in a day or two. You decide that you'll take half your profits when it gets down to about 35, another half when it reaches 32 and the rest when it reaches 29. You place a stop buy-to-cover order at 40.21 and wait.

The position moves as you’ve predicted, and within an hour is approaching 35. You adjust your trailing stop to cover half your position at a lower price and place a limit buy-to-cover order on the other half at 35.10, which executes.

Late in the day, the position takes a dip down to 32.70, then 32.30. You know that a lot of people put in orders right at round numbers, so you always try to get in a little ahead of them. You buy to cover half of the shares you have left at 32.10. You reset your stop for a lower price on the position that is left but let it expire at the end of the day because you think it might temporarily gap up in the morning as the last gasp of its big run. The position closes at 32.60.

The next morning, it gaps up as you thought it might, reaching 33.40. It then starts to fall, slowly making its way toward your expected final selling point of just above 29. You reset your trailing stop at 33.60.

To your surprise, though, it picks up steam later in the morning and runs up to 33.90, triggering the stop on your remaining shares. It seems to have the legs to run for another day. You don't care, though — you're happy, because you took profits at a much better price yesterday and no one can take them away from you. On top of that, you're now free to short the position again once it reaches the top of its second-day run.

If you'd held your entire position, you'd have no profits and would have to wait for the position to go down in order to see them — plus you'd run the risk of it rising higher than the point where you shorted it.

Accept Small Losses and Make Bigger Gains

If you don't take small losses, you’ll eventually lose. If you're unwilling to take a loss on any trade, we guarantee that you'll lose money.

Most people have trouble taking small losses. They don't want to lose anything on a trade because it makes them feel like they failed somehow. But taking small losses means you succeeded. Focus on the fact that you should take small losses, not that you should take losses. Taking small losses is a way to limit losses when they occur and to make sure they never turn into big ones. Taking small losses and big gains is the way successful traders trade. It's the only way to be a successful trader.

The best way to enforce the discipline of taking small losses is to use protective stops on every trade. If you decide how much you're willing to lose on a trade before you enter the position, as part of your plan, you can set your stop right after you enter the position and you won't have a chance to second-guess yourself.

If you think about how much you're willing to lose as part of your plan, it also helps you determine about whether the trade is one you really want to make in the first place. Taking a good look at your downside should help to keep you away from questionable trades.

Use Margin Carefully

Margin is a powerful tool that can really increase your profit, but must always be used with care. The fact that using margin lets you make much more on successful trades but lose much more on unsuccessful trades should make you even more carefully evaluate the risk-to-reward ratio every time you look at a potential trade.

What's the proper way to use margin?

First of all, don't use all of it. Always leave yourself a generous cushion. Every change in the price of a stock in your portfolio changes the value of the collateral you have available for your margin loan. If the value of your holdings goes down, it will go down faster due to margin than if you weren't using margin, and this means that the size of your margin cushion will decrease at the same faster rate. We suggest that you never use more than two-thirds of your total margin capacity. This leaves at least one-third as a cushion. If declining values bring your cushion to below one-third of your capacity, it may be time to sell some positions to keep you out of trouble.

Second, when deciding how great a loss you can tolerate on any one trade, remember to take margin into account. If you're using half your margin capacity, a 2% loss on the value of a stock position will equal a 3 percent loss to your actual capital.

Learn how your broker calculates account equity. This can be very confusing, but it's really helpful to be able to anticipate how much margin capacity you'll be left with after you make a trade. Always keep track of your margin status. Check it every morning and at the end of every trading day.

Don't worry about margin interest. Your broker will charge interest on the borrowed amount, but the interest rate is low and the cost is extremely small if you're trading profitably.

In general, use margin only in markets with a strong bullish direction. You can't use margin capacity to increase the sizes of short positions in a bear market, anyway (though you must have a margin account to short.) Whenever the market seems overbought, unsteady, or unclear in its direction, get completely out of margin before a downturn can take place.

Shift to Cash When a Market Nears its Top

Besides getting out of margin when a market seems unsteady or overbought, you should also lighten up on positions and go mostly to cash. When the market is about to turn, cash is always safest. Staying away from unpredictable and difficult to trade volatility will save your account from potentially devastating losses.

Diversify your Portfolio

Diversification is very important in trading. Putting all of your money into positions that carry the same types of risk is not good money management. Instead, find trades with different risks so that if one sector experiences a sudden downturn, only a portion of your account will be affected.

