How to get trading books - FOR FREE!

Books on trading are very thick, in general. They contain wealth of trading knowledge from some of the best traders out there. They are very expensive as well. I have bought a number of trading books, mostly from Amazon. My latest purchase cost me close to S$300 for 3 books!

I was so astonished to find out that electronic versions (aka e-books) of those books that I've bought are available right on the Internet for download and FOR FREE!!!

What happened?

Nowadays, almost everyone's PCs or laptops are connected to the Internet. We need the Internet. Some of us even run web servers off our PCs or laptops to serve out webpages from our PCs/laptops. Well, of course, there may be cases whereby people are not aware that they had their web servers turned on. When we have our web servers turned on, anyone from the Internet can see the files that we have on our PCs/laptops unless we secure them properly of course!

How can we find these people?

Using what is tauted as the most powerful tool on planet earth that can even potentially support acts of terrorism unknowingly - GOOGLE.

The Secret

Now try to google this:

-inurl:(htm|html|php) intitle:”index of” +”last modified” +”parent directory” +description +size +(pdf|doc) “come into my trading room″

This is how I find all the electronic versions for most of the books that I have bought, for free, with many other trading e-books as well. Give it a try. You will be surprised at what you can find!

But, do get the original copy of the books if you find that they are really good. Give the authors due credit!

Follow the Venture Capitalists

Quoted from newswire today:

Sequoia Capital provides startup venture capital for very smart people who want to turn ideas into companies. As the “Entrepreneurs Behind the Entrepreneurs”, Sequoia Capital's Partners have worked with innovators such as Steve Jobs of Apple Computer, Larry Ellison of Oracle, Bob Swanson of Linear Technology, Sandy Lerner & Len Bozack of Cisco Systems, Dan Warmenhoven of Network Appliance, Jerry Yang & David Filo of Yahoo!, Jen-Hsun Huang of nVIDIA, Michael Marks of Flextronics, Larry Page & Sergey Brin of Google, Chad Hurley & Steve Chen of YouTube and Steve Goldman & Sujal Patel of Isilon Networks.

One would want to track closely the companies that Sequoia Capital is interested in, just like how people track the companies Warren Buffett is interested in :-D

Reasons Why I Stop Playing Earnings Gaps Part 2

So is it possible for one tell if a company's actual earnings will beat analysts’ earnings forecast, before the actual earnings result is announced publicly? Allow me to just share some techniques that people that I came across use to try to predict earnings:

• Estimate the earnings-per-share (EPS) figure from the number of products the company has sold. For instance, there are people who try to correlate past sales figures with historical EPS and predict what the next EPS could be. Or if you find that a particular product is always out-of-stock, good chance that its sales is unexceptionally good, chances of the company beat earnings is higher.


• Look out for unexpected spending during the quarter. For example, unexpected court cases, fines, hefty advertising charges etc. These tend to make the company not being able to meet earnings forecasts.


• Look out for companies whose insiders are buying their own company stocks some time before earnings announcements.

I believe one has to be very familiar with the business that the company is in and has to follow the company news very closely in order to guess if the earnings will beat forecast. Frankly speaking, so far I have not came across anyone that has managed to guess correctly consistently.

So if the actual earnings beat earnings forecast, does it mean the stock price will definitely gap up?...

Reasons Why I Stop Playing Earnings Gaps Part 1

The first strategy that I started off to trade options was using earnings gaps. Why I trade them in the first place? What are earnings? What are gaps?

Listed companies in the United States are required to announce their profits and revenue to the world every quarter (3-monthly). This is commonly known as "the company announcing earnings". The idea is very simple. Analysts covering the company would have , based on any available information, to forecast the earnings results for the company before the company actually announce their earnings. Generally, when the actual earnings beat the earnings estimates by the analysts, the stock price will move up!

And given the highly-liquid (super big trading volume) nature of the US stock market, stock price gaps are commonly seen, especially after earnings announcements.For instance, AAPL gapped up by more than $14 after they released their earnings results before market opened on Tue 23 Oct 07.

Why trade earnings? Because earnings announcements are about the few events that are predictable in the market! No, I am not saying that I know for sure if a company will report good earnings or not. We know exactly when the companies will release their earnings results. There are earnings calendars that tells us exactly when every company is reporting their earnings.

Now we know when companies are reporting their earnings, next step is to guess if the actual earnings will beat analysts' earnings forecast right? Things are not as simple as it seems...

Chances of a Recession in an Election Year

The US Presidential Election will be held on Nov 2012. According to the "Stock Trader's Almanac 2012", the Dow Jones Industrial Average rose in 33 pre-election years out of the last 44 election cycles. The DJIA rose in 29 election years out of the last 44 election cycles. You decide.

