Top 3 trading mistakes to work on for 2017

I have just attended a trading club meeting in early January and the Organizer/founder/leader has just given a glimpse into how he plans his trades and also a reminder to work on eradicating bad trading habits. In this post, I will touch on both. Hopefully this is not going to be a long post.

Trade planning

Basically there are some components to executing a trade. They are as follows:

  • Fundamental Analysis
  • Technical Analysis
  • Risk to Reward
  • Stick to the Plan
  • Respect the Markets
  • Review the Trade
  • Recalibrate if needed

What he recommended to start on a trade was to take a fresh sheet of paper, and write down what he thinks is the general trend for at least 3 months, like which currencies are bullish, bearish, neutral, pair up the currencies accordingly, and use technical analysis to enter positions, set profits and loss. So basically starting with fundamental analysis, than use the rest to complement it.

Also, he mentioned to reflect on the past trading year, and name 3 trading bad habits or recurring mistakes  made and aim to work on improving them this coming year. So, I decided to take his advise, and record them down and hopefully at the end of the year, when I look back at this, I hoped to have eradicated my bad habits. Here goes my top 3 mistakes in no particular order.

Stick to the plan

I suppose this is a common issue among novice traders like myself. Things such as closing positions before profit or loss targets are hit, not doing proper position sizing, not having a good risk to reward ratio etc. There are many many more. To counter this, I plan to come out with a trading checklist before I enter any positions. This will help me have greater discipline and not to have a massive drawdown as well. My accounts are nearly close to 0 but I do not wish to top up for now and will attempt to fight back to my original amount. Hope that trading will be better for me this year.

Trade review

This is something that I have done at the beginning when I first started to trade, but I did not know what I was doing. Now, I still do not know what I am doing entirely and I am not doing reviews on my trade. I need to get back into the habit of reviewing my trades but it is quite troublesome to do it due to the number of trades I execute. At the very least, I need to make a record of the reasons why I enter the trade, and what is the end result of the trade. Also need to take note that a trade that is profitable or a loss is not necessarily a good or bad trade. It depends on variables which cannot be quantified as well. There is another problem to this aspect with regards to how to review the trade. There have been times when I tried to review, but to end up in frustration only as I did not know where went wrong. I need to learn to utilize my resources more. Perhaps I can look to people in the trading club for advise.

Emotion/Pyschology

This is an issue which plagues many traders and especially for myself, this is a difficult area to manage. People are into trading to make money and I myself am no exception. However, the thing which I really need to take note of is that I just started trading and I should not be aiming to make profits but actually to learn and figure out a way to trade profitably in the long term. This links back to the point above on trade review, which I should be doing and I have not. The desire to make money has gone to my head, and with each losing trade, the frustration sets in and I will tend to make more losing trades and the cycle repeats. For now, I suppose the way is to reduce my trading position size drastically so that each loss is not that painful and is more manageable. Furthermore, I need to take rests and not trade so frequently so that each trade is thought through better so that I can make better trading decisions.

 

So there it is, my 3 issues which I need to work on. It is a tall order, but in order to progress and improve on my trading, these are things which need to be done. That’s all for now and happy Chinese New Year everybody!

One way of investing in Gold – SPDR Gold Shares [O87]

***Please note that this does not constitute a stock recommendation for buy or sell. This is purely my own analysis and is to be taken as my own personal opinion and not to be taken as correct. Kindly do your own diligence in purchasing stocks.

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Some shiny gold bars

Nearing the end of the year for 2016, I have been reviewing my CPF account and find that it is not growing as quick as I would like it to be. Despite the Dow Jones nearing the psychological barrier of 20,000 and the S&P hitting new highs, the STI is pretty flat which depicts the bleak outlook of the Singapore economy. As my ordinary account (OA) is above the amount of $20,000, I have been looking for opportunities to see if I am able to make my CPF money work harder. For those who are unaware, the Singapore government has decided to give 1% more for the first $60,000 in the CPF account, with only the first $20,000 in the OA applicable for it. In order words, the first $20,000 will earn 3.5%, while any excess amount in the OA will only earn you 2.5%. As the first $20,000 can’t be used for investments anyway, I am looking out for any available opportunities in the market which will allow me to earn >2.5% per annum. Due to various rules restricting the investments allowed to be made, there are not many options left. In addition, due to my current vested position in DBS, I do not have much money left allocated for stocks and bond investment. As such, I turn to the other option left, which is the amount allocated for gold. Furthermore, with such high valuations in the foreign stock markets and uncertainty in the near future, I believe that gold investing warrants a second look. Thus, I began to look at SPDR gold shares (O87). In addition, only 10% of the monies in the OA is allowed to be invested in gold.

SPDR Gold Shares is a gold only ETF, with its mandate clearly stated out on the website – “for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.” It is a trust which holds gold bullion and from time to time issues shares in baskets in exchange for deposits of gold and distributes gold in connection with the redemption of baskets (in other words an open ETF, however for retail investors there is no need to create baskets as the investment outlay is very high).