Hedge Risk

Learn about strategies for hedging risk. For example, if you're playing a stock that you believe will go up but could instead go down, try to find a weaker stock that should generally go in the same direction and short it. That way, if the primary stock goes down, you'll profit from your short, which is likely to fall faster because it's weaker. If it doesn't fall, it's not likely to rise as fast for the same reason.

Many common hedging strategies involve options. Two examples are straddles and strangles. A straddle is an options play where both a call and a put are purchased. The call and put have the same strike price, the same expiration month, and the same underlying stock or index.

A strangle is an options play where both a call and a put are purchased. The call and put have different strike prices (usually both out of the money), but have the same expiration month and the same underlying stock or index.

Hedging is a form of insurance, so it will cost you a bit by decreasing the profits you make on a play. But there are times when insurance is well worth the cost.

Risk Taking

Traders who routinely fail to use safe trading and money-management practices should ask themselves why they're engaging in dangerous and self-defeating behavior. There's always a psychological motivation for something that doesn't otherwise make sense. What are they getting out of it, since it's clear that they're not getting better financial results?

Risky behavior is often a form of escapism or a substitute for something more meaningful in a person's life. If you seem to resist using proper money management or often "forget" to make a plan or set stops, take a look at your own motivations. Better to figure it out now, deal with it, and prosper than to lose all your money because you didn't know what you were really trying to do.

If you find yourself taking unnecessary risks or engaging in other self-injurious behavior, try to figure out your motivations and deal with them.

"What Takes Some Successful Traders A Lifetime To Achieve Could Take You Just A Few Days... Or Less!"

Get these reports for free

Advertorial 1 - Introduction
Advertorial 2 - The Basics of Analusis and Rational Trading
Advertorial 3 - Basic Principles
Advertorial 4 - Characteristics of Successful Traders
Advertorial 5 - Playing to Your Strenghts, Overcoming Your Weaknesses
Advertorial 6 - Winning Psychology
Advertorial 7 - Avoiding Common Pitfalls
Advertorial 8 - Sound Money Management
Advertorial 9 - Trading Systems
Advertorial 10 - Final Words


Sunday, November 13, 2005

Water and sewerage should be separated under new Water Bill

The draft Water Services Industry Bill and Water Services Commision Bill (SPAN in Malay acronym) was publicly released last Monday.

In a rare show of transparency, the two drafts affecting water industry are open to public scrutinise before they undergo parliamentary reading to pass the Bill into law.

The Ministry has set up a website called 'My Water Voice' as a channel for the public to interact with the ministry.

Visitors to the website can also give their views through an online forum for each bill.

I remember at one point of time I read a biography written by Alfred J. Roach "Fire in My Belly". Alfred J. Roach, a self make entrepreneur and founder of TII Network Technologies in US. His company TII invested in Water treatment industry as well but fail..

The venture fail because of a number of reason. But one of the reason he stated in his book is his company providing water treatment services and sewerage and waste water services. He claim the public thought that the water supply to the public from the company are from the water from waste water or sewerage eventhough it is not. This is in US.

I do not know how Energy, Water and Communications Minister Datuk Seri Dr Lim Keng Yaik claim that the two service are provided by the same company in UK.

I really do not comfortable whether the same worker working for the sewerage plant in the morning and he will work in the water treatment plant in the afternoon. The pipe he used? Is it from the same store that storing the same water pipe and for sewerage and watse water pipe together.

In the event the company want to cut cost. This is highly possibly happen in Malaysia. Thus, I strongly against the same company provide water treatment and sewerage service. It has to be separated


Avoiding Common Pitfalls ( Advertorial 7)

Most markets have predictable trends and repeated patterns. Why? Because most things that happen in the markets are a results of the motivations of the people in those markets.

Many people say that what drives most markets are greed and fear. Greed makes people buy, and fear makes them sell. Greed and fear actually benefit traders: Greed, or at least the desire to make money, is why we trade in the first place. Fear is a healthy response when we sense danger or disaster closing in, and it motivates us to get out of a bad situation.

But when they get out of control, greed and fear are two of the basic psychological pitfalls that make traders fail. Traders who consistently make mistakes usually do so for one or more of the following reasons.

Excessive Greed

The desire to make money is what motivates us to become successful traders in the first place. But the desire to succeed is different from trying to get every possible profit from a trade. This kind of reckless greed makes traders hold on to their positions long after the downside has started to outweigh the upside and risk outweighs potential reward.

