stock market seminar - invest smart · pdf fileat the end of this seminar, ... mr. lee is the...

Stock Market Seminar

Benny Lee

At the end of this seminar, participants will be able to:

• Describe the role of technical analysis in making an informed investment decision

• Apply simple methods in technical analysis to identify price lows and highs

• Define stock-picking techniques using technical indicators

• Understand the pitfalls in trading and the importance of managing emotions

• Develop a simple yet effective trading portfolio

Learning Objective

The Securities Commission established under the Securities

Commission Act 1993 (“Commission”) reserve all proprietary rights

to the contents of this Presentation. No part of this Presentation

may be used or reproduced in any form without the

Commission’s prior written permission.

This Presentation is provided for information purposes only.

Neither the Commission nor the Presenter make any warranty,

express or implied, nor assume any legal liability or responsibility

for the accuracy, completeness or currency of the contents of

this Presentation.

It is your responsibility to verify any information before using or

relying on it.

Benny Lee has established himself as a private

trader, trainer, highly sought-after speaker and

practitioner of technical analysis for the past 12

years.

He has conducted investment analysis workshops,

seminars and coaching for private and institutional

investors in Malaysia, Singapore, Hong Kong,

Thailand, Vietnam and Pakistan.

He is also a CPE (Continuous Professional

Education) recognized trainer for the Securities

Commission of Malaysia.

Additionally, Mr. Lee is the Chief Market Strategist

for a local stock broking company providing

trading strategy and advice to a group of elite

traders.

The Speaker

Understand About Trading And

The Role Of Technical Analysis In

Trading

Trading simply means buying and selling

The Traders’ Decree:

BUY LOW, SELL HIGH

BUY HIGH, SELL HIGHER

Buy Quantity Buy Price Sell Price Sell Quantity

100 1,305 1,306 210

80 1,304 1,307 76

20 1,303 1,308 22

What happens when these orders are made:

1. Sell 3 contracts at 1,307

2. Buy 10 contracts at 1,305

3. Buy 5 contracts at 1,306

4. Remove Sell order of 2 contracts at 1,308

5. Buy stop 5 contracts at 1,308

Why do prices go up and down?

What happens when demand overcomes supply ?

Price goes up

What happens when supply overcomes demand ?

Price falls down

How do you analyze demand and supply ?

If you are a speculator or a fundamental trader, you only look at one

of the factors affecting price movements. The only way to reflect all

the factors that move the prices, is by looking at the charts.

CHARTING DEMAND AND SUPPLY

Price Charts

All market participants in

Bursa Malaysia are traders…

INTRADAY TRADERS

buy and sell within the

same day

CONTRA TRADERS

buy and sell within the

contra period of 3 days

SHORT TERM TRADERS

buy and sell within

weeks

MEDIUM TERM TRADERS

buy and sell within

months

LONG TERM TRADERS

buy and sell within years

LOST TRADERS

Bought and never sold in

their lifetime

How do we know when to

buy and sell? Using various strategies

NEWS

FUNDAMENTALS

TECHNICAL

ANALYSIS

(PRICE)

ASTROLOGY

BLACK BOX

SOFTWARE

GURUS

The problem with these information is

that they all come in TOO LATE!

By the time the news

comes out to the public,

the price has already discounted the news

Property developer HUA YANG BERHAD has set an ex-date for the final dividend of 7 sen apiece on Sept 29, 2014. The single-tier dividend is payable on Oct 15, subject to shareholders’ approval at the coming annual general meeting, which will be held on Aug 27.

News

Research Reports

Trading Risks

Emotional Risks

The objective in

trading is to find an

opportunity with the

lowest possible risk

possible and highest

possible returns

THE GAME OF

PROBABILITY IN TRADING

TIGER LEOPARD DEER LION COW

The Answer: ____________________

Understand About Trading And

The Role Of Technical Analysis In

Trading (Cont.)

Trading vs Gambling

GAMBLING

• No plan/ strategy

• Based on luck

• No money management

• No emotional management

TRADING

• Have plan/ strategy

• Based on risks and

opportunities

• Sound money management

• Good emotional management

April 2007 Analysis by Benny Lee, published in Smart Investor, Malaysia

How chart analysis help me

make forecasts?

October 2007 Analysis by Benny Lee, published in Smart Investor, Malaysia


make forecasts?

January 2008 Analysis by Benny Lee, published in Smart Investor, Malaysia


make forecasts?