The general information on it are as follows (taken from SPDR Gold website below):

Sponsor : World Gold Trust Services, LLC

Trustee : BNY Mellon Asset Servicing

Custodian : HSBC Bank Plc

Exchange Listed : SGX, NYSE, BMV, TSE & SEHK

Board Lot size : 10 shares

Trading currency : USD

Ounces of Gold: 26,509,820.12

No. of shares: 277,300,000 (as at 31/12/2016) [assuming in circulation for all the exchanges]

Gold Spot Price: US$1,152.06 (as at 31/12/2016)

Gold Measurement Method: LBMA Gold Price

Net Expense Ratio: 0.40% of the daily NAV for Sponsor Fees, payable by the Trust

Website: http://www.spdrgoldshares.com/

I have briefly skimmed through the prospectus and website and this is a relatively simple and straightforward Gold ETF. It has a trust structure which holds gold. As mentioned above, the NAV will just track the value of the gold. As and when necessarily, they will sell the gold in the vault to pay for the expenses above and whenever available, gold will be added or removed when authorized participants add new baskets to the ETF or when they are redeemed. Base on my understanding, the gold are stored in an allocated account, and only transferred to an unallocated account to facilitate gold transactions. According to bullionvault.com, allocated gold is gold owned outright by an investor and is stored, under a safekeeping or custody arrangement, in a professional bullion vault. On the other hand, unallocated gold is the property of the bank, and it is not protected from a bank’s insolvency. The number of shares provided in their website and above are freely floated in all the exchanges as confirmed in an email inquiry I sent them, but they are also not sure how many are available in SGX. I am unsure of how it actually works but I suppose there is not much impact as the number of shares I buy are quite minimal in the bigger scheme of things.

In the last week of 2016, I have bought 20 shares of SPDR gold shares at $108.39 and it has increased by approximately 1% as of the end of 2016. Previously when I started investing, I was under the influence of Warren Buffet’s believe that gold is just a piece of rock that doesn’t yield anything. However ever since starting trading in June, I have started to appreciate the value of gold and thus leading to my decision to buy the gold ETF. So here are a couple reasons why I bought some before the year end.

Rollercoaster 2016 year and uncertainty ahead

2016 has been an eventful year for the financial markets and the price of gold has risen quite a far bit throughout the year due to its image as a safe haven during uncertain times and fallen as well when risk appetite increased. With many equity indexes ending up for the year and making new record highs, it may seem odd for me to buy gold. “Be fearful when everyone is greedy and greedy when everyone is fearful”. Keeping Warren Buffet’s words in mind, this is a time to be fearful as records are broken and everyone is having a rosy picture ahead when there hasn’t been much global growth. There is quite a bit of uncertainty in terms of what Trump’s economic reform plans are, the storm brewing in Europe, the plans for Brexit. With this number of events filled with uncertainty just on the horizon, it is difficult to say that there is no problem and financial markets are doing well. As such, this is a reason to buy gold now and sell them during the crisis time when the value of it is higher. This is assuming that people still view gold as a safe haven holds true.

Inflation hedge 

There is a great deal of expectation that Trump taking office will generate inflation. There are some people that view gold is a good hedge against inflation, and others who think otherwise. There also some who say that measuring inflation using CPI is a flawed approach and gold is a good hedge against inflation if not measured using CPI. These are mixed views and I have no idea which is correct and which is not. To me, I suppose the most important thing is people’s impression and sentiment of gold. The value that people place in gold. I think that to many people, gold holds an important role as a store of value, and that is good enough for me to buy it. I may not think so, but it does not matter as I am but a small fish swimming in the huge financial ocean. I will swim with the tide. As such, if it is a store of value as people ascribe it to be, I believe that gold will be somewhat a hedge against inflation. Whether it is or not, I do not know, but as long as people’s impression of gold holds, it should be okay to hold some gold.

Appreciation of USD/SGD

The trump rally and the mention of 3 rate hikes by the Fed in 2017 has resulted in a considerable run up of USD against all the other currencies. Also, during the presidential election campaign, Trump has said that the Trans Pacific Partnership Agreement was a bad idea. If the USA is not going to ratify it, it spell big problems for the Singapore economy. Furthermore, will tepid global economic growth, Singapore is not spared from it either as it is an export dependent economy. As such, there is much headwind for the SGD and thus, buying gold which is denominated in USD presents a greater value when I sell it to receive SGD in the future.

As such, I have decided to hold them for at least a year, but I am confident that I will be able to offload them during the year at a profit. I just need to overcome a return rate of 2.5%+2%=4.5% in order to do better than the CPF return rate. The additional 2% is to account for transaction costs. If the NAV hits $150, I will sell them immediately. I believe that gold is more of a strategic move of allocating money in the short term and I still don’t think that it should be held over a long time horizon. What are your thoughts on this? Let me know what you think in the comment box below.