Saturday, January 15, 2005

Future trading...

yesterday, i attended a free seminar on future trading by OSK Future & Securities Bhd. I managed to learn many things as I am new to this area..

The speaker; Mr. John Law gave as an introduction.. "how to make profit in the future market?" and he promptly answered : "based on charts you will get the answer.."

In future tradings.. you can trade in two ways..
1. up (buy down, sell up)
2. down (sell up, buy down)

He then said there are few ways future, which is known as FKLI (Future Kuala Lumpur Index) is based upon, one of them is KLCI (Kuala Lumpur Composite Index), which actually composes of 100 active stocks.

To be able to trade in direct stock market; which is known to them as the cash market (means actual market), you need huge capital, whereas over here there is no need because the fund managers are leveraging on many people to trade as one go in the real market. Therefore, futures' prices is either at premium or discount to the real market.

Who is interested in trading future ?
1. Hedgers - those who seek to minimize risks in their cash positions.
2. Speculators - those who risk capital in return for fast & substantial money.

You need to have a gameplan, and in doing that you need to categorize yourself either as long term or short term which is commonly known as day trader or position trader. Then he went on to say "only long term can make money, if you can risk losing some money, you are out of here!"

To be a good trader, you need to have 2 things:
1. Fundamental concept - economic concept
2. Skills - using tools

The most important thing abt the concept is liquidity.. and thus you need to know who are the main player in the real market.
1. Proprietary
2. Local vendors
3. Domestic retail
4. Oversea retail
5. Domestic institution
6. Foreign institution - This makes up the most percentage.

Then a participant went on and said "this coming months would have good movement due to liquidity coming in..." he cited the reason for being USD re peg to 3.30 - 3.50. (This means that Malaysian ringgit would be slightly stronger against USD, and foreign funds are coming in..)

Mr. John Law then gave us one trading example about buying long.(means buy and hope it go up)
10 Dec - Deposit margin of 5K
13 Dec - buy 1 FKLI Dec at 880.00
14 Dec - Sell 1 FKLI Dec at 900.00 (which means you gain 20 points)
Since 1 point is RM 50, thus you would earn RM 1k
less the commission you would get the actuall income. (commission are negotiable with the broker)

One thing to note that each unit for FKLI comes with short time frame for validity... I think one fo the reason to enforce liquidity... when your contract is expired, you are forced to liquiditize, unlike the stock market, stock owner might not want to sell out the share when it is making losses.

Therefore, coming back to the real market and the leveraging market... since 1 point is RM50, thus the actual cash in the market is actually 900.00 * RM50 = 45 K

One would need a minimum of RM 1750.00 as equity to play.
Smallest unit in FKLI is 0.50.

He then emphasized again "you need to have trading plan, which is capital preservation.." means dont buy everything at one shot.. in other words, dont follow your emotion. dont listen to rumours.

Every day has a 4 months contract ?? -> I am not sure what he meant by this.

How to predict the market?
1. Fundamental analysis.
1a. Macro point of view - Fund managers in the world look at the world as one stock market.
1b. Sentiment driven - people dare not buy at 800.00 (KLCI) but dare to buy at 900.00(KLCI)
1c. Localized support - there is an invisible hand in this market.
1d. Volatility
1e. Liquidity considerations - not just local but international as well.

2. Charts.
2a. Graphical illustration of the real market.
2b. Show trends
2c. History repeats itself.
3. Technical indicators

Tips
1. If line is going up.. then buy, if down then sell
2. Cut lost accordingly.

The key is to indentify either the trend is strong or weak, the graph could be going up but it might not be strong. THus you would need additional point of view to support your decision. For instance, if you notice a climbing curve, then probably you would magnify your analysis into 60 minutes point of view with combinations of "moving averages", if you notice than the higher resolution is showing linear trend (they called it non-trend), then it means the climbing is stable and you can buy.

The speaker then said "you need discipline to maintain this business.." means dont get over excited..

To analyse a moving trend - "moving averages"is a good tool.
To analyse a non-trend - "Oscillator"is a good tool.

The second speaker came in; Mr. Jimmy a.k.a CEO of OSK Futures and Securities.
He said:
1. To predict future direction, it is not abt understanding where the market ? you just need to know whether it is going up or down..
2. How would you mentally size up to take trade ?
2a. Know your objective : Make money
2b. Know how far you can go.

Then he showed us one exmple using a live analysis tools.. I think it is a Java written program ..pretty nice interface..
If at one at particular point, the FKLI is 920.00, you take a parrallel measurement and you find the following:
1. Max : 945.00
2. Min : 915.00

Then you apply the 3 most important analysis:
1. MACD
2. ADX
3. Moving averages - either 3 day line or 9 day line.
Then you decide how much you can lose and go for decision.

Conclusion:
1. Need to have game plan --> Strategy
2. Knowledge + discipline + patience -> Success.
3. Always think "what if?" that is why you need pre-determined strategy to help you out at critical moments.. becoz your thinking is usually slower.

Then he encourages us to subscripe for the analysis tool which is only RM 150 per monthly basis.

Finally, according to my friend Rick Teoh, this game is a zero sum game, where the investment will goes back to nothing.. in order for someone to make money, someone has to lose money. I think that you also need a lot of time and effort to enjoy this game.





43 comments:

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