Trading in the s'pore market
BT Published February 20, 2006
IN contrast to options investors who prefer the diversity and liquidity of the US market, a mid-twenties insurance executive, who prefers to be known as John, trades only one type of structured warrants on only one stock listed on the local bourse. John trades CapitaLand call warrants, and has been doing so for the last six months. Again in contrast to other options traders who manage their risk by refusing to commit all their capital on any one trade, John usually sweeps in with all his capital on his trades.
So far, he has not done too badly. Although he lost over $6,000 in the first two months of trading, John has since rebuilt his capital base of accumulated savings and trading profits to about several thousand dollars. He can make several hundred to two thousand dollars in a day and loses on one out of every 10 trades.
John manages his risk by minimising his exposure to the stock price. This means he tries not to hold the warrants overnight or over a weekend, as random events or other traders might move the stock price while he is not watching the markets.
His trading strategy is to remain as liquid as possible, sweeping in with his capital to take advantage of a rise in the stock price. For example, he observes that CapitaLand's stock price rarely goes up by more than eight to ten cents in a single trading day. Thus if he is holding a position, after the price of the stock has risen by a certain amount - thus causing the price of the call warrant that he holds to rise, though not necessarily by the same amount - he takes the profit and exits the position. Even though the stock may continue to rise, John says the remaining upside is limited and is not worth taking the risk that the price might reverse.
'There is a group of people watching and trading the stock - people whom I don't know but can tell what they're feeling. Its like in the army, if you are with a group of people long enough, you become aware of how they behave.'
- John
Conversely, when the price starts to fall, once it falls by a certain amount, he may liquidate his position to prevent the falling price from further reducing his capital. Then when he thinks the price has bottomed out, he re-enters to buys back the warrants and recovers his earlier losses as the stock and warrant price begins to rise.
Quick trades
In this way, John says he has traded up to $100,000 in a single day, simply by rapidly moving his entire capital in and out of the market. Defending his trading method, he says: 'The amount I have is so small anyway, it doesn't matter to me if I lose all of it! But when I make a profit, I want to make the profit with my entire sum.'
As to how he chose CapitaLand, John says he can better understand and predict the health of a property company. In contrast, manufacturing or other companies depend on other variables like consumer demand that he does not dare to predict. He looks out for events like movements in interest rates or energy prices, terrorism, and political instability, in addition to company specific events and price movements. He also uses sites like Bloomberg.com for financial data.
John thinks that trading depends very much on understanding the culture and mindsets of the consumers and fellow traders. For example, he says, in emerging markets in Asia, the first thing people do when they have money is to buy a home, thus providing a base support for property demand. With respect to trading, he says that the stock market would do well after Chinese New Year. This is because traders had done well in January and they would get together to share triumphant war stories over the holiday, and come back to work bullish for more.
He also says the Singapore market is small enough for a trade of a few million dollars to move prices, and in that way is easier to predict. 'There is a group of people watching and trading the stock - people whom I don't know but can tell what they're feeling. Its like in the army, if you are with a group of people long enough, you become aware of how they behave.' John does not use the sophisticated tools of financial engineers or analysts to support his trades. He eschews complicated technical analysis that he says he does not understand and believes does not apply in the Singaporean market.
Instead, using Microsoft Excel, he devises his own simple charts to track prices and transactions. For example, he relies extensively on three charts - one plots the stock price over time, the second plots the volume of buy or sell trades over time, while the third plots the cumulative stocks being bought, the cumulative stocks sold, and the sum of excess demand or supply.
He is also experimenting with a trial version of Internet Macros, a software that will cut his trading time lags by automatically buying and selling his position the moment the stock price moves within the parameters he has set. He currently has to manually key in his trades online or call his broker.
He interned with an investment house where he had a chance to speak with a well-known trader in Asia. 'The encounter was an important learning experience because when you develop your own way of thinking, you are not sure whether you make sense or not,' John says. 'When one of the best traders says he applies similar principles, it gives you confidence. When you lose, you know it is part and parcel of trading.'
