Explore A Little

As far as I’m concerned, in college you’re supposed to do two main things:

1. Acquire enough marketable skills through coursework, internships, extracurriculars, etc… so that you have a number of entry level opportunities to choose from upon graduation.

2. Explore the various career paths that are available within your field of study so you can determine what you enjoy and would like to pursue upon graduation.

You’re also supposed to have some fun along the way, and I do, but I didn’t pay $28,000/yr to go on a four-year vacation. That’s just me though.

You’re probably thinking “This is a trading / investing blog; why are you bringing this up here?” Mainly because there are probably a lot of people my age in a similar spot and I think that sharing my current thoughts on my situation may help them.

For the past two years I’ve been gained exposure into the worlds of corporate accounting, investor relations, buy-side research, sell-side research, trading, consulting, wealth management, economic research, and a few other areas of business. I’ve liked trading and top-down technical research the most, by far, but I still have some reservations about pursuing trading or asset management as a career. What I’m getting at is, I graduate in 15 months or so and still am not totally sure what I’d like to do with my life. Indecisiveness happens, just ask anyone who’s ever gone to lunch with me at a restaurant with more than five items on the menu. It’s fine, most 20 year olds aren’t 100% sure about what they want to do, but what does that leave me to do right now?

Well, if anything, it tells me I need to continue to improve my marketability by acquiring new skillsets and figuring out what direction I’d ultimately like to go in by exploring a few more career paths through internships (i.e. the deals side of finance world or corporate finance roles).

As a result of my shift in focus, there will be a slight change in the types of content I create on this site.

1. I won’t be paper trading anymore as it’s too time consuming and isn’t as big a value add to me now that my goals have changed a bit. Also, having a short-term focus on markets is a drain on mental capital when the rest of my goals are long term in nature.

2. I’ll be adding content on fundamental analysis that will include posts on concepts as well as actual research.

3. I’ll be adding a new social media account on estimize to share my earnings estimates.

What won’t be changing is my focus on creating quality content to help you all better understand financial markets. Oh and the sarcasm, but that was a given wasn’t it?

The bottom line is; it’s okay to change your mind and not be sure about things, just make sure you learn from each experience along the way so that you can improve yourself a little more everyday.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.


Taking A Loss

One of the most difficult things for market participants to do is to admit that we are wrong and take a loss. We all know that one guy who has held stock XYZ since $100 as it spent years trading lower, only to find its final resting place in the single digits, or worse, delisted / bankrupt. Or that guy who moves his stop, or removes it altogether, because “the market is wrong”, only to end up holding a handful of worthless options at expiration (yes, I’ve been there). In hindsight, all of these actions sound absurd, but in the heat of the moment when emotions are flaring, it can be difficult to make the most appropriate decision.

So why is it that so many market participants go to such drastic lengths to avoid taking a loss?

Well, as human beings, we all deal with something called loss aversion. In its simplest form, loss aversion refers to the tendency of people to strongly prefer avoiding losses to acquiring gains. Now I know most twitter traders don’t have to deal with this type of situation, but for the rest of us, it is a frequent occurance.

loss aversion

Having a plan that addresses how you’ll handle taking losses, as well as any other scenario you can think of, is one of the ways to limit the mistakes that may be caused by loss aversion and other behavioral biases. If you’re comfortable with your trading plan, executing it should be almost mechanical in nature. The more specific your plan, and more comfortable you are with executing it, the higher the likelihood that you can avoid falling into the many psychological / behavioral pitfalls we are all susceptible to.

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Paper Portfolio Update: Long EWM (Malaysia ETF)

It’s not everyday you see people talking about Malaysian Equities, but since I have no idea what the S&P 500 is going to do, I’m left to look for non-correlated assets to trade. EWM, has a monthly correlation of .76, a quarterly correlation of -0.34, and a yearly correlation of -0.31 with the S&P 500. I do have a concern that it’s been highly correlated to oil on those timeframes, but since I’m keeping a tight stop, the risk/reward and other factors outweigh this concern.