The Best Times to Put Your Money into the Stock Market

I do not follow this. But I thought it is a good knowledge to have.

Stock investors, people who buy the market and other long-term investors would be interested to find out when is the best time enter the market. Knowing "the right time" will increase the probability of making money as well as the probability of making most money.

Conventional wisdom says to buy stocks during end September and early October period as historically, it is during this period that the market makes new lows within the year. The historical evidence for this is presented at Investopedia. There is also the pre-holiday rally where stocks tend to rally ahead of 3-day holidays in the United States. Then comes the January Effect, that also contributes to the Santa Claus Rally. For those looking for a quick buck, you may consider entering a day after Christmas. The Santa Claus Rally historically ends a few days after New Year's Day.

This article titled "Capitalizing on Seasonal Effects" also presents other useful and interesting market timing research such as:

• Middle of a month is the best time to buy stocks


• Monday is the best day in a week to buy stocks

With the US presidential election up and coming, there are also ways to capitalize on this market-moving event.

a potentially lucrative investment strategy would have included buying on October 1 of the second year of the presidential election term and selling out on December 31 of year four.

Well, the above is based on historical data and I see it as more of a guideline. Cycles do adjust themselves and some seasonal effects have been proven to be invalid these few years. For instance, this article from Fundsupermart.com dispels the famous "October Effect" and "January Effect".

What Makes a Good Trading System?

There isn't one to begin with!

A trading system has clearly defined rules that describe the instruments to trade, when to trade, how to determine entry price, how to determine initial stop loss, how many lots to trade, how to take profit, how to trail profit etc. The trader will stick to the system to the tee in his trading.

Trading is just like that. I believe because of limitations of language, there is so much that successful traders wish to tell us but it just ended up in cliché phrases such as fear and greed, the trend is your friend, triple Ms etc. "Trading system" is one such phrase. There is even this distinction between discretionary trader and system trader which I eventually found to be invalid. Ok, here comes the tough part again - Why?

Beliefs
Believe it or not, one's personal belief is always reflected in his trading. Whether or not he believes in trend, in trailing stop losses, in everything is reflected in the price, in technical analysis, even in the instruments that he trades. I remember vividly that there was this real-life documentary that talked about training people from all walks of life to be traders. One of the trainee happens to be an staunch environment activist. In the documentary, he refused to touch any company stocks which companies' activities are detriment to the environment. This is an extreme case but this is the extent that it can go to. So it is not possible to have THE trading system.

Study of the market
Trading also involves the study of the evolving market. I believe trading involves consistent study of the market to find better entries, better ways to take profit etc. Therefore, how could a system exist? Even if it exists, it will need to include the rules for tuning the system in the evolving market. Then, it would not be a "system" any more, right?

Automated trading and backtesting
I strongly believe the notion of "system trading" came about because of computers in trading. Particularly when they are used in automated trading and backtesting. Computers can be easily programmed to do things for us when the activities can be laid down sequentially, preferably as rules. Trading systems fit the bill. I have got a friend who developed trading programs that yielded couple thousands of percent profits as shown in the backtesting results with very small drawdowns. I have seen it with my own eyes. But still he was careful to not use them in live trading because he said he "doesn't know when they will break".

Trading Lingo Revealed: I Profitted 1000 Pips

Well, sometimes, it is difficult to convey our thoughts accurately with our natural language. I find this especially true with trading.  I am starting this series to debunk/reveal what else could people mean when they talk in the trading lingo that we hear commonly.

First up: "Hey, I profitted 1000 pips last night, the strategy works!"

Some questions that you may need to probe further:

1. Ok, last night is 1000 pips, how was it the night before or the night before before? Trading is not about one hit home runs. Or the person may lose the 1000 pips in the next few days.

2. What does 1000 pips mean? Can 1000 pips profit mean $10 profit? It sure can!

3. Does the strategy really work? Single hit wonders don't count in trading.

Is That Trading Course Really Good?

Now...this is a difficult topic to write on without "shooting" any of the trading courses out there. But, let me take up the challenge!

Just like technical analysis, there are also signs to look out for if a trading course is credible. Well, at least this is what I think personally.

1. Sleazy websites
An example of sleazy old-fashion-long-copy-sales-letter-style websites is at: http://www.seeingwithoutglasses.com. They will provoke you with many questions, keep on bragging about how good they are, show tonnes of testimonials (unverified), keep on asking you to take action NOW! and are very looooonnngg. Wait! I am not saying the products of all such websites are bad. But for selling a financial course...I am not so sure...Makes me wonder if the course provider is established (and why they cannot afford to make a proper website?) and what is the real mission and value behind the company. Why they only talk about the good money and not highlight the risk that is associated with trading?

