WEEK 36 1ST SEP 2019: POSITION SIZING, CHINA 2823:HK A50,GOLD, DJI, & BOND YIELD

Disclaimer: All information shared is solely for learning purpose and it does not constitute to a buy/sell call.

 

Last week was a great example on how Mr. Market can be highly unpredictable and irrational due to confusion over Trump’s tweet vs what white house says vs China’s response. This shows that we have now entered an era of high volatility where things can go completely opposite in a matter of hours. I was sharing in few of my Telegram discussion groups where we have seen a large 2-3% move (both up/down and vice versa within a single day).

[In Singapore, we call it the “Prata” as we need to flip and flop to pan fry the “Prata” to be nicely cooked ;)].

 

In such a scenario, there would be few things that we should take note off:

  1. When market is “choppy”, trend analysis would usually not work that well as there isn’t any clear direction on where the market would be moving
  2. In order not to get stopped out that easily, stop loss level has to be adjusted accordingly to reflect the higher volatility
  3. Position sizing would be very critical
  4. In case where you are unsure, just sit back and relax. sometimes doing just nothing is actually beneficial.

How do we ensure we size our position correctly?

  1. Always predetermine the amount that you are willing to lose
  2. Plot your technical chart and identify the stop loss level (generally we will give a buffer of around 1 Average True Range (ATR) distance away in case of fake moves)
  3. Adjust the size of the position such that your stop loss (please remember to use a guaranteed stop as I have mentioned in my earlier post) is same as the amount that you are willing to lose.
  4. Only enter the trade when the Risk : Reward ratio is > 1: 2x (ideally 2.5x or more)

Practical example:

  1. I would like to short Gold at 1,560 level assuming resistance is at around 1,567.
  2. I am willing to lose US 1,000 in this trade
  3. ATR is now ~ 37 points
  4. My stop level would be around 1,604 (1567 + 37) and with a stop loss of US 1,000; I would be able to place 22.7 x $1 US contract of gold @ 1,560 each.

22.7 x $1 US contract of gold = US 35,412 notional amount

When market moves to 1604, my stop loss would be (1604-1560) * 22.7 = US 999.

 

The above would be a good formula to ensure we don’t end up over trading more than what we can chew/handle.

 

China A50 2823:HK Update

  1. We can see that after a recovery since Dec 2018 (as mentioned in the earlier post where recovery would be seen after the range of 11 is well supported), China is now trending on the side ways. In the below chart, we have highlighted the support and resistance region in green and red respectively.
  2. Key reason is still the well known Trade war which it is casting significant uncertainties to the market
  3. While the major market consensus have been hoping for a soft landing in contrast to a hard landing in China, we believe that trade war may add a good amount of risks to China.
  4. We are however optimistic in the long term view as any challenges would create massive opportunities for China to improvise and come out stronger.
    (In Chinese, 危机 is translated to both Dangers and Opportunities).
  5. Do remain cautious and keep a look out for latest progress/changes of Trade war

 

Updates on Gold:

  1. As mentioned last week, healthy correction would be expected
  2. We have now traced the chart pattern all the way back to 2010 and have spotted similar patterns highlighted below
  3. In an uptrend movement, there tend to be sudden back testing to caught highly leveraged traders off guard and any deep pull back (with support) would be good opportunities for us to enter more positions (at the same time move the stop loss of earlier trades higher).

 

 

 

 

 

Updates on DJI:

  1. Currently on sideways wigsaw mode; do refer to last week’s chart.
  2. We would continue to monitor the movements of DJI on Monday for the pricing in of trade war impact to happen
  3. It would be good to link Trump’s tweet into your mobile/alerts as it is now one of the “most important” talk of the town trading signals!!

Updates on Bond yield:

  1.  We can see that Bond yield continued to trend down for the week.
  2. Market continued to price in for another rate in the upcoming months
  3. Tips: Do check out the stocks that are related to property/supplier of raw material to build the property.

 

 

P.s. I have recently started a Telegram group for InvestWhizz readers to help to disseminate/share latest news/information in a faster manner.

Should you have any queries on the above posting, do feel free to post in the Telegram group as well. Please feel free to share to those whom you think may benefit as well.

Link to join Telegram group: http://t.me/Investwhizz

(70+ members & growing!)

 

People have been asking me which broker am I using, I am currently using IG due to their offering of Guaranteed stop loss (this is VERY IMPORTANT feature in my opinion). Do refer to this link for Referral. You will get SGD 100 from IG for free for opening & trading the account.

 

Regards,

Ernest Koh