Here's an example: a trader sees that a particular stock is starting on a run; it's reported good news and is already up 20% for the day; the volume is still building; it's stable at the current price; the market is rallying strongly; and it looks like it will go higher. The trader buys 1,000 shares at $6 a share. By 12:15 P.M., the stock has raced up to $10 — a gain of over 66 percent for the day, and a profit of $4,000 on 1,000 shares.

The trader knows that round number price points, like 10, are psychological barriers for traders, and that if a stock is going to stop rising, it will probably be near a point like this. As it turns out, after momentarily shooting to $10.03, the price stops rising and starts to go down. The trader knows that he should sell now and re-buy later, but he keeps thinking, “What if it goes to 12 before it stops? What if it makes a 100% gain? How will I ever forgive myself for missing out on another $2,000 profit because I sold too soon?”

So, of course what ends up happening is that the stock drops down to $9.50 and then $8.75, ending the day at $8.90. The next day the market opens down and the trader is lucky to get out at $8.70, down $1,300 from the profit he could have had.

The way to get around the lure of excessive greed is to take profits consistently. It doesn't matter if the stock goes up another dollar or two after you're out of the position. The important thing is that you've made a clean profit and are ready to go on to the next trade with even more capital than you had before. And going on to the next trade is better than staying in the old one once it's gotten too risky, because the next trade will have an upside that outweighs the downside. (If it didn't, you wouldn't have any reason to get into the position in the first place.) The old trade's downside has begun to outweigh any further gains you're likely to make.

What should you do?

1)Lock in profits. You may miss a few highs, but you’ll stay consistently ahead.

2)Set your goals for solid gains, not the maximum possible gains.

Excessive Ego

Big egos cost thousands of people millions of dollars in the year 2000. An inability to admit a mistake causes many people to refuse to take small losses on a bad trade. Why do traders resist taking small losses so they can move on to better trades? It's because they don't want to admit that their decision to get into a position was unwise. They don't want to admit that they were wrong about the stock, bond, commodity, or currency.

Here’s an example: A trader buys 500 shares of a stock at $20 per share, investing $10,000. He believes that the concept behind the company’s innovative new software is going to be the extremely successful, and he's seen a lot of reliable information that backs up this idea. The price has recently moved up steadily, from 16 to 20, so it seems the market shares his belief.

For some reason, though, the new concept is slow to catch on. The trader holds the stock for three weeks and sees its share price remain essentially the same as where he bought it. It goes up a dollar, down a dollar, and so on — it's trading in a range and doesn't show any signs of movement. Then the market trends downward and all the tech stocks go down. His stock doesn't fall quickly, but over the next couple of weeks it gradually sinks back to $16 a share. There's no sustained volume, and it seems that no one is interested in the stock.

The trader insists that if he just keeps holding the stock it will not only recover but bring him a large profit once the rest of the market realizes its value. He holds the stock for the next five months, watching it move up and down between 15 and 16. Finally, after more than six months, the stock goes on a run — up to 22. The trader does the right thing and takes profits at this level. Now he can have the last word with all his friends, who were sure he would never make money on the stock. He gets to say to everyone, "I told you this stock would be hot."

But it doesn’t matter. The reality is that the trader has tied up $10,000 for six months for a 10% profit, when he could have made at least that much every week or so by moving on to better trades. There was no compelling reason to think the stock would go up soon, and the trader had no exit plan.

What should you do?

1)Take small losses.
2)Realize you don't need to win on every trade.
3)Don’t fall in love with the trades you make.

Buying What’s "Hot"

Many traders make trades because of public opinion, not because the trade itself makes sense. When a particular market trend seems popular, many investors rush in so they don’t feel they’ve missed an opportunity. The result is that many investors will buy at a price point where the trade can’t possibly work out favorably.

Avoid the emotion of what’s "hot." Successful traders notice when emotion affects trading, and create plans to take advantage of the emotional trades of others.

Here’s an example of what not to do: Let's say you've been following a particular stock which is in a "hot" sector, and it just announced a stock split. The stock is now at 18, and you calculate it could get to 25 or more by the time of the split. The market is currently bullish, and it looks like a great trade.