2. Our trainer appears on CNBC!
So what?! Going on CNBC is not too difficult, I believe. Well, Mr Clemen Chiang used to appear on CNBC. Now, his company has disappeared. For something juicy, I have been told by a friend that she knew someone working in CNA and hence arranged for the course provider (that she was working for) to be interviewed on CNA. It is THAT easy. Nope, no scrutiny, I think they don't verify if you are really a successful and profitable trader.

3. Course fee used to be $5000 but just for today - $3000
Does that sound familiar? Many of the course providers out there apply NLP techniques extensively. Many organise previews on the pretext of free trading education. Then during the previews, they will make the participants "feel good" through the NLP techniques and apply pressure subtly to make them sign up for the paid course on the spot. Will a genuine course provider whose mission is to transfer trading knowledge go to that extent? And typically, the course fees are exorbitant in order to cover for all the marketing costs. That's why I will get suspicious when the course fees run up too high. Come on, all the knowledge can be obtained from books and the Internet - what's the big secret?

4. We have THE TRADING STRATEGY to let you make lots of money!
Nowadays, it turns me off when I see/hear trading course advertisements mention anything about trading strategy. Trading is not about any trading strategy or trading system. There are more - psychology and money management. But I guess these are hard to sell.

5. I made $10 million in 2 years!
Ok, did you lose it all in the next year? Make the most money within the shortest period of time - ya, this is what most trainers brag about. Ok, let's say it is possible for them to make millions in a couple of years, they could be lucky. Did you question what is their starting capital? Ok, some claimed they only started with a few thousand dollars. Then, did they lose the money subsequently? Trading is about making money consistently. Jesse Livermore, the legendary stock speculator, went bankrupt a couple of times throughout his lifetime, even though he was trading successfully. A professional trader that I met has been trading successfully for the past 18 years. He prefers to keep himself debt free by paying up fully for his house and car because he told me that he is not sure when his trading will turn sour. So I am only impressed if you can make money consistently for the last 10 years, not one hit wonders.

6. We provide lifelong after course support
I wonder if anything like this is possible at all! It could be sustainable if the number of students is small. So far my experience is, when the number of students gets bigger, service level will drop. The trainer will reply with generic response or perhaps get the more senior students to help mentor the newer students. Seriously, who wants to continue with such non-profit making work? UNLESS the course provider has more things to sell to you in the future!

7. Look at what our students have to say!
First make sure the students are not getting any commissions either for appearing on that testimonial video and that, they are not marketeers for the course providers ie, they receive commissions for new student sign-ups. Ignore all those feel-good comments like "The trainer is very committed and friendly". What's the use? The question I want to ask them is: "What are your trading results?" Something for the students here: they may claim they made thousands in a few days. So, did they continue to do it subsequently, or did they lose the thousands and more?

So hopefully, the above can help you when you are looking out for your next trading course.

Is It Possible to Trade Part-time Successfully?

I was browsing at Linda Raschke's LBR Group website when I come across this in the FAQ section:

"However, we have yet to come across a trader able to consistently support themselves by trading part time. Ultimately trading is a full time job, and many people new to the business are often surprised by the long hours professional traders devote to their study of the markets."

On the flip side, quitting a full-time  job to trade full time straightaway may bring about undue stress that may impact trading decisions. Seems like one cannot have the best of both worlds huh?

Also reminds me of the many trading educators out there. How can they be going on TVs, flying all over the place, conducting courses, doing all the pre and post course administrative work and yet still be trading successfully?

How to Choose Online Trading Rooms

I just finished reading Dr Brett N. Steenbarger's Enhancing Trader Performance. In the book, Dr Brett introduces a couple of online trading rooms. The concept being, we can observe real traders in action and see how they execute their trades live. Nope, not just for a day or two but for a few weeks to a few months (at a price, certainly). They are:

Woodie’s CCI Club (www.woodiescciclub.com)

Linda Raschke (www.lbrgroup.com)

Trade The Markets (www.tradethemarkets.com)

I have been following Curl Furtia's blog for a while and he also started a online trading room:

Curl Furtia (www.carlfutia.com)

However, Dr Brett also highlighted in his book that:

"The value of the electronic trading rooms is not simply getting trade ideas from a guru. Instead, you are learning from the mentor his or her particular style of trading."