August 2008 Analysis by Benny Lee, published in Smart Investor, Malaysia


make forecasts?


make forecasts?

October 2008 Analysis by Benny Lee, published in Smart

Investor, Malaysia


make forecasts?

How does price trend form?

Understanding Support and Resistance


What happens if there is not much news (catalyst) about this company


What happens when there is bad news/catalyst


Where is the next support/resistance level?

TECHNICAL ANALYSIS is a security analysis methodology

for forecasting the direction of prices through the study

of past market data, primarily price and volume.

Understanding the Application

of Technical Analysis

Identify trading opportunities

using charts

There are only TWO trading

strategies you can develop:

Buy Low, Sell High Buy High, Sell Higher

Buy High, Sell Higher

The BOLLINGER BANDS

• Price volatility can be measured by trading range or dispersion of prices from a normal distribution.

• Statisticians uses various kind of calculations to determine volatility but the most common used volatility indicator is the standard deviation (SD).

In technical analysis, the SD is used by a

prominent technical analyst and fund

manager, Mr. John Bollinger.

He created an indicator called the

Bollinger Bands.

The BOLLINGER BANDS

STANDARD DEVIATION is a measure of the variability or

dispersion of a population, a data set, or a probability distribution

Normal distribution

The Bollinger Bands standard deviation model

A 20-day moving average as the normal distribution

Normal distribution + 2 SD

Normal distribution - 2 SD

Finding Lows and Highs with the

Bollinger Bands

• The middle band is the 20-day simple moving average.

• The upper band is the 20-day simple moving average plus 2 standard deviations.

• The lower band is the 20-day simple moving average less 2 standard deviations.

1. Upper band

2. Middle Band/

Simple Moving Average

3. Lower band

Daily

Finding Lows and Highs with

the Bollinger Bands


the Bollinger Bands

1. Identify Support and resistance

• Using 2 SD above and below the moving average, Price is expected to

stay within the bands 96% of the time.

• Therefore, when price moves near the bottom band (the SD bottom

limit), the price is expected to rebound to the normal distribution.

• When price moves near the upper band (the SD upper limit), the price is

expected to pullback to the normal distribution (moving average)

• The bottom band acts as support and top band acts as resistance

1.Identify Support and resistance

Works well on a sideway market,

but NOT in a trending market

1.Identify Support and resistance


the Bollinger Bands

2. Identify price volatility breakout • When price is within the Bollinger bands, the price is considered

normal and if it continues to trade near the moving average, the

Bollinger bands tightens.

• When price breaks above the upper band, price is expected to climb

higher as it comes out from the correction with buying strength.

• When price breaks below the upper bands, price is expected to decline

further as it comes out from the correction with selling pressure.

2. Identify price volatility breakout

Bollinger bands tightening, price is trading near the moving average (correction )

breakout


The Bollinger bands works better in identifying

price breakouts rather than support and resistance.

• The TIGHTER the band (small top and bottom band width),

indicating a strong correction, price is expected to breakout

with BIGGER moves.

• A breakout from a relatively BIGGER and width is expected

to be followed with a WEAKER move.

Breakout from a tight band width

Breakout from bigger band width


Finding Lows and Highs with the

Bollinger Bands

The challenge is to find the appropriate Bollinger Bands width to find trading opportunities.

Which breakout has a good rally?

It may be quite difficult to calculate the band

width from the Bollinger Bands, so a new indicator

is created to calculate the width.

Identifying Trading

Opportunities

2. Identify price

volatility breakout

Top Band – Bottom Band

Middle Band

The Bollinger Bands Width indicator:


Is there a trading opportunity on this breakout?

NO

Stock Picking Case Study

Stock Picking Case Study 1: Would you be getting ready to buy this stock?

Stock Picking Case Study 1:

Stock Picking Case Study 2:

AIM of chart analysis is

to find stocks/futures and

etc. that have high

winning chance of

moving into a determined

target price and provide

a ideas for traders on how

to trade.

Trade Like a Professional

Trading Pitfalls

They depend heavily a stock they chose,

no diversification

Trading Pitfalls

Right Analysis, wrong trading decision

Buy price

Target price

Stop Loss price

Trading Pitfalls

No discipline to trade the plan

Trading Pitfalls

No Money Management

We get the winning probability of a trading

plan/strategy from historical data.

HISTORICAL

PERFORMANCE DOES NOT

GUARANTEE FUTURE

PERFORMANCE

The importance of developing a

trading portfolio

What if we have a trading strategy with 80% winning probability but

results in the future is as below?

