Umbhali Oqavile

The all-new BMW M4 CSL

noreply@blogger.com (Umbhali Oqavile) — Sat, 21 May 2022 17:36:00 +0000

The all-new BMW M4 CSL: The Legend is Reborn

To celebrate their 50th anniversary, BMW GmbH presented their fans with a special edition car based on the high-performance models. The new BMW M4 CSL combines old-school racing passion with the latest innovative technology to yield a beast of a car. Competition, Sport, Lightweight. In case you haven't figured out, that's what the CSL stands for.

The car posses the next-level power and intelligent lightweight design, model-specific chassis upgrade on the two-seater configuration. The M4 CSL share similar performance specs with the BMW M4 GT3, the M4 CSL clocked the fastest Nurburgring's Nordschleife circuit lap times for a series produced BMW car. The beast boast 3.7 seconds from 0 - 100 km/h, and 10.7 seconds sprint from 0 - 200 km/h!

BMW plan to produce a limited 1000 units of the lightweight beast, only weighing 1625 kg, giving it a power-to-weight ratio of 4.01kg/kW. Impressive. Significant amount of weight have been shed with M carbon full bucket seat, 24 kg, and extra lightweight M carbon ceramic brakes, special light alloy wheels, spring and struts, all this shedding around 21 kg.

Power mill

BMW brought back the high-revving, in-line six-cylinder engine possessing the special M TwinPower Turbo technology found in the M4 GT3 racing car. The engine has a peak torque of 650 Nm between 2750 and 5950 rpm, and have a maximum power output of 405 kW produced at 6250 rpm. These numbers are revved up by the increased in the maximum charge pressure of the two mono-scroll turbochargers from 1.7 bar to 2.1 bar. All this power is relayed to the rear wheels via an eight-speed M steptronic transmission with Drivetronic. M Traction Control function is standard in this model.

BMW claim a combined fuel consumption on 9.8 - 10.1 l/100 km.

Additional features included BMW Live Cockpit Professional that feature a fully digital screen of instrument cluster, BMW Maps, BMW Intelligent Personal Assistant, smart phone integration, wireless charging. Optional, BMW Head-Up Display with M-specific elements and the BMW Drive Recorder.

BMW South Africa hasn't hinted when we can expect this beast of a car to hit our shores but we'll keep you posted.

Simple Guide to Stock Market Investing

noreply@blogger.com (Umbhali Oqavile) — Fri, 11 Feb 2022 07:40:00 +0000

I opened a TikTok account, the plan was just to make silly videos. I thought that’s what everyone was doing there. After a while I realised that it’s actually a great learning platform, obviously depending on what you’re looking for.

I have a YouTube Channel, in my channel I cover stock market related content. I basically trade stocks using technical analysis. Some market participants subscribe to the thinking of fundamental analysis and value investing, as you can imagine it was a struggle to reach 100 subscribers.

After a few unsuccessful TikTok videos I decided to touch a topic I’m familiar with. I spoke about stock market investing. Ta da, now my videos started getting attention. The numbers of followers started to grow, up to the point where it became impossible to follow everyone back.

I learnt that there are people who are interested in stock market investing but they lack information on where to start. I started to do live videos to respond to people’s questions. That helped to a certain extent. I then decided to write an eBook that shed some light about the topic. The followers were happy about the book, and that is the reason I want to share it with you today.

The eBook is free and you can download it on Gumroad. It talks about the very basics of investing, risk associated with investing, volatility that keep people awake at nights. Since people are interested in investing for income and growth, the eBook also share how the investor can achieve this goal by either investing in shares (stocks) or exchange traded funds (ETFs). The eBook cater for an investor with a reasonable lump sum or an investor who can afford to make reasonable monthly contributions to their stock brokerage account.

If you’ve been searching for a FREE book that simplify stock market investing then this eBook is for you.

You can download the eBook, in ePub or PDF format, from Gumroad vial this link: https://trendtrader.gumroad.com/l/mxcbb

Beating the stock market

noreply@blogger.com (Umbhali Oqavile) — Sun, 12 Dec 2021 16:01:00 +0000

Trading opportunities, or should I say investing opportunities. I aspire to be a Trader and my definition of investing is "using resources to generate more resource", and for that reason I consider my trading activity to be a form of investing. But, periodically we disagree on "investing" and how it should be done. I also find myself questioning myself, is my approach the "correct" route to reach my destination, financial freedom. No doubt, trading is a good way to reach financial freedom, there's enough evidence, the question is can I do it? If I can't what other approaches can I use, and when to throw the towel.

