Sunday, March 23, 2014

A Trader is not a Gambler

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  • Five Reasons Why A Real Trader Is Not A Gambler How often have you heard someone say that they just bought a stock because they have a feeling that it is going to move higher? Personally, I hear someone tell me that every single trading day. When I ask them how they know the stock is going to move higher they answer by saying it's a hunch or they heard someone talk about it. Well, in the trading world it is not prudent to take tips or trade on a hunch. There needs to be a sound methodology for taking a trade, otherwise it is just gambling. It is important to note, a good trader has the odds in his favor while a gambler does not. Just think about it, how can a Las Vegas casino stay in business if they do not have the odds in their favor? The answer is they can't. A casino knows that the odds are always in their favor and the longer a gambler plays in the casino the more likely the casino will take their money. As a trader you want to be Steve Wynn, not the guy at the roulette wheel placing bets.
    Here are five reasons why a good trader is not a gambler, but more like a Las Vegas casino owner:
    1. A good trader takes a position when the odds are in his favor, not when the odds are against him. An educated trader will accomplish this task by using charts and understanding the human emotion that is being displayed on a chart. That is why certain breakout and breakdown patterns continue to reoccur throughout history. The chart pattern is simply recording the human emotion that is taking place in that particular equity.
    2. A good trader will know when to cut his loss when he is wrong. The legendary trader Jesse Livermore used to say that a trader should never take more than a 10 percent loss on any position. Even a Las Vegas casino will cut off a hot gambler if they win too much money. When a trader can admit they are wrong on a trade and limit the loss it is much easier to come back from that error. Traders must always use a stop loss.
    3. A good trader does not need constant action in the market. A trader only enters a trade when the chart setup favors that he will make money. If the chart setup does not overwhelmingly support a pattern then the trader does not want to be in the position. A gambler constantly needs action; they continuously need to have some type of bet in place at all times. This gambler mentality is one of the reasons why so many people over-trade and lose money. A good trader patiently stalks out a stock or equity waiting for the right chart setup to appear. One thing I have learned over the years is that the worst thing you can do as a trader or investor is to force your will on the market. Chart patterns make money and you must patiently seek the good charts out.
    4. A good trader does not trade will with capital they cannot afford to lose. It is so important to be calm and keep all of your senses when trading. I have seen traders enter a position hoping that it is going to work out and their heart rate jumps up like they are running a marathon, this is usually a sign that they are trading too much money. A trader should not use capital that makes them feel uncomfortable. A gambler will usually bet the farm on a single bet, a good trader will not. Gamblers are always doubling down after they lose; this is a recipe for disaster, especially if you are a trader. I have seen traders blow up their entire accounts by doubling down and averaging in.
    5. A good trader does not take tips from others, but looks at the chart and decides whether the pattern is bullish or bearish. Have you ever been to a horse track? Half of the bets in a horse race are because someone has given someone else a tip. Good traders do their own due diligence and never listen to the public. Remember, when everyone is looking at the same thing it will rarely happen. Never take tips. Even the legendary Jesse Livermore admitted this to be one of his biggest mistakes as it was usually one of the main reasons for his trading losses.

  • Nicholas Santiago

Thursday, March 20, 2014

Latitude Back On Track

Latitude went up to an intraday high of RM2.82 on Feb 20, 14. A mild correction because of profit-taking brought the stock down to RM2.35 where it found strong support. 

The stock is now back to its uptrend track. Strong resistance is seen at around the RM2.80 area. If RM2.82 is decisively breached, the stock is likely to trend up higher. At the time of writing this post, the stock was lasted traded at RM2.69.

Buy at your own risk. 

Monday, March 17, 2014

CBIP wins RM46 million contract

This daily chart of CBIP is a beauty to behold. The stock has been having a gradual uptrend. Of late, this uptrend is becoming steeper. The company has just announced that it has been awarded a contract to build a palm oil mill for RM46 million in Papua New Guinea. Click here for the article.
The stock is likely to trend higher.

Tuesday, March 04, 2014

Latitude Trees (LT) Too Good To Ignore

LT is in the business of wooden furnitures. Its main raw material is rubber wood which is plentiful in Malaysia and Vietnam. It has 6 factories covering 7.8 million sq feet. That is  about 179 acres. Three of its factories are in Malaysia, two in Vietnam and one in Thailand. Below is a brief history of the company, sourced from its website:

"Latitude Tree Holdings Berhad was incorporated in Malaysia as an investment holding company. Through its subsidiary companies, the Group specialises in the manufacturing and sale of wooden furniture and components particularly rubber-wood furniture for both the domestic and export markets.
The Group has carved out a strong niche in the household furniture segment, specifically dining and bedroom sets. From its humble beginnings as a manufacturer of chairs for dining sets in 1988, the Group has grown into a complete high- and-medium-end dining and bedroom sets manufacturer. About 60% of its raw materials are rubber-wood-based with the remaining being oak, pine wood and other wood-based materials.
The Group has made great advances to position itself as one of the largest rubber-wood furniture manufacturers and exporters in Malaysia and Vietnam. Approximately 99% of the Group's products are exported overseas to the United States of America, Canada, Europe, South Africa, Australia and the Middle East countries. 
Manufacturing / Operating Activities
The Group's manufacturing activities are operated from its three factories in Malaysia, two factories in Vietnam and one factory in Thailand. The total floor area of the six manufacturing plants is approximately 7.8 million square feet. The total current workforce is about 7,500 workers."
The EPS of the company in the last 6 months ending 30.12.13 are just too good to ignore. The latest quarter is 19.52 sen per share, and the preceding quarter is 15.02 sen per share. Assuming that these kind of earnings are sustainable in the next 6 months, the full-year result will be 69 sen per share. 
 In view of its strong showings, especially in the latest 2 quarters, a PE ratio of 7 accorded to the stock is not illogical. This means the stock is worth RM 4.83 per share.
The company has a strong balance sheet with a current ratio of 1.598 and cash in the banks at RM154 million. Its paid-up capital is only RM97.208 million. Borrowings stand at below RM100 million.
At the present price of below RM2.60 per share, there is lots of value for money in the stock. 
As usual, you buy at your own risk.