Forex Trading

More and more people are asking me about forex trading, whether it is a sound investment and how they can be successful in forex trading.

Personally I think investors are good to expose themselves to various forms of investment as ways to diversify their portfolio provided they understand very well the risk involved in each type of investment. Forex trading involves higher risk than the usual equity investment that requires certain trading skills and discipline. Of course all these can be trained as you go along in the journey of trading, be it forex, futures or equity trading.

So if you were to ask me if it is a sound investment, my answer is "Yes" if you trade with a plan, this plan must state clearly your entry price, target price, and your stop loss.

Next, I would like to share with you my personal views on how to be a winner in world of forex trading.

1. Big Picture

Too many traders get too detail in the day to day, minute to minute trading which often make one get confused and frustrated. Identify the bigger trend first. For example, if you want to know which currencies are superior you need to know where the money is flowing to. In 2013 money has been flowing into the US market which caused the USD appreciated against other currencies. In 2014, analysts are expecting money should be flowing into the Euro zone markets especially the UK, hence we should expect USD, British Pound and Euro dollar are the superior currencies for 2014.

Next, which currencies are weak? The emerging market currencies are weak, the Asian currencies are weak, Yen is weak due to massive money printing, as well as commodity rich countries like Aussie dollar and Canadian dollars are weak too.

With these big picture, we shall come to the next step: selecting the pairs.

2. Currency Pairs
When choosing the pairs, always pair a superior currency with a weak currency to get a clear trend in your chart. If you pair 2 weak currencies or 2 strong currencies together, chances are you would see a very irregular chart pattern that often lead you to no where.

3. Trading Plan
Finally always trade with a plan that spells out exactly what is your entry price and at what price you need to cut loss. Calculate your reward to risk ratio for every trade and stick to your plan strictly.

Other factors such as interest rates, current account deficits and other economic issues will affect the currency of a country too, but the above 3 items are basic ingredient for forex trading that I hope will help those who just started in currency trading to have a better picture.

Below is the USD index chart for 40 years. I see that the USD seems to follow a 7 year bull run chart pattern. 1978 - 1985, 1994 - 2001. If history repeats itself, the next bull run is 2011 - 2018. This is just my personal view that at least this is what the chart is telling me, you may view it with an open mind.

Good Luck in your trading!

How To Avoid Losing Money In Scams

Recently a close relative of mine was scammed away more than RM100k and I think I need to write this article to warn people about scams.

This can happen to anyone, whether or not you are educated and you have seen many times these things happened in the media, you may well be a victim of a scam. You've saved all your life and you've been investing wisely to accummulate your wealth, but one unlucky day you encounter a professional syndicated group of people who got hold of your emotional weakness and you may lose your life savings.

Internet Scams

The most common is through internet. It is reported that many scams are initiated through the Internet; victims range in age from 18 to 81 and come from all socio-economic backgrounds.

All types of advance-fee scams have one point in common – the targeted person is led to believe that he or she has a chance to attain something of very great personal value (financial reward, a romantic relationship, etc) in return for a small up-front monetary outlay.  As a general rule, if it sounds too good to be true, it probably is.

If you feel you have been a victim of an Internet scam, please consult the publications below for help and send all reports of Internet fraud directly to the Internet Crime Complaint Center.  If the scam originated through a particular website, notify also the administrators of that website.  When it becomes apparent you are the victim of a scam, it is best to end all communications with the scam artist, rather than attempt resolution.  It is extremely rare for victims to recover lost money.  If you feel threatened in any way, you should report your situation to the local police. 

Investment Scam

It is reported that every month, RM100million is lost to commercial crime in Malaysia. The most common investment scams are gold investmet ad forex. Mohamad, an airline clerk had lost RM52,000 in a forex scam; Another victim, Yusof (not the real name) had lost US$100,000 after investing in an online get-rich-quick scheme that promised  a “guaranteed” return of US$1million.

Any person or company who commits an offence under Section 25(1) of BAFIA 1989 shall, on conviction, be liable to a fine not exceeding RM10 million or to imprisonment for a term not exceeding 10 years or to both. Any person or company who commits an offence under Section 4(1) of AMLATFA 2001 shall on conviction, be liable to a fine not exceeding RM5 million or to imprisonment for a term not exceeding 5 years or to both.

Members of the public are advised to be cautious of investment schemes promoted on the internet, through phone calls or through seminars conducted by individuals or companies that are not licensed or authorized by Bank Negara Malaysia to accept deposits or to conduct foreign currency dealings. A list of all licensed institutions that accept deposits is available on Bank Negara Malaysia's website at www.bnm.gov.my.

While it is important to invest wisely to accummulate your wealth, it is even more important to prevent your money lost through scams.