It is the "style" that cannot be written down in black and white and has to be learned through observation over a period of time.

Hence, Dr Brett also pointed out that:

"Your best mentorship resources will be among people who are trading markets and styles similar to your own."

Different trading instruments and timeframes called for very different styles. So this will help us to select the online trading rooms that we want to visit.

Jeff Quinto Shows a Sample Trading Plan

Jeff Quinto has dabbled in futures trading for 37 years and the Chicago Merchantile Exchange (CME) has gotten him to do up some trading educational material. And I found the part on writing a trading plan of particular interest.

In any case, here are the Jeff Quinto videos (link to CME website):

Developing Your Trading Strategy

Building Your Trading Plan

The Importance of Simulated Trading

The pdf of his presentation is here (link to CME website), including the sample trading plan:

Jeff Quinto's Theory of Futures Trading (registration required, but is free)

My takeaway:

• Instead of merely describing how a good trading plan should look like.  Jeff Quinto provided a sample trading plan. His sample trading plan is for trading ES intraday.


• He suggested that the trading plan should be hand-written. I followed that and found that it really worked better for me. I used to keep an electronic trading plan. I guess a hardcopy trading plan just seems to stand out and catch my attention.


• In the sample trading plan, Jeff Quinto shared some interesting money management strategy. For instance, if trading profits for the day is up 30 ticks and if one loses 1/3 of the profits, cut loss. Some good food for thoughts.


• The point on trading plan should capture MOST of the activities to arrive at the trading decision. However, there still be some room for discretionary decision, perhaps based on the market condition at that point in time and also the context of the price. So this is what discretionary trading is all about.

Five Basic Trading Patterns by Linda Raschke

Was fortunate to find this gem on the Internet and thought I share it with the rest of you.

This is a audio recording (with downloadable pdf material) from Linda Raschke sharing her time-tested five basic trading patterns.

I first read about Linda Raschke from the book "The New Market Wizards". Subsequently, I also came across her in the book "Enhancing Trader's Performance". I got to know about the audio recording from a trading forum that suggested the five basic trading patterns for beginners to start trading with.

This material rocks! I mean, I could recall an educator selling a single strategy for $4000 previously?! That means this material could worth $20,000? Haha.

My take on the seminar:

• This seminar changed my perception of technical indicators. I used to disregard indicators, thinking that the indicators are derived from the price anyway. Linda suggested using indicators to look at price more objectively.


• According to Linda, she has done substantial amount of backtests on these patterns. Well, if you need some trading strategies to start with, why not try these. She has done all the grunt work for you!


• Besides the patterns themselves, Linda also highlighted/reiterated some important pointers (to me):
  
  
  
  • No one special indicator. All indicators ultimately give similar entry signals. Use indicators just as visual aids.
  
  
  • Use of conversation and aggressive entry triggers
  
  
  • She shared some of the entry triggers that she uses eg, 2 period channel breakout, ROC
  
  
  • Sharing on climax exit points
  
  
  • It is ok to be stopped out!

Do check it out. Definitely worth your time.

Oh, and, if you wish to download the sound files to listen to them at your own pace, you may do so here:

Part 1

Part 2

Part 3

Part 4

Why Learning Trading Is Different From Learning Magic

刘谦 (Lu Chen) - a magician from Taiwan gained phenomenal popularity among the Chinese community after he performed a magic trick that involved "putting" a ring into an egg on China National TV a few years back. After watching his interview (another section of the interview here) on how he got started in magic, it sets me thinking: How different is learning trading from learning magic?

Learn Magic	Learn Trading
Clear end state - One will know if he is ready to go on stage to perform	One may be having a winning streak, but will he give it back to the market tommorrow?
Able to model someone who is already successful - Learn how a master speaks, his eye contract, how he carry himself on stage, his style, his techniques etc	Unable to model another successful trader because of different personality, style, capital, available time to trade, risk tolerance and risk appetite
Clear steps to success - One knows what to learn eg, card tricks, rope tricks, closeup magic, large scale magic etc	Ok, there is mind, money management and method, but how can we tell if we have mastered them? For method alone, there are over thousands of indicators, hundreds of candlestick and chart patterns and more. Which is a good combination?
Can be taught - We can see children as young as 3 years old performing magic!	Well, I have attended a couple of courses but yet to be considered successful
Apparatus aids progress - Don't know sleight-of-hand magic? No worries, there are magic apparatus that can lower that learning curve!	One can have the best and most expensive trading and charting platform and still cannot trade successfully

Lu Chen started to learn magic as young as 7 and become successful at the age of 30. Some aspiring traders can be at it for decades without any success. Seems like he has a much higher chance of success as compared to if he had learn trading instead :-P

Dollar Cost Averaging in a Flat Market

I read in a blog that if one were to buy into the stock market in 2000, he would still be losing money by the end of 2011. It is not difficult to tell that from the chart below.


