We Won a Trading Contest!

Right here, the second 'excuse' to which why I was missing in action for the past 2 months..if anybody cares at all; I assume at least one or two might.

For the past 8 weeks, since I [temporarily] halted my posting of blogs, me and my partner were on a trading contest hosted by Yahoo! If you are a Yahoo! user, you might have come across a campaign held by them to promote their improved Financial modules. It is a 'game' of trading beginning July, on token of one million YHD [ Yahoo! Dolllar] to trade on stocks listed on SGX [ Singapore Stock Exchange].



The contest ran for 8 weeks in a row and the rules, amongst others, are:

1. You may buy any quantity of stocks as long as your portfolio permits.
2. You may only sell the stocks after 36  hours of buying. [there was a time-counter on the trading platform to show hours left to sell]
3. The person with the highest accumulated 'winnings' at the end of the contest [25th August 2010] will claim the grand prize of SGD 10,000 cash.

Now, there's a little bit of something I would like to share about the experience and lessons that I have learnt from game. Though, it may not be realistic in terms of real money involved, the principles of trading as lauded by gurus of trading were tested and proven true in this game.. In fact, it serves to remind me that these principles are extremely relevant, contemporary and important. However, as I noted during my career serving clients, they are hardly beheld and sadly ignored.

1. Almost everyone would have to start with a nominal trading/investment capital to begin his venture in the stock market place. But how many have really seriously considered the return on investment. This is not the ROE or ROI ratio of fundamental analysis of a stock per se but rather in view of one's capital put to work. Most of us would not really mind how much return from trading just so you are profitable from your trades much lest to win itself is already such a tough challenge. But  when I was at the game, not only must I try to pick the stock that I felt would 'run', I must try to aim for the one stock that would potentially generate the best return for each of my bet/trade. Why is this necessary? While in real trading, you are not competing against anyone but more for trying to squeeze a profit; size doesn't matter though of course anyone would hope to have a 10 fold return overnight. But what I am saying or trying to imply here is that when you have a high expectation % return as criterion on each stock pick, you tend to be more meticulous, careful and selective in picking a stock and you don't just jump into in any trades for that matter. You will become conscious of risk/reward and whether a trade is all worthwhile with the amount of capital/risk exposure for that anticipated return on a stock that you contemplate to buy. Lets take an example; You have 10 thousand dollar to trade a stock. You can either use all of it to buy a stock that is $10/ per share or $0.10 per share. Hypothetically, if two persons trades on each of these stocks using all their investment dollars; one buying a $0.10 stock and the other buying a $10/- stock. The net result is that they both have placed all $10,000/- into a stock. So, the only parameter in this extreme scenario that will bring about a difference in return is how much in terms of percentage both stocks are gonna move up [down] in favour [ skip move down for simplicity]. Here is the geese: both stocks presumably move up 20%, it translates that the $0.10 stock has gone up by 2 cents to $0.12 and the $10/- stock correspondingly should go up by $2.00 to $12/-. In both case, both traders' net position after gain is they both have made $2,000/- or 20% profit for picking the right stocks. BUT!!!!!!! Watch here closely >>>> For a $0.10 stock to move 2 cents, it only needs to move 4 bids up [ $0.005 per bid] while the $10/- stock will need to move up 100 bids in order to up $2.00/- [$0.02 per bid]. Now, is it not obvious that 4 bids is more 'achievable' than 100 bids in the given same period? Try analysing this simple math and see if you agree. Of course, $0.10 stock are usually 'riskier' [ but always never be too quick to jump to conclusion just by looking at the price of a stock. see my posting on how to evaluate stocks] This little 'trick' should make a little sense with respect to your appetite for risk/reward. And so is why in my career as a dealer, I always advocate my younger clients [25-45 years old] to apportion some 20% of capital into penny stocks and the rest on other types of stock depending on person's financial needs and background; i.e suitability. [point of note: the inverse is true and that means you will also lose $2000/- in just 4 bids...so careful!!!]
2. And, second point that I have learnt. IMPOSE your own NON-SELL period. That is to say that when you pick a stock, just before you buy it, ask yourself this question to counter check your decision: That you ONLY have ONE chance to select a stock and after buying it, you can only sell after 24 or 36 hours; are you sure this is gonna be the stock that will be happening and you 'should' be able to sell at a profit once the NON-SELL period is lifted. If the answer is not quite sure, its probably a false call. It has never come across to me about this amazing mentality that once beheld, unleash your latent trading instinct that will turn you instantaneously into diligent, meticulous and prudent stock picker. Most people never ask themselves this question; it just looks like it will move the next second or minute, but never really 36 hours later or so.
3. To summarise the holy grail of what the above two lessons hold; It appears that the magical old wisdom of a saying : if you aim for the sky, you should at least hit the cloud...you know what I mean...Set your stock selection criteria very high before you jump into any trade and ask yourself the 36 hours question...it might save you from those regretful buy-on-impulse and your final decision is all from a clear mind, and not forgetting the bids in return 'logic'..

Here's the link to Yahoo!Gazillionaire Winner Result Announcement page http://sg.promotion.yahoo.com/gazillionaire/index. The Top Guy is my proud partner, ah tan....8 weeks of non-stop stock selecting and decisions-making to beat the rest at the game...we are all too happy it ended merrily and finally... never been more stressed in my 16 years of trading career. Thanks to Yahoo! Use yahoo finance for the latest news and updates! 

Until then

Posted in: blah blah blah...