A Review of 2013

In review of 2013, I made a few predictions based on my research on the historical price data that:

1. 2013 was generally a bullish trend
2. Support and Resistance was 1600 - 1840
3. Aug - Nov was volatile
4. Buy in the month of Feb, May, Aug and Nov
5. Last quarter of 2013: Oct mixed, Nov down and Dec up month

Most of them were right on except: October was a clear up month not mixed, and that the year end closing was above my 1840 resistance price target which closed at 1866.

In recall the year before 2013, that was at the end of 2012, people were generally bearish about the Bursa Malaysia due to the uncertainty in the coming election, but it turned out fine and many people make big money in the stock market. So this year 2014, although people are worried about the cooling measures of the property market and rising prices, but I think our market is quite resilient with strong support at 1680.

Last year I kept mentioning about investing in the right sectors because we had clear theme such as "Iskandar", "MRT", and projects on Oil and Gas. But this year I've been searching for investment themes and come up with few possibilities: Tourism, KL-Spore High Speed Train, MRT, health care, and plantation.

Wishing everyone Happy New Year! May this year be full of opportunity in the stock market and the property market!

What A Fantastic Year 2013!

WD Gann once said, "Everything moves in cycles as a result of the natural law of action and reaction. By a study of the past, I have discovered what cycles repeat in the future." 

How amazing, by studying the historical price data, we look at the statistics and generate the probabilities of how price action repeats itself. After all, that's the most important assumption of technical analysis that "history repeats itself".   

Now, let's take a look at the following chart that I published before in May this year.

Gann was able to forecast the 1929 stock market crash accurately in advance and he shared his secret in his publication that in order to forecast for that particular year, all you need to do is to look at the previous years that end with the same number year. For example, to forecast for 2013, you may study the price action of year 2003, 1993, 1983 and so on. 

Unlike the Dow Jones Industrial Average that has 100 years of history, KLCI only has less than 40 years of data. So I go to this website: Tading Economics to get the required data.

From the data, I see that the year ending with '3' is always a bullish year for Malaysia, the chances are 3 out of 3 bullish. This findings help me in planning for my investment into the stock market this year.

In one of my previous article I mentioned that August to November this year would be volatile and it would be suitable for shorter term trading because I saw that the 1983 chart showed that the second half of that year the price action was zig-zag in a horizontal trend. In addition, there were some important fundamental reasons such as the Fed tappering, our Malaysian Budget and other fundamental reasons that help me to come to that conclusion. 

So if you are wondering what's the market outlook for 2014, let me show you the next chart:

Looking at the chart above, we know that 2014 would be different from 2013, we do not have a clear-cut bullish trend. Investing in the stock market will be more challenging but I'm still optimistic about the Malaysian stock market as over the years we have proved that we are less volatile than the regional markets, as we have strong support from the local institutional players.

Below are some thoughts that may affect the market in the near future:

1. Construction and Property Sectors

According to the BMI (Business Monitor International) review on the Malaysian construction sector, they believed there will be some slow down in the construction sector in 2014 due to the falling demand for residential and non-residential buildings. They have maintained their construction growth forecasts for 2013 10.1% and 2014 to be 6.7%.

The property sector will experience some slow down as well due to the cooling measures by our government to curb speculative property activities. I believe this pull back is healthy for our economy as the property market need the necessary consolidation phase to digest the excess supply in the market.

2. Low Interest Rates

With a ultra low interest rate environment globally, the chances of running into a financial crisis is low. Unless there is inflation problem that force the Central bank to raise interest rate, otherwise, we are likely to enjoy this until 2015.

3. Excess Liquidity in the Economy

Ironically, quantitative easing is the biggest driver to drive the financial markets to the ceiling and yet it is currently the biggest risk posed by the financial markets.  In this quantitative easing process the Central Banks from the EU, US, UK and Japan kept pumping in the liquidity into their banking system. In fact JP Morgan's Nikolaos Panigirtzoglou, an expert in global monetary flows and liquidity, said the current excess liquidity is the most extreme ever as compared to the past 3 major episodes of excess liquidity namely: 1993-1995, 2001-2006 and 2008-2010. These were periods of strong asset price inflation suggesting that excess liquidity could have been a factor supporting markets at that time.

Since the 1990's the Fed has been playing the money game by pumping in money each time after a financial crisis instead of long term investment in real products and education. The excess liquidity is doing the economy no good as it merely drive up the asset prices and not protecting our purchasing power parity. 

In order to play along with the music, everyone has to dance regardless whether you like to dance or not. Just like in this money printing world, we are losing purchasing power with our fiat money, we are force to invest in this risky asset environment regardless whether we like it or not, as long as we know the Fed is pumping money into the system, we have to participate in the equity and property markets to protect our purchasing power. If we do not dance with the music we will be losing out. 

At the end of the game, we need to win the game beautifully but the problem is how? Because we never know when will the music stop. Right now, keep investing as the music is still playing around the world.

The Budget 2014

The recent announcement of the Budget 2014 was unexcited as predicted. Compared to the last Budget this budget is more realistic as we need to look into our deficit problem seriously as Fitch has already downgraded the Malaysian credit outook from "stable" to "negative" in July this year.