Is it possible to pick stocks that can return 10x or stock picking is a fool's game? This is one of the topics we tackled last week following Simon Brown's poll on Moneyweb, and a tweet by the Vector Equilibrium. Simon asked how "investors" performed in 2021, some didn't do well and VE asked how bad do you have to be as a trader not to make money in this market. I had a good year (anything is possible with the few remaining trading days) but marginally above the JSE Top40. Was it worth it though? I could've just bought the JSE Top40 ETF.

I believe that limiting draw downs, exiting positions when the market is on a downtrend, will yield better results than buy-and-hold. What I can't say for sure is whether Rand cost averaging can help buy-and-holder. As an investor, I regularly fund my trading account, and stay away from securities that are on an downtrend.

I'm still gonna continue to pick stocks and manage risks, and that's the purpose of this communication. For investing purposes and to try to net 10x returns, I'll try to buy stocks just as they start to trade above the 200EMA. This setup offer the best risk-to-reward and it has served me well in the past.

African Rainbow Capital (AIL)

The stock seem to be in a healthy uptrend, we had a previous buy level around R4 when it bounced of the 40EMA (weekly time frame). This ignores everything outside the chart.

PSG Group (PSG)

PSG has managed to stay above the 200EMA and the 50EMA is now above the 200EMA. I want to see PSG above R85, last week it touched it and then pulled back. I'll be adding to my position once it clears R85.

Tsogo Sun Gaming (TSG)

Another stock on a reasonably strong uptrend, it dipped after the discovery of the omicron variants. Last week it close above the 10EMA. My opinion is that TSG is a BEE spin-off from Sun International and I prefer to own SUI rather than TSG. However, the chart show that TSG has done well compared to SUI. The chart doesn't lie.

ArcelorMittal (ACL)

Nearly 6 months consolidation, ACL finally broke above R7.50 with a descent amount of volume. The stock is already up 1000% plus from the R0.70 close above the 200EMA, there's more than enough room for growth.

Coronation Fund Managers (CML)

That's a bit disappointing, I hope it's just a simple shakeout. Will consider a long position above R57.

It's been a long year, I hope that we all did better than the JSE Top40 or ALSI. Next year is still another year to do better, or to invest in ETFs (see the video below).

Thank you for the support.

Surviving Omicron

noreply@blogger.com (Umbhali Oqavile) — Mon, 06 Dec 2021 04:47:00 +0000

Nobody saw it coming, right? Nobody saw Omicron coming, although we suspected that the government might play with the numbers to justify another lockdown. The discovery of Omicron and the subsequent ban of South Africa by Britain sent a shockwave to the JSE, and the global markets went spared either.

Fortunately I was on the road during that "Black Friday", this was a blessing in disguised because I probably would've panicked and sold some of my stocks. Some stocks were whacked and selling would've been warranted, but we're used to COVID now. Still a scourge but a scourge we've learnt to live with, so why the market panic? This is how I felt as I checked my portfolio, there was some damage but most stocks were still trading above their 50EMA. I felt that the market was overreacting and the sell-off wasn't warranted, but who can control fear. The plan was to wait for Monday open to check if the carnage continues, which would've widened my paper losses. Not that there was something I could do over the weekend, the only time I had to check the charts. Luckily, we had a super green Monday; leaders continued to lead, strong stocks recovered, even the weak stocks had a bit of a rally. Smile everyone.

The main highlight was the JSE Top40 registering a new all time high, that's a sign of a bullish market. Other global indices are still struggling, the US markets had a rough week, Cathie Wood's ARK ETFs caught hands, Docusign got clapped hard on Friday! Locally, the show must go on.

In the past few weeks we saw what mimic a rotation, the resources finding ground and retailers (and some banks) giving back some gains. I've been bearing on resources, I had no position for most part of they year and i added South32 recently (and I liked Glencore too). Gold miners led the recovery, platinum stocks are still divided with Sibanye still depressed.

