I think it's just a human nature that people will always want the easy way out. They want the next best thing in the quickest way possible. There are sayings that goes, "good things comes with a price" or "good things will take time to come". Now, I don't know how to express in words that those sayings are utterly true. People are not willing to spend the effort and time to pursue the challenging (and most of the time spirit breaking) route to success but always want success to be quick. Think about it, one can spend say 3 years in a university to get a job out there. Don't get me wrong but that's also a kind of success! You rough it through university, study hard, late hours on projects, assignments and worse during semester examinations and tests.
Now, for that analogy of roughing through Universities, you worked hard and etc and one probably get a decent paying job (bolding of the word job is on purpose). That's the funny thing about it. People do not mind working their asses off during university for a job but they do not even want to spend 1 year (could be less) in pursuing their success of financial freedom. It's really ironic. I keep hearing people telling me "it's tough, you won't get to see any money for the first 3 years". Well, i was thinking, did anyone see any money during their 3 years in university? Maybe some did and they did odd part time jobs but that's not the point. 3 years is just an example as it depends on how big one's dream and purpose to succeed is. The bigger the dream the more time and effort is required. Bill Gates slept in his office everyday and see where is he now? Everyday thinking of making better softwares from that computer.
Alright, now straight to the point of what some people had asked me about investments. It's interesting that 90% of them are the ones waiting for some kind of "magical" advice and they can win big. To be fair, I was one of that kind at a point of time but thank our heavenly father that i snapped out of it quick. Hence for this post, some asked me what does it take to trade futures or be in the stock market. In my mind, i believe it is not only in the futures market but it ANY financial market. I literally mean ANY because be it from futures market, options market, equities market, properties market, bonds, etf's and so on that these 5 basic "must-have" are a must in anyone. In my own personal opinion, these 5 basics are so simple but yet extremely and utterly hard to achieve. What are they? Here goes:
1) Emotions management
Trust me when i say that i learnt this the hard way and I put it right at the top of the 5 basics. I'll use a trade to enhance my analogy here:
Ok, lets say that one takes a position to go long, and has a stop 10 points away. Market moved downwards and it hit his stop. For the FKLI, 1 point = RM50. So, 10 points is RM500.
So, one may say, "ok, that's the plan i followed. It's ok. i'll try again". So, market went lower, and one bought at a lower price and again placing a stop 10 points lower. Market went further down and hit his stop again. Another 10 points gone. That's already RM1000 in 2 trades.
Later on, there seemed to be a buying opportunity again as it went lower but because your emotions had shaken, confidence shattered. Hence one will say, "crap, let us see how the market goes first since i just lost so much". Who knew, the market rebounded and went up 30 points. That could have covered the the loss and even earned another extra 10 points! Hence, that person will probably be controlled by their emotions and it is two emotions that will always bring a downfall to that person which are fear and greed. Fear because after several losses, they fear of losing more and missed the opportunity and greed when one wants the unachievable by the market and do not accept what the market is doing (or basically think that he is right). Both these emotions will kill an investor/trader as quick as he entered.
So how to overcome it? It's actually quite simple. Plan your trade and trade your plan. Yes. it's that simple. Too simple until it becomes extremely difficult because of emotions that will cloud your judgement
2) Leveraging can make or break a person
Yup, we live in a world of leveraging now. Leveraging here in layman terms means "small capital but earn big money". Hey, sounds good right? In fact, most of what we do now is on leverage. Opening up a business, one will probably get a financial support from the bank. That's a leverage on OPM (Other People's Money). You borrow money from the bank to buy a car or a house, that's leverage too.
In the futures world, the leverage can go up to more than 15x of your capital. For example in the FKLI, 1 point = RM50. Hence if you take a position at 1750 index points, it means 1750 x 50 = RM87500.
That's way too expensive for one to trade right? Hence, futures here goes by contracts and per contract is
only RM5000. So, you're leveraging 17.5x of your contract capital!
Now, not many people realize this but leverage can make or break you. If not handled carefully, it can kill you before you even know what's happening and it also can lift you up so fast that you thought are in heaven already. So, using RM5000, one can trade the FKLI market and lets say you earned 20 points from the FKLI market, that is RM1000 profit which also means it is 20% profit in probably a day or so. That's extremely wonderful as which investment vehicle else can give this kind of profit? However, like i mentioned, leverage can make or break you. If it can make you, it certainly can break you too.What if you lost 20 points? That is a 20% loss in your account of RM5000.
Then, it boils down to emotions again. If you have loss RM1000, emotions will kick in and say "lets earn back that loss by adding more contracts". Instead of one, you now trade two contracts. That's RM10000 and you will be leveraging RM50 x 2 contracts x 1750 index points (using 1750 points as an example). That will give you RM175000 that you're leveraging and not only that if you are down by 20 points that would be RM2000. So, adding from the previous loss of RM1000 + RM2000 = RM3000. RM3000 of RM5000 capital is 60% loss of your capital! That's like more than half of your capital gone!
Hence, leverage at a pace that you are comfortable with. Do not over leverage.
3) Only add positions when you're profiting
I guess i've already explained this on point 2). If you add positions/contracts when you're on a losing side, you can lose money so fast that you won't even know what happened. Hence, you only can add more positions when you are on a winning side. This is a common downfall for traders/investors because they want to earn as much money as fast as they can!
4) The TREND is your FRIEND
Easy said, easy heard. But why are there many (I was one of them last time) who looses still? People love to think that they are right and they want to "tell" the market what to do but they do not realize is that, that person is just one person and the market is millions of people. So if lets say in a crowd, which one has the louder cry? Is it you or is it the crowd?
So, what can we see from here? In simple words, "let the market lead your decision and not the other way round.". The main thing why this is so hard to follow is human ego (yes, another emotion). Here is how it works:
You do your charting analysis and also fundamentals. You see that it will continue to go long. Hence, you went long. Market dropped and you tell yourself and even some other people that "don't worry, it will pick up. My trading software strategy is perfect as i've backtested it 10 years behind". The market continued to drop further but because of your ego and what you told yourself and also other people, you will not want to budge from your decision. Market continued to punish you further and further up to the point that you can't bear it any further and you cut your position at a big loss. Then, after that, the market suddenly rebounded and went even higher than your position. That time i guarantee you are going to be so bloody frustrated and you will not even think properly and you will probably blame everything under the sun.
There is a saying, "be humble or be humbled!". When you get egoistic because of wins, that is when the market will punish you big time.
5) Practice makes perfect
I guess this works for anything we do now. The more we practice on something, the better one will become. Like what Bruce Lee said "I will not fear of someone who learns a thousand kicks but will fear someone who learns a kick a thousand times". Hence, that's exactly it. Keep practicing on your plan. Give it time for it to develop.
Yes, some will say they can paper trade and try their plan first but the only problem with this is paper trading does not involve emotions. It's when you use real money into your trades, you will feel that pressure so great that your emotions comes in and take over. Hence that is why emotions management is the first and most important point on this 5 basic points. In futures trading, there is no other way to learn than getting your hands dirty in it. Which means using real money to trade. One can always start small before going in bigger.
As my personal view, one should learn how to earn money from their own local market first before doing overseas markets where the sharks are bigger and the wolves are bigger in overseas market. I always tell myself this, "if you can't win from your own home ground, do you expect to win on your opponents turf? :)
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