IN contrast to options investors who prefer the diversity and liquidity of the US market, a mid-twenties insurance executive, who prefers to be known as John, trades only one type of structured warrants on only one stock listed on the local bourse. John trades CapitaLand call warrants, and has been doing so for the last six months. Again in contrast to other options traders who manage their risk by refusing to commit all their capital on any one trade, John usually sweeps in with all his capital on his trades.
So far, he has not done too badly. Although he lost over $6,000 in the first two months of trading, John has since rebuilt his capital base of accumulated savings and trading profits to about several thousand dollars. He can make several hundred to two thousand dollars in a day and loses on one out of every 10 trades.
John manages his risk by minimising his exposure to the stock price. This means he tries not to hold the warrants overnight or over a weekend, as random events or other traders might move the stock price while he is not watching the markets.
His trading strategy is to remain as liquid as possible, sweeping in with his capital to take advantage of a rise in the stock price. For example, he observes that CapitaLand's stock price rarely goes up by more than eight to ten cents in a single trading day. Thus if he is holding a position, after the price of the stock has risen by a certain amount - thus causing the price of the call warrant that he holds to rise, though not necessarily by the same amount - he takes the profit and exits the position. Even though the stock may continue to rise, John says the remaining upside is limited and is not worth taking the risk that the price might reverse.
'There is a group of people watching and trading the stock - people whom I don't know but can tell what they're feeling. Its like in the army, if you are with a group of people long enough, you become aware of how they behave.'
- John
Conversely, when the price starts to fall, once it falls by a certain amount, he may liquidate his position to prevent the falling price from further reducing his capital. Then when he thinks the price has bottomed out, he re-enters to buys back the warrants and recovers his earlier losses as the stock and warrant price begins to rise.
Quick trades
In this way, John says he has traded up to $100,000 in a single day, simply by rapidly moving his entire capital in and out of the market. Defending his trading method, he says: 'The amount I have is so small anyway, it doesn't matter to me if I lose all of it! But when I make a profit, I want to make the profit with my entire sum.'
As to how he chose CapitaLand, John says he can better understand and predict the health of a property company. In contrast, manufacturing or other companies depend on other variables like consumer demand that he does not dare to predict. He looks out for events like movements in interest rates or energy prices, terrorism, and political instability, in addition to company specific events and price movements. He also uses sites like Bloomberg.com for financial data.
John thinks that trading depends very much on understanding the culture and mindsets of the consumers and fellow traders. For example, he says, in emerging markets in Asia, the first thing people do when they have money is to buy a home, thus providing a base support for property demand. With respect to trading, he says that the stock market would do well after Chinese New Year. This is because traders had done well in January and they would get together to share triumphant war stories over the holiday, and come back to work bullish for more.
He also says the Singapore market is small enough for a trade of a few million dollars to move prices, and in that way is easier to predict. 'There is a group of people watching and trading the stock - people whom I don't know but can tell what they're feeling. Its like in the army, if you are with a group of people long enough, you become aware of how they behave.' John does not use the sophisticated tools of financial engineers or analysts to support his trades. He eschews complicated technical analysis that he says he does not understand and believes does not apply in the Singaporean market.
Instead, using Microsoft Excel, he devises his own simple charts to track prices and transactions. For example, he relies extensively on three charts - one plots the stock price over time, the second plots the volume of buy or sell trades over time, while the third plots the cumulative stocks being bought, the cumulative stocks sold, and the sum of excess demand or supply.
He is also experimenting with a trial version of Internet Macros, a software that will cut his trading time lags by automatically buying and selling his position the moment the stock price moves within the parameters he has set. He currently has to manually key in his trades online or call his broker.
He interned with an investment house where he had a chance to speak with a well-known trader in Asia. 'The encounter was an important learning experience because when you develop your own way of thinking, you are not sure whether you make sense or not,' John says. 'When one of the best traders says he applies similar principles, it gives you confidence. When you lose, you know it is part and parcel of trading.'
posted by SmartYInvestor at 2:10 AM
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