Anglo-Gold Anglo (ANG)

ANG recovery began in September but it was more convincing when it closed above the 200EMA early November. We might see a Golden Cross soon, about a year later since the 50EMA was above the 200EMA. The ideal scenario is that the price continue to move up and is supported by these moving averages.

Anglo-American Platinum (AMS)

AMS has a similar setup to ANG although the price didn't stay that long below the 200EMA.

Impala Platinum (IMP)

One of the best previous performers, with fat dividends at some point. From April, IMP started struggling to move up, and fell back to the R180 region support level. It found support there with few attempts to break above the 200EMA. The recent attempt is promising and it offers an opportunity for a swing trade, targeting the previous high of R280-ish.

Capitec (CPI)

The uptrend is still intact, waiting to see if the stock will break the recent resistance level at R1900. I'm still hopeful for #CPI2000; #NPN4000 disappointed us a lot, so far Naspers is just a giant that's dragging the JSE down.

Dell Technologies (DELL)

Dell hit an all time high last Friday, and that's the reason why I'm buying it. That's all I can say using Trend Following.

Happy trading. As always, manage risk.

Different strokes for different folks: A stock market perspective

noreply@blogger.com (Umbhali Oqavile) — Mon, 27 Sep 2021 13:35:00 +0000

We all use different approaches in the markets, the good news is that there is no wrong way, just your way.

I use Systematic Trend Following to trade the markets. It is an approach that I learnt from Traders who mostly trade other securities besides stocks. It is a technical analysis approach that is based on moving averages. It works well across many instruments, at different time frames. It is a good approach for indices and commodities. Whilst it is applicable to forex and stocks, it has some limitations, especially with stocks, at least in a short time frame, below 1-day.

Even though I joined the markets with the intention of becoming an (a stock) investor, over the years I have evolved into a stock trader. At first I was just a kid who wanted to invest for his future self; unit trusts (I know hey) there and couple of stocks there. Eventually I caught the wind of "trading" and I wanted in. I realised that I needed a strategy, unlike buying index tracking unit trusts or the stocks I like (which was a horrible idea). I stumbled across many strategies, simple and complex (Elliot Wave Theory), eventually I settled for Systematic Trend Following.

Like I said, it works, but there are other things that come with stocks that are not there in indices and commodities. Sure, fundamentals are everywhere but trends persists, you just have to ride the trend till it bends. The more I trade stocks the more I realised that there are other things to consider besides the charts. Let us get this out of way before we continue; you can successfully trade stocks without using fundamental analysis, just using the chart alone.

I ignored Steinhoff's never ending Court dates; the chart was, and is still, bullish, so I jumped in only to take a -3.4R loss on the position. They had a Court date and the share price gapped down and went way below the stop level. I exited the position (and the price recovered later). If I had paid attention to the SNH trials, I would not have taken that position, I would have also missed the 100% plus return I had made earlier when it cracked above R2. I bought at R1 in Dec 2020, and before March 2021 it touched R2.70.

Steinhoff uptrend is intact, with a lot of panic attacks in between, I am now not participating in this madness. Except that Steinhoff decided to sell a bit of Pepkor at a discount, this led to a -8% share price decline, and I have a position in PPH. I decided to focus on PPH, and forget about SNH businesses that are outside South Africa; this was a minor fundamental analysis move. It has been a good run with PPH, the price is recovering from the SNH transaction, but it is possible that SNH is not done with PPH yet as they still need cash to settle some of the claims. I will add on my position once PPH share price is back above the 50EMA.

With technical analysis your focal point is price action; price and volume analysis, and you juggle your account around that. But, there are other market participants who use other approaches, the common ones being value investors. If you want to engage a value investor, as a technical analysts, you need to shutdown your brain otherwise you will engage in an endless arguments that will not take you anywhere. I believe this stem from not understanding the other persons's investing objective. I mean, try to tell an investor that you are investing by trading and see where that conversation goes. Seasoned market participants know that there is only one right side of the market, where they make money. But you still find people who value their opinions more than consistent profitability.

Value investors do make a lot of money, Warren Buffet is the prime example. Their approach is against what I try to achieve with Trend Following, granted, a handful of them understand finance, I do not. I did not touch Sasol when it was trading at R20/share but these smart people saw that it did not make sense for Sasol to trade that low. Well, R20/share was a bit extreme, there are people who bought prior that level because, they concluded that Sasol is undervalued. Those who bought, say, at R150/share had to wait for the stock to be more discounted at R20 before the down trend ended. Now they are happy at R260/share. Were they wrong to buy at that level, and stomach a large drawdown? I doubt they were wrong, they just followed their plan.