Currently, Federal Government debt at 54% of GDP while Household debt at 83% of GDP; Our budget deficit was 4.5% of GDP this year (for budget deficit > 5% is consider unhealthy). Hence a contractionary budget for next year is expected as people need to wake up from the over-indulgence of 'goodies' during the pre-election period. There is a price to pay for all the big spending!

However, the GST is further delayed to 2015 which also mean that the budget in fact is not that contractionary and our credit rating of 'negative' may remained for quite a while.

Moving forward, as far as KLCI is concerned there are winners and losers sectors for this budget. The winners are: telecommunication (increase of internet coverage in the rural areas), Oil and Gas, and Construction (West Coast Expressway, Doble-tracking rail project).

Biggest loser is the property sector especially the properties that rely on foreign buyers like the Iskandar region in Johor. As for the sin tax, the price hike in tobacco was implemented one month before the budget announcement day with a tobacco excise tax of 14%.  

The new RPGT of 30% for the first 3 years with no DIBS will definitely dampen the property market. However, I don't think there will be a major crash in the property market, but more like a mild correction kind of consolidation will take place as many of the projects will only be ready beyond 2015. 

For example, if you are holding 3 or more condos with price below RM1 million, you'll most likely have the difficulty to look for local buyers as most Malaysian middle income earners can't afford to buy a property in the sub sales market. The difference between buying from the developers and from the sub-sales market is that, if you buy from the developers, very often you do not need to pay high down payment, low (or non) legal fees, DIBS (now no more), easy to obtain the loan approval from banks. But if you are buying in the secondary market you need to pay tens of thousands of ringgit for the legal fees, stamp duties, down payment and etc. Hence, this new ruling in fact is a nightmare for speculators with no holding power but a good news for genuine buyers because it's everyone's dream to own a house for old age retirement and for the next generation.

Now you may be thinking what is my advice for the general equity investor. My advice is keep investing in the equity market. Buy only when the KLCI has a minimum correction of 80 points - 120 points. Sell when you see your stocks rise by 20% - 30%.  Once you've sold your position do not buy immediately but to wait patiently for the next opportunity to strike. If you recall my previous articles, there were 2 strategies that I mentioned before: 

1. Buy at the cycle low that usually happens in the month of February, May, August and November.

2. Buy when the KLCI is in a correction mode. A correction happens when the KLCI violated the trendline and the 20 day MA. When the index is in the correction mode, individual counters usually reacted more.

For sell signals it is up to the individual investor, it could be a 3-to-1 reward to risk ratio, below 20 day MA, or any other technical indicators that you are familiar with.

For questions and enquiries you are most welcomed to emailed me at info@stocktips123.com

KLCI 4th Quarter Price Trend

People who are new to the stock market may think that the stock market is a chaos market operating in a random manner. As you do more and more research into the historical stock prices you will see the picture clearer that the stock market is in fact rather predictable . Below are some KLCI historical charts for your viewing.

As you can see interestingly, November is always "down" and December is always "up"; September is mixed, while October has been up for the last 3 years, but for this year I would say it might be a mixed month due to the strong rally in September with rather steep slope of rising. 

How well history repeats itself depends on the actual outcome 3 months later.

Happy Investing!

2010 Sept - Dec

2011 Sept - Dec

2012 Sept - Dec

2013 Sept - Dec

Runaway Bull Market - The Dow Jones

In the beginning of 2013 hardly anybody will predict that the US market will experience the so called "Runaway bull market"! Runaway bull market means that the market is rising without a 20% correction. If we look back at the history, the last >20% correction was in 2011 August - the debt ceiling crisis. Prior to that was the 2008-2009 prolonged bear market that the DJIA was wiped out by more than 50% from its peak of 14,000. 

Nobody can predict accurately when is the next major market correction but there are a few factors that will determine the direction of the market: the Fed, the interest rates and the slowdown of the Chinese economy. To a lesser extend, some may even think that there could be a commodity crash but I think the possibility is low, but I would not rule out completely as 120 years ago in 1893 there was a stock market crash sparked by the Sherman Silver Purchase Act that caused massive bank failures during that time.

Malaysia market so far has been quite resilient without much affected by the recent Asian market sell down by the foreign funds. If you have been following my articles, you will know that I recommend the timing for entry into the market is February, May, August and November as these are the cycle low months of the year statistically. However,  I would advice investors to be cautious from August till November as these months are more volatile historically with many stock crashes happened before.

Moving forward to the second half of 2013, my stance still holds that generally this year will be a bullish year with some minor corrections of not more than 10% each. Support is 1600, resistance is 1840. And my favourite sectors are properties, construction, oil and gas.

Good luck to your investment, remember to take profits, lock in your gains first as there'll be plenty of opportunity to buy low sell high. 

Happy investing,

Pauline Yong