Seasonally, we are at the tail end of the best 5 month period of the year for Malaysia. April is the largest concern for the first six months of the year, with an average return of -1.96%.

On the weekly timeframe, there are a few things I like about how this ETF is setting up.

1. Our weekly price target at the 161.8% extension of the 1/14 low – 8/14 high met.
2. False breakdown below the 2011 support and 161.8% extension.
3. Strong weekly candle off support, with follow through as we closed at the highs of the week.
4. Relative strength vs the S&P 500 is at the ’06 support level and turning higher. 
5. A positive momentum divergence is present. 

EWM Weekly

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Paper Portfolio Update: Long SGG (Sugar ETF)

Today I put on my first trade of the year in my paper trading account.

I like what I see in sugar futures so I used the ETF SGG to get long exposure in that market.

Trade details below:

Symbol: SGG
Entry (105 shares) $38.04
Stop (close at or below) $37.20
Target $44.00
Risk Per Share $0.84
Reward Per Share $5.96
Risk / Reward $7.10
Total $ Risk $88.20
Total $ Reward $625.80
Potential Return on Invested Capital 15.67%

I like this trade for a few reasons:

1. Pessimism is reaching multi-year extremes again while commercial hedgers are increasing their long positions, meaning that the smart money thinks prices are going higher. 
2. Momentum is positively diverging on both the weekly and daily timeframes. 
3. A false breakdown in price below the September ’14 lows of 14.51 allows us to define risk at that level. Below that, we are wrong.
4. Prices are flagging above that level and trying to breakout above a key downtrend line. 
5. Prices are extended from their weekly and daily 200 period moving averages.

I will be adding the second half of the position, another $4k worth of shares, on a break and close above this downtrend line. My target is up near 44, a prior resistance area and the 200 day SMA.  I expect this trade trade to play out over the next few months. I will be wrong with a close at or below $37.20.

sugar futures daily

SGG Daily

Good Risk/Reward in AUD/USD

After taking beating in the latter half of 2014, I think the risk/reward in AUD/USD may be shifting from the short side to a more netural/long bias.

First, lets take a look at a weekly chart to get an idea of where this pair is on a structural basis.

AUD USD Weekly
There are a few things that I think are important about this chart.

1. Prices are 19% below the 200 week simple moving average.
2. Prices have met their price target at the 161.8% extension of the January – July ’14 rally.
3. Prices are back at the 2010 lows which was key support / resistance in the past.

Next, lets take a look at the daily chart to see if it confirms what we’re seeing on the higher timeframe.


1. Prices have put in a false breakdown below both the 2010 lows and prior pivot low at .8087.
2. Momentum has confirmed a positive divergence and broken its long term downtrend line.
3. We’ve seen nice follow through and are back above the previous rally’s closing high. 

Additionally, commercial hedgers are not hedging at all, meaning that they think prices are heading higher from current levels. According to sentimenttrader data, commercial hedgers are net long roughly 72k contracts, which is a multi-year high and is nearing levels at which we saw prices move higher from in mid 2013 and early 2014.

Bottom Line:

Given that AUD/USD has met our weekly price target and has shown that buyers are stepping in at an important support level, I think that, in the least, there isn’t any reason to be short here. With hedgers positioning themselves for higher prices and prices being extended from the mean on both a weekly and daily timeframe, I think there is a possibility that we see a mean reversion back toward the 200 day moving average.  I love this false breakdown on the daily chart and breakout in momentum. We still have to get back above the downtrend line up toward .83, but above that resistance doesn’t come in until around .8550 and .8650, which are two support levels seen on the daily chart. In terms of managing risk on the long side, aggressive traders can stay long above the previous rally attempts closing high of .8181, but those who want to give it more room to work can use the gray shaded area’s low of .8087 a level to stay long above. As long as we are closing above the pivot low below which prices put in the false breakdown, I’d say the bias is to the upside.

As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can.