The are many stocks that they believe are undervalued and trade at a discount; from technical analysis' perspective those stocks are on a down trend. I bought Sasol when it closed above the 200EMA at R144/share, and I have been rewarded handsomely (nothing hectic, just a 78% return) and avoided a large drawdown (before R20/share).

What we, me and the value investors, missed are dividends. So far Sasol has not paid dividends. Now imagine if you used dividend yield as a stock filter, no dividend means that Sasol has zero dividend yield. You would have missed the run from R144 to R260. Brent crude look poised for a move to the $85/barrel region. Perhaps Sasol can benefit from it and push further to R350; if you stick to the dividend yield narrative you will miss that move as well, if it materialise.

Really, there is no best way to navigate the markets, there is just your way. I may not want to hold a stock that is on a down trend but the other person might find value in that stock. We all come from different schools of thought, and it is our different opinions and our actions that move the market (the word on the street is that it is smart money that move the market).

Another stock that has separated market participants to us vs them is Aveng.

Whilst I do not have a problem with anyone's approach, I am not a big fan of those who cannot back their opinions with a position. Put your money where your mouth is.

1. We are different, our approaches are different.

2. Despite the difference in our approaches, we all manage risk, however we do it: stop levels, asset allocation, diversification etc.

3. Technical analysis is a profitable approach to stock investing. Sometimes it needs a dash of fundamental analysis, which could be both beneficial & detrimental. (I sold Tsogo Sun for Sun International, the rationale was that TSG is a BEE spin-off and SUI is the main deal. TSG cracked quicker than SUI, and SUI is a bit illiquid, I ended up coming back to TSG.)

Chasing dividends? Consider buying this eBook, and check this YouTube Channel:

Beating the Stock Market: Possible if you're skilled

noreply@blogger.com (Umbhali Oqavile) — Thu, 16 Sep 2021 15:34:00 +0000

Is that even possible, yes. Can I do it, yes.

The Stock Market. The Market of Stocks

Beating the stock market is probably the main goal for every DIY investor. I mean if I was not obsessed with beating the market I would just delegate the investing task to the professionals and get whatever returns they can manage to get annually. By beating the stock market I mean generating alpha, have higher returns than the market. If the JSE All Share Index return 14% in the year, return more than 14%.

Foundation of beating the market

The first and major component is having a strategy that has a proven edge. Edge is described as the probability of one thing happening over another, in this case you need to have more profit than losses. However, your win rate does not mean much, it is the size of your wins/losses that matter, the trick is in asymmetric risk-to-reward. Your wins must dwarf your losses by a broad margin.

I use Trend Following, this approach is known to have a low win rate, a 40% win rate is common. But the trend that can last for a while, if you sit on your hands, returns in the north of 100% are common as well. An ideal risk-to-reward for me is 1:3, this require a 34% win rate to be profitable. Recent data, from the #R10KStockTrading challenge, shows that there is a 50% win rate and 1:3.2 risk-to-reward. Not bad, but I would like the ratio to be 1:5, and if possible maintain that 50% win rate.

The second, and equally important, component is discipline. Once you have a strategy all you have to do is follow it. It might be tempting to ditch the strategy when other market participants are making money and you do not. But, understand the kind market where your strategy has an edge, and if you are not in that kind of a market, learn to sit out. Cash is a position. An alternative to this is having multiple strategies; then you just have to switch to the strategy that suite the market in play.

With Trend Following you will never run out of market to trade, there is always a trending market somewhere. This is also great for diversification. Depending on your broker, you might have to have multiple trading accounts if your current broker does not offer a variety of markets.

To keep this argument within the confines of a single market e.g. JSE; if one sector is down, you trade/invest in a sector that is on an uptrend. This is the take home message for this Blog, you may stop reading at this point.

