The PSE and the Pursuit of Happyness – II
14 Jun 2008
This post is a continuation of my previous post about stock trading.
As I’ve mentioned on Part I, I started experimenting on stock trading just a few weeks ago. I had absolutely no prior knowledge about stocks, or any kind of formal investment for that matter. Everything I know, I learned from the web and from this one-time free seminar conducted by CitisecOnline. My primary motivation isn’t really to make a lot of money (that would be great though), but to learn how the system works. Considering the minuscule amount of money I’ve invested, I don’t think there really is much to gain besides experience.
The plan is very simple:
“Learn as much as you can without losing too much, and by the time you do have enough money to get serious, you’ve already learned enough not to lose a lot”.
- A Friend of Mine, on trading stocks (paraphrased)
Swing Trading
There are different types of stock traders in the market. I’ve decided early on that to keep it simple, a single strategy would be best. Having too many considerations when making a decision is a great way to get confused and find yourself in deep shit. These are just a couple of styles you can choose from (lifted from swing-trade-stocks.com):
- Position Trader - These are usually institutions, or large investing bodies that hold on to a stock for a very long time. I takes a lot of money to be a position trader and also a lot of patience since your money will be frozen for a very long time.
- Momentum Trader – These are short-term investors that start investing when a stock is showing momentum (i.e. going up and going fast). Once they see the momentum is running out, they sell immediately and therefore make only a little profit. To compensate, they do this a lot of times, even within a single trading day.
- Swing Trader – This is my preferred strategy since it involves less time and effort than momentum trader. I can’t really devote too much time on this, because I’m also trying to finish grad school and teaching at the same time. To explain what swing trading is, I think it’s best to give an actual true-to-life example. Here is my very first (hopefully successful) swing trade:
Philex Mining Recent Trend
About a week ago, I bought a few Philex Mining Stocks (Stock Code : PX). It was showing a decent amount of up trend and I decided to hop on board.
The key to swing trading is to look for uptrending stocks similar to PX. I drew a makeshift trend-line (blue) to illustrate my point. After you find an uptrend stock, you don’t go ahead and buy! (I was stupid enough to commit that mistake very early and I’ve learned my lesson now, thank you very much)
What you do instead, is to wait for a pullback. This is when the stock price starts to fall during an uptrend. There is very high probability that when it starts to climb up again it will try to stick to the previous uptrend. It’s amazingly simple really. You buy it at a low price (therefore lower risk) and you buy it during an uptrend (higher chance of success).
Of course you can’t be 100% sure that it will indeed go up again. For the keen observers out there, you probably saw on the graph that just a few days ago, I was looking at a potential loss if I decided to sell, since PX was falling until the end of the week. If everything goes as planned, this lowered price would attract demand and therefore possibly pull back the price next week. Fingers crossed.
CitisecOnline Features
The plotting software I used in the graph above is just one of the many nifty features of CitisecOnline (my online broker). It’s a java applet that can run on any properly enabled browser. I use Firefox 3 in Ubuntu Linux and everything works great.
Some of the other very useful features include:
- Regular Reports - There’s a ton of news clips and other information right at your finger tips that could potentially guide you on which stocks to avoid and which ones to buy.
- Investment Guide – The site ranks various stocks as either good or bad and offer a recommendation on whether to buy or not. I think this is probably more useful to Position Traders and not short term traders like me.
- Technical Guide – Now this is what you’d want to look at if your a swing trader. It’s a list of active stocks and whether their in an uptrend, downtrend, or sideways trend. There’s a lot more information there including support, resistance, etc. (You can learn about these terms on any swing trading site).
- Forums - Discuss with fellow traders about your opinions regarding market stuff.
- There’s a lot lot more, so just go over to the CitisecOnline site and get a free trial password.
The Real Deal
So far, I’ve been very positive about trying out the stock market. I just like to end this post with a warning. You can, and will, lose money when you trade stocks. I’ve only been at it for a few weeks and I’ve already lost some (albeit, a very small amount). So don’t come running back here and blaming me for encouraging you to try it out. Remember, any good investment has its risks and its corresponding rewards. The more potential rewards, the more risk there is.
My suggestion to the reader, would be to learn as much as you can before putting in any money. There’s a lot of stuff lying around that could get you up and started. There are even simulated stock markets. These are online games (not as flashy as Ragnarok though), where you can start to trade on the PSE using fake money. Head on over to the PSE Stock Trading Game or CitisecOnline’s Virtual Tycoon if you want to give it a go.
Good luck! See you on the trading floor.
(just drop a line if you have any questions)