The problem is that the stock has been rising for the past four days. It started at 12, but you didn't notice it until it hit 18 — a 50 percent increase — and it's still rising. The stock split is a month away, and you know it's likely to fall in price somewhat between now and the split. Still, everyone is talking about this stock, and what if it just continues to rise and becomes the next blockbuster stock? You’re afraid if you don’t make a trade you’ll miss a great opportunity. (And besides, you want to be able to tell people that you hold a position in this stock, because it makes you seem smart.)

So you buy 1,000 shares at $18.50.

During the next two weeks, the stock goes to 19, then levels off, loses momentum, and drifts down to 17. Then a couple of leading NASDAQ companies give earnings warnings, the market drops, and the stock slides to 15, triggering the stop you'd set at 16 on half your holdings. The stock trades in that range for a week, and then begins to rise slightly going into the split. Your plan is to sell a day or two after the split. The stock rises a little beyond $20.50 by the second day after the split, and then the volume dries up and you sell it for a $2 profit. But since you stopped out of half your shares at 16, you lost $2.50 per share on that half, with a net loss of .50 on 500 shares.

What went wrong?

What went wrong was that you didn't let the stock come to you. Instead, you chased it as its price rose, knowing perfectly well that — following the stock split trend — it would probably pull back before running up again.

You knew that it was more likely to pull back than it was to continue on an uninterrupted run to 25, and you knew that if you bought at 18 or higher you were probably paying too much. You disregarded what you knew was more probable in favor of what might happen — even if there was only a very small chance of that unlikely thing happening. You should have given the stock a chance to come to you, at a price you felt was reasonable. If the stock had pulled a surprise and never gotten down to where you thought it would, that would be okay — there were many other stocks to trade, and some of them would have come down to your price. You didn't have to own this particular stock.

What was the right way to play this particular scenario?

When the market is bullish, it's very likely for a stock to rise when a split is announced, drift down after a few days' rally, and then begin to rise again a week or so before the split. If that's the trend and there's no solid reason to think the stock will rise immediately, wait a few days for the stock to drift down and stabilize before buying it. If you had done so in this case, you could have bought it at $16.50 and then sold it for $20.50 for a $4.00 profit on the entire 1,000 shares. If you had a solid reason to think the stock might continue to rally, you could have bought half the total number of shares you wanted at a price that might have turned out to be too high, and waited for a lower price to buy the other half. If it had turned out to be too high, it would only have reduced your profit. (No stock goes up or down in a straight line. Wait for a pullback before buying.)

Envying Others

Some traders spend a lot of energy focusing on what other traders do. They become concerned that everyone else is making 30% a week on their portfolio, that everybody else finds great trades that they miss, and that everybody else knows what they're doing while they don't. This leads traders to try to copy what others are doing, making those trades too late, and making trades that aren't good ideas in the first place. They get so confused trying to keep track of so many stocks that they don't understand what's going on with any of them.

Many traders don't realize that a lot of what people say is at the very least an exaggeration.

Similar to envy is competitiveness. Some traders want to show everyone that they're the best, the smartest, the most successful. The goal of trading isn’t to play a competitive game – it’s to make money. Your focus should be on making money. If you're in it for the competition, you should play some other game. The only reason to trade is to make money, and if your mind is on an imaginary competition that only you care about, you'll never make money.

Successful traders ignore hype, rumors, and boasting, and use their own knowledge and judgment to find trades that make sense and that they have confidence in. This doesn't ignoring the current public sentiment, because that sentiment can sometimes lead to good trading opportunities. Successful traders know what is reasonable to expect from trading, and how to achieve it without worrying about what everyone else is doing.

Victims of Success

Some traders become victims of their own successes. They have good “luck” with a certain type of commodity, for instance, that they overexpose their portfolio to one sector.

Sectors tend to move together, and often one sector will move down as another one moves up. Sectors are cyclical, which means that they go through hot and cold phases. No one commodity or type of commodity is hot all the time, and when a leading commodity in a sector gets into trouble, it tends to bring all the rest down with it.

Here’s an example: A trader bought gold futures just as a huge metals sector run was beginning. He bought silver and platinum as well, and to do so closed out all of his other positions, which had been in stocks and currencies.

The trouble was that, two days later, concerns about global terrorism lessened, and the metals sector fell sharply.

Diversification is important even for short-term traders. Some market moves can't be protected against, and if all your holdings are in one or a few sectors, you become vulnerable and exposed to excessive risk.