The Market of Stocks

Ah, you are still here. Great. Imagine you are in a supermarket to pick up groceries, there are lot of products you can buy. You can choose the products you need, and the products you like, but you will not buy the whole shop. The supermarket is the stock market and the products are the individual stocks listed in the market. Some of the products will sell better than others, whereas others will just sit there and become stale *Nutritional Holdings*. Your job as the buyer is to buy the best products in the shop and pay zero attention to the stale products. Your strategy should point you to the best products, and you need few best product to whip a tasty meal.

The ability to chose the best from the rest give you a chance to out perform the market. The JSE Top40 is based on market capitalisation, not on performance. Although these giants have seen great days and rewarded shareholders handsomely, they are now dragging the index down as their share prices are falling. It is better to ditch some of these stocks and find other stocks that are in an uptrend, these have a chance to do better than the Top40. If they do, just like that, you have out performed the market! Of the 300+ JSE stocks, you need about ten stocks to generate alpha. You need few large positions that will swing for the fence. The diversification argument always pop up at this point; have you ever bought too little of a great performer and wished you had bought more? Yeah that is the downside of diworsifying. If you have too many small positions your portfolio start to look like the general market, now you have a chance to under-perform.

With the exception of value investors, who live in their own fantasy world that they understand. Market participants tend to have an (emotional) attachments to certain names; if Sibanye did well in their portfolio in the past, they will want to hold onto it forever, even in its worst time. Even if Sibanye declare a fat dividend, if there are cracks in the chart, leave! There are many other stocks that can reward you again. Take your profits and go fund another position, compound your returns.

Tax, eish. This is above my pay grade. Let us use a business as an example. You will not stop generating a profit for your business because you want to reduce your tax liability. If you do not sell poor performing stocks, or even good stocks (it is okay to sell a good position if there is something better to buy), due to tax reasons, I hope in the long run it is worth it. But ke like I said, tax is not my forte. I love compounding my returns and pay the taxman what is due to him, as long as the value of my portfolio is growing. Yes, compound interest, but dude, you are not compounding negative returns either.

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The resources sector seem to be exhausted, a couple of great names are now trading below their 200 day moving average. There are exception, Exxaro, South32 and Glencore are still above this level and recently clocked 52 week highs. The other stocks will recover, eventually. In the mean time find a sector that is on an uptrend and ride the bucking bronco.

Happy trading/investing.

If you do not follow this Blog, please consider following it. And if you have not subscribed to the YouTube Channel, please consider subscribing. Your subscription means a lot.

Getting back on my feet

noreply@blogger.com (Umbhali Oqavile) — Sun, 12 Sep 2021 07:29:00 +0000

At some point I nearly quit trading, or whatever that I was doing and thought it was trading. I had a strategy, by then I had already read Trade Like a Stock Market Wizard and Trading in the Zone. In theory I was already in the path of consistent profitability but I was still not profitable.

Not trusting the System

This could be not understanding the System, but I will stick to not trusting the System despite proven results that it works. Systems, set of rules, work in certain markets, they are designed for certain markets and will not work in all markets. A Systematic Trend Following system will only work in a trending market, in a range bound market you will die by multiple cuts as you will be taking a series of stops. If you trade support and resistance levels you need a range bound market. So, the lack of trust often comes from not understanding the system and when it works. It is important to understand any system before you use it. I had a system, the JSE was in a downtrend, I could not get a lot of bullish setup, despite the fact that the resources were in a bull market (a story of another day). I was tempted to ditch it.

Mindset

Trading in the Zone does a great job in improving Traders' mindset. Granted, it is the only book on mindset I have read so far, I believe there are many other great books out there. If you do not trust the system and fail to follow it, you will make tons of mistakes some of which will be large losses. Large losses are not just detrimental to your capital but they wreck your self-confidence as well. Without self-confidence you are as good as dead. That self-confidence will not fall from the sky, it is derived from your trading data; your win rate, average wins/losses, and large wins/losses. If your system has a positive expectancy, based on your data, you then have nothing to worry about, you know that with each trade you are closer to your next big win. This will ease your mind and, hopefully, build trust on your system.

Getting Back on my Feet

Now that you have an idea on what are some of the key ingredients to consistent profitability, let us dive into the crux of the matter.

As I said, I was on the verge of giving up. I had multiple trading accounts, trading multiple products including leveraged contracts for derivatives!