Jan Feb Mar Apr May June TOTAL

Winning trades 7 5 2 6 8 4 32

Losing Trades 3 5 8 4 2 6 28

Total Wins $ 7 $ 5 $ 2 $ 6 $ 8 $ 4 $32

Total Losses $ 3 $ 5 $ 8 $ 4 $ 2 $ 6 $28

PROFIT $ 4 - $ (6) $ 2 $ 6 $ (2) $ 4


trading portfolio

1. Make sure every recommendation has a good

potential profit to risk ratio of at least 2.

Buy price : $1.00

Target Price: $1.30

Stop Loss (Risk) : $0.90

P/L ratio 3 to 1

Buy price : $0.50

Target Price: $0.60

Stop Loss (Risk) : $0.40

P/L ratio 1 to 1

Recommendation 1 Recommendation 2


trading portfolio

2. Make sure that you allocate your money to accumulate at

least 10 stocks in your portfolio

STOCK SHARES BUY PRICE TARGET STOP LOSS P/L RATIO CAPITAL

ALLOCATED:

STOCK A 8,300 1.200 1.400 1.100 2.0 $9,960

STOCK B 4,700 2.100 2.400 1.980 2.5 $9,870

STOCK C 3,100 3.220 3.600 3.080 2.7 $9,982

STOCK D 7,500 1.340 1.500 1.260 2.0 $10,050

STOCK E 4,300 2.310 2.800 2.190 4.1 $9,933

STOCK F 9,900 1.010 1.200 0.920 2.1 $9,999

STOCK G 11,500 0.870 0.980 0.820 2.2 $10,005

STOCK H 17,200 0.580 0.720 0.520 2.3 $9,976

STOCK I 25,300 0.395 0.500 0.350 2.3 $9,994

STOCK J 1,600 6.320 7.000 6.000 2.1 $10,112

$99,881


trading portfolio

Possible Performance with a 2 to 1 potential profit to risk ratio

Jan Feb Mar Apr May June TOTAL

Winning trades 7 5 2 6 8 4 32

Losing Trades 3 5 8 4 2 6 28

Total Wins $14 $10 $ 4 $12 $16 $ 8 $64

Total Losses $ 3 $ 5 $ 8 $ 4 $ 2 $ 6 $28

PROFIT $11 $ 5 $ (4) $ 6 $14 $ 2 $36

Trading Principles

(Managing Emotions)

1. Cut Your Losses

• Cut them while the loss is still small and manageable

(already calculated). Once it is big, it is not easy to

manage and can cause emotional stress. It is good to

fear the market but do not be too fearful.

2. Follow your plan (Discipline)

• There are times when we can be too emotional and try to trade based on instincts rather than the plan.

Things get out of control once a plan is not followed.

Remember, trading is like a business.

3. Don’t overtrade

• Traders tend to trade more once they have made

losses and also once they have made profits. Trade

according to your money management strategy that

you have incorporated in your trading strategy

Trading Principles

(Managing Emotions)

4. Take profits

• While it is better to let profits run for longer term trading

objective, it is better to take profits in short term

trading, especially intraday trading. Again, follow the

plan. It is ok to be greedy but do not be too greedy.

5. Keep positions small

• Putting all your capital in one single trade is disastrous. Position size should be small and manageable for

intraday trading.

6. Learn from Mistakes

• Keep a trading journal. If we loss or make money, make sure we learn from it to become a better trader

in the future.

Trading Principles

(Managing Emotions)

7. Do not let your bias/opinions towards the market

override your plan

• Your opinion is just your opinion, it can be wrong. Keep

your opinion to yourself, free your mind. Follow the

market and do what it says. Mr. Market is always right.

8. Never let outside factors affect your plan

• News, rumours, tips can cause traders to deviate from their trading plan. Try not to use too many information

to determine your trades, especially information that

are not reliable such as news, tips etc. 9. Keep a healthy lifestyle

• Trading, especially intraday trading requires sharp and

alert mind. Make sure you have enough rest and

exercise regularly to stay healthy

You know you are NOT on the right track to

successful trading :

When you

MAKE MONEY

When you

LOSE MONEY

Trading Principles (Managing Emotions)

You know you are on the right track to

trading successfully:

Trading Principles (Managing Emotions)

when you

MAKE MONEY

when you

LOSE MONEY

stock market seminar - invest smart · pdf fileat the end of this seminar, ... mr. lee is the...

Documents