Laziness and Inattention

Lazy traders are certain to become losing traders. Inattentive traders neglect to research and monitor their positions and markets, so they don’t have a good sense of what strategy to employ. Lazy traders don’t have a concrete plan, and trading without a plan is one of the surest ways to lose in any market.

The lazy trader might buy a stock because he sees that it's been going up steadily for a week and a half. He doesn't know why, but he does know the experts say it’s a "strong" stock. He buys it in the morning, it goes up a few percentage points, and he assumes he’s made a winning trade.

To his surprise, the stock does a falls in the afternoon and starts going down as steadily as it went up in the morning. The lazy trader can't figure out what went wrong. Why did it fall? If he'd simply bothered to check the earnings calendar, he'd have seen that the company was scheduled to report earnings that day after the market closed. The steady run-up was in anticipation of the earnings announcement, and now traders were taking profits and getting out of the stock in case of a negative reaction to the earnings results.

What should you do?

1)Know why a position is moving.
2)Know why you're buying into the position.
3)Check basic information on the position.
4)Once you're in the position, watch the market, check for news, and monitor the position’s behavior throughout the day.
5)Know what events are coming so you can anticipate changes in the position’s direction.

Emotional Stress

Here, the rule is simple: If you're sick, emotional, or can’t properly focus due to outside events, don't trade. Take a break.

The reason is simple. If you trade when you're not feeling well, physically or emotionally, you won't trade well. You'll just lose money. At the very least, you'll be too distracted to trade successfully.

Knowing when not to trade is an important form of discipline you must learn. This discipline is also necessary on days when the market is so directionless and choppy that no trade is going to go anywhere. But the main point here is to be in good enough touch with your emotions that you can recognize when you’ll be unable to focus properly. In any case, it's healthy to get away from the market for a day or two, or even a few weeks, from time to time. The time away will help you regain perspective about what things in life really matter. And if you need to trade every day, it may be a sign of an unhealthy addiction.

Which Pitfalls Are Hindering Your Success?

If you want to improve as a trader, you must identify the mistakes you make consistently so that you can recognize your own pitfalls. To do this, look back at ten losing trades you've made in the last few weeks. Can you find similarities? Look closely and be completely honest with yourself. Part of being a good trader is being able to look at things with a clear eye and seeing what's really there, not what you wish was there.

Now here's the harder part: Look back at your recent successful trades and find the ones that succeeded only by luck. How would they have turned out if you hadn't been lucky? What were your mistakes with those trades?

Identify the two most common mistakes you make. Identify your most disastrous trades and identify the mistakes you made with them.

From now on, you must keep your psychological and emotional soft spots in mind at all times while you're trading.

Your goal as a trader should not be to trade perfectly all the time, to win on every trade, or to be perfect in any other way. Putting too much pressure on your self to be perfect is one of the best ways to make lots of mistakes. Besides the fact that no one can be perfect, there's also the fact that you don't need to be perfect. You can make amazing amounts of money in the markets by being a good, consistent trader.

As a trader, you'll be richly rewarded if you do your job consistently and well. You'll be doing far better than 99 percent of the other people trading stocks in the market, not to mention money managers, analysts, and other so-called "experts."

Instead of perfection, your goal should be to control the emotional barriers to your success.

Long-term trading success is achieved through consistency: consistently taking small losses and larger profits, consistently rejecting trades that are too risky or that aren't based on good reasoning, and consistently doing what you know is right instead of acting against your better judgment. Consistency is a discipline, and it will serve you well in life as well as in trading.

The purpose of identifying your psychological soft spots is not to make you feel like you're a poor trader. All traders, even the best, have weaknesses — they just recognize and control those weaknesses. Instead, the purpose of getting to know your personal pitfalls is to develop a realistic sense of your strengths and weaknesses so that you can recognize mistakes before they happen. Being realistic — about yourself and about the market and the trades you make — is the way to succeed as a trader.

"What Takes Some Successful Traders A Lifetime To Achieve Could Take You Just A Few Days... Or Less!"

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Advertorial 1 - Introduction
Advertorial 2 - The Basics of Analusis and Rational Trading
Advertorial 3 - Basic Principles
Advertorial 4 - Characteristics of Successful Traders
Advertorial 5 - Playing to Your Strenghts, Overcoming Your Weaknesses
Advertorial 6 - Winning Psychology
Advertorial 7 - Avoiding Common Pitfalls
Advertorial 8 - Sound Money Management
Advertorial 9 - Trading Systems
Advertorial 10 - Final Words