Chart from Yahoo! Finance

Then I read a comment on the same blog saying that that is not a fair statement because in investing, one has got to take into consideration the effect of Dollar Cost Averaging. Intrigued, I downloaded the historical data for SPY and verify it for myself.

Condition:
Start Date: 1 Jun 2000, SPY at: $145.28
End Date: 1 Dec 2011, SPY at: $125.50

Buy $500 worth of SPY monthly from 1 Jun 2000 to 1 Dec 2011.

Result: 
On 1 Dec 2011, we would have spent $61,113.37 buying SPY. The market value of the SPY that we are holding is $66,766. We are sitting on a profit of $5,652.63 which is 8%.

Well, the commenter is right. we will not lose money if we have done Dollar Cost Averaging. But the profit is not impressive. I mean, 8% for 11 years! Not to forget that I did not include the transaction fees and dividend payout (if any) in my calculations.

Investing Basics

Investing, in general, talks about holding some investment vehicle for medium to long term. It could be anything from a few months to a few years.

However, investing need not just be done with stocks. You can invest in ETFs, CFDs and/or properties for that matter.

Here are some articles:

Basic Investing
http://www.investopedia.com/university/beginner/#axzz1XqTBkHGw
http://www.moneysense.gov.sg/resource/publications/guides_publications/IMAS%20Personal%20Investing.pdf

Einstein says Compound Interest is the 8th wonder of the world! So it is important to know.

Compound Interest
http://www.getrichslowly.org/blog/2006/05/23/how-compound-interest-favors-the-young/
http://www.getrichslowly.org/blog/2008/04/02/the-extraordinary-power-of-compound-interest/

Other concepts to grasp:

Diversification (or Divest)
http://www.investopedia.com/articles/02/111502.asp#axzz1XqTBkHGw
http://www.sec.gov/investor/pubs/assetallocation.htm

However, though diversification is recommended, I am a believer of not over-diversifying:
http://www.investopedia.com/articles/01/051601.asp#axzz1XqTBkHGw

Portfolio Rebalancing
http://www.sec.gov/investor/pubs/assetallocation.htm

Dollar Cost Averaging
http://www.investopedia.com/articles/mutualfund/05/071305.asp#axzz1XqTBkHGw

I believe in averaging in when the market is moving down and do nothing when the market is moving up:
http://www.managedwealthsingapore.com/interesting-thoughts-about-dollar-cost-averaging/

Then if you have decided to go for stocks. The next question will be what stocks to buy. Then we will have to look at investment techniques such as:

- value investing -> Warren Buffett does this
- growth investing -> Peter Lynch does this

In Singapore, I have also heard of friends who focuses on high dividend stocks and doing quite well. So that may be worth considering.

Some books that talk about investing strategies:
The Little Book That Beats the Market - Joel Greenblatt
How To Make Money In Stocks - William O Neil

Investing System Sharing: Dogs of the Dow

Along the way, I also got distracted and researched into investing systems.

One of such investing systems is the Dogs of the Dow system.

Does it work?
The results are published on the main page. More details are here. Let me make it clearer here:

1996 +28.6%
1997 +22.2%
1998 +10.7%
1999 +4%
2000 +6.4%
2001-4.9%
2002 -8.9%
2003 +28.7%
2004 +4.8%
2005 -5.1%
2006 +30.3%
2007 +2.2%
2008 -38.8%
2009 +16.9%
2010 +20.5%

How to do it?
Just follow the steps here. There is a variant of the Dogs of the Dow system known as the Small Dogs of the Dow which is a more aggressive system.

My Take
I trade. I find the trader's mindset very much in conflict with the investor's mindset. Ultimately, I did not use this system at all. One tip with the use of such systems is to read all the fine prints. For instance, for this system, the results shown require one to reinvest all dividend payout back into the portfolio. So results may vary.

Happy New Year!

Happy New Year to all!

Trading volume is expected to pick up the next few weeks with the professionals getting back in business.

We cannot deny that it has been a turbulent year with much of the uncertainties still plaguing the economy. China's property is slowing, US high unemployment, US weak property market, Europe's debt crisis etc.

Having said that, I am not really concern about the macro stuff. Haha. It is difficult to not notice them as they are all over the news. I have written an introduction of myself. Enough said, let's get into business.