FKLI
CPOHere is an example - S&P 500 ETF Friday December 17th
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*My new Feb CPO LONG 3266.. SO which way now? Up Up.. hmmm totally no idea
* See for yourself, lower high in the making & very bearish candle (what they call it Engulfing Something??) ... But if you ask me whats going to happen to Soybean Oil or Crude Palm Oil, further down or up, seriously i've no idea.
THE STOCK MARKET
by Dr. Mahathir bin Mohamad on Friday, November 19, 2010 at 9:57am
1. Lately we have been seeing rather rapid increases in the Kuala Lumpur Composite Index. Those who play the stock market must be feeling very happy. Much money must be made by investors from capital gains.
2. Some people believe that the rise of the KLCI is an indicator of the healthy state of the Malaysian economy. This may be true but let me throw some cold water in the belief that the index indicates that the economy is doing very well.
3. It is doing fairly well, no doubt, but that is not enough to push the KLCI to record highs. What is happening is that a lot of foreign money is coming in to buy Malaysian stocks.
4.In itself it is not bad. It is also a kind of foreign direct investment (FDI). But this kind of FDI is not about setting up industries to produce goods for export. The latter will not be easily liquidated to take the invested capital out. The plants which are set up cannot be easily sold. The Investors will have to manage them through good and bad times to get a return on their investments.
5. But FDI in stocks and shares can be sold any time and the proceeds taken out.
6. Just as increases in investments push up share prices and the KLCI, rapid or massive divestments will push down the share prices and index.
7. We read in the papers that the Federal Reserve Bank of the United States is pumping US600 billion Dollars into the US economy. A part of this money will no doubt be used to invest in stock and shares of the developing economies. The result of this FDI-financed purchases will be a rise in the share prices and the KLCI.
8. In 1997-1998 the foreign investors pulled out their investments and the KLCI dropped from 1,300 to 262. Naturally a lot of local investors lost money. They could not meet margin calls nor raise money to augment collaterals for their bank loans.
9. The banks found themselves burdened with large numbers of non-performing loans and had to face the threat of bankruptcy.
10. Should the banks collapse the economy of the country will go into a tailspin. It did in 1997-1998. It will happen again should the foreign investors dump their Malaysian shares to take profits from capital gains.
11. Foreign funds, especially from the US coming in to invest in Malaysia's stock market at this time must be considered as hot money. I would not be suprised when the KLCI peaks the foreign investors will dump their shares and collect capital gains. The share prices will fall rapidly and Malaysians who had chased the shares on their way up will be asked to meet margin calls. If they fail they will lose a lot of money.
12. I hope I am wrong. But sometimes my predictions about money and markets have proven to be right. In any case I only own 200 Malayan Tobacco shares bought before I became Education Minister. I have nothing to gain or to lose, but the country and the stock market investors will lose.
Casual acquaintances who come to learn know I trade for a living (something I rarely volunteer without being asked) will always ask whether I’m a bullish or bearish on the market or economy. My reply often irritates them when I say “I’m neither one – I’m just an opportunist.”
What I mean by that is that I go out of my way to avoid placing myself into a neat and tidy category that can influence my analysis of the markets and the stocks I trade. Although I’m far from perfect and sometimes let my opinions cloud my judgment (I am human after all), I do really try to do everything I can to look for opportunities on both sides of the market.
Many investors and also traders try to fit themselves into one neat category based on their opinions or of others who’ve they have come to respect. Even worse, those views are frequently tainted by how their portfolio is currently positioned (people want to be right after all) which can be both dangerous and quite unprofitable.
Believe it or not, some of the most profitable trades I’ve taken have been ones that run contrary to my personal views.
Case in point, I know several traders who are struggling now because they are very bearish about the market. While in principle I agree many of their views, I cannot let those views cloud both my analysis and trading. While I’m fairly certain there will be a time when their views will be proven correct, in this business timing is everything. Opinions after all, don’t pay the bills – only profitable trades do!
As you’ll soon learn if you haven’t already, there is no difference between being “early” and “wrong” in this market. Likewise, it pays to remember there were lots of hedge funds that went broke prior to March of 2000 because they shorted all of the Internet and tech stocks. These guys were proven to be right on the money much later on, but in reality they never were able to take full advantage of it because they lost so much money before the bear returned.
Remember this – in trading it isn’t about who is right or wrong. Instead it is all about who can make money and take advantage of the most opportunities in the present. Opinions are terrific things, but in most cases, you would be wise to set them aside and trade the market you see rather than the market you think you should or want to see.
* This report was originally published by The Kirk Report on April 6, 2004.
If there is one thing I've learned in all my years in the financial markets, it is never add to a losing position. That means never "average down" a losing long position or "average up" a losing short position. This is even more important when using leverage. There is a very well-know saying, "your first loss is your best loss". What this means is you are best served taking a small loss before it becomes a larger loss, or even worse, a loss that eats up a majority of your trading capital. In order to avoid this major trading mistake, we must first understand why traders add to losers, why traders should not do this, and what they can do to stop it from happening.
Why Traders Add To Losing Positions
Traders stay in losing positions for only two reasons. Either they don't want to be wrong about the market or they don't want to lose money on the trade. Sometimes it is a combination of both. Regardless of which one it is, it causes traders to stay in positions that are going against them.
As traders are losing money, they figure that if they add to the losing position, they can bring the average cost of the position down. For example, let's say a trader wants to be short Crude Oil and he sells 1 contact of Crude Oil at $75.00. Crude is now trading at $80, and the trader is down $5 in crude ($5000). The trader then decides to sell short an additional 2nd crude oil contact at $80. The average short position is $77.50 (the average of $80 and $75).
The trader now only needs Crude Oil to go $2.50 in his favor to get to breakeven at $77.50, instead of $75.00. However, every tick Crude Oil goes against the trader past $80.00 a barrel is going to count twice a much, eating up available capital a double the rate. To make matters worse, markets that are trending in one direction, tend to continue to trend in that direction.
Why Traders Should Not Add To a Losing Position
When a trader is in a losing position, the market is telling him he is wrong. The market is the total sum of psychological, technical and fundamental knowledge. The market is the total sum of all investor knowledge and market opinions. It includes institutional money, sovereign wealth funds, hedge fund managers, trend following funds, commercial hedging interest, and every other participant, large and small.
If a trader continues to hold onto a losing position after the market says he is wrong, the trader is basically saying he is right, and the collective sum or the rest of the market is wrong. In other words, the global consensus is telling the trader the world is round while the trader insists the world is flat. This will almost always lead to larger losses. Bullish markets tend to trade higher, and bearish markets tend to trade lower. It takes something significantly fundamental or technical to occur in that market to change the trend.
Not only is the trader wrong shorting Crude at $75, he is twice as wrong shorting the market again at $80. The losses are now piling up exponentially if he continues to add on to a losing position. Plus, he has now doubled his leverage on a bad trade. Meanwhile, if the trader had just had a $1 or $2 stop on the crude oil position, he would have taken his loss and been done with the trade. He would have been able to admit he was wrong and move onto the next opportunity, instead of creating larger losses and letting other opportunities go by while he was in a losing trade.
Figure 7
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