One of the main challenges was not understanding leveraged CFDs. I could trade them based on technical analysis, however, I had not wrapped my mind around the technicalities of CFDs. The broker I was using kept on giving me weird prices, prices that were outside the day's trading range, and when I inquired it there were some confusing explanations. I learnt late that I was trading over-the-counter (OTC) products that had not much relationship with the actual market, the broker can actually give you whatever price they want. A solution to this is to trade direct access market (DMA) CFDs. The brokers who offer DMA CFDs usually have high commissions, compared to the OTC brokers who do not charge commissions but whack you with other fees. There is no free lunch. In addition to the unfair prices, I was also getting whacked by interest! I looked at the CFD account versus the non-leveraged account I have with EasyEquities. It dawned on me that I probably need to move away from CFD trading. I did, for a while.

A good friend was doing well in the forex market. He uses Elliot Wave Theory; I was impressed with his results and I wanted to ask him to share his signals, he had already indicated that he does not mind doing so. Just before I asked him, I asked myself if I would ever be good at trading once I rely on his signals? I wanted to give it one last shot before I ask him.

I already had a plan, I just had to stick to it, and find the right market for it. I continued to trade stocks using EasyEquities as there was not much challenge there, just inconsistency. I went back to CFDs, but this time I trade only one instrument, the S&P500 futures. I had to stick to sound risk management; buy when the conditions are right, and sell when the market is bearish. A month later I was happy with the results, it was a bull market so making money was easy and I only traded one direction. This exercise helped me appreciate the system, it improved my risk management, and helped me with trading mindset. I now knew that it is possible to make money from the market.

Also, I was working hard to just break even after a minus 20% drawdown. The JSE was changing, there were some great setups from the retail, banks, and property sectors. I had also gotten over the thinking that made me miss the resources bull run. Basically, I was now at the right place, at a right time, and with the right state of mind. The profits from SPY and brent crude (I broke the rules and started trading other futures markets, they all met the systems rules), and ending 2020 with a marginal gain on the EasyEquities portfolio built my confidence as a Trader. Since then I never doubted myself again, I now know that I am capable. I will forever be grateful for the role that good friend played indirectly in my life; his willingness to help and me challenging myself to give it just one last shot really helped change my life as Trader.

I now try to trade one or two instruments when I am testing a new system, this is also useful if you have limited capital. I also now want few large positions that make an impact in my portfolio. I do not worry much about diversification, remember according to Warren Buffet diversification is for the know nothing investor. If you are obsessed with diversification, just trade one or two ETFs, they are already diversified.

Take home message

1. Understand the system; know when it works and when it does not.

2. Understand the market and the instruments you are trading.

3. Never stop learning. Get support, be part of a trading circle, befriend other Traders and have good relationship with them. You will have different approaches, stick to your plan but be open to other ideas.

4. Do not quit. The end is sweet, it is worth the effort.

If you have not done so, please subscribe to my YouTube Channel.

Specialise

noreply@blogger.com (Umbhali Oqavile) — Fri, 13 Aug 2021 20:40:00 +0000

I am tempted to say this is a follow up Blog from the Diworsification Blog. Perhaps it is closely related.

We are often tempted to do everything at once, whilst possible, it can yield below par results. I think I read from one of Nassim Taleb's books that the reason why Professors have average salaries is because they are generalist, they do not specialise. Conversely, neurosurgeons rake the dough, few can do what they do. I have an opinion on this argument; generalisation is good, it allows you to have a conversation with anyone about anything, the limitation of course is that you know little about anything. On the other hand, whilst specialisation is good, it can actually narrow your thinking. If I know more, a lot more about Chemistry, I may end up not knowing about Messi's departure from FC Barcelona to PSG; this is not necessarily a big deal but it does present me as an ignorant and oblivious person. I digress.

Warren Buffett and Bitcoin

Warren Buffett often says that he does not invest in something he does not (fully) understand. This approach has served him well in his career, I wonder how he feel about the missed opportunity on Bitcoin. Bitcoin has had a great run, a $1 billion investment could have set him really well, I wonder if he ever think about that.

I now trade cryptocurrencies, or whatever formal term is. I do not prefer a certain coin, based on its underlying technology or intended use, I just buy what is on an uptrend. My watchlist has Bitcoin, Ripple, Litecoin, and Etherium. I currently hold ETH & LTC; when most coins fell below the 200EMA, ETH held well. After it closed below that level, it was the first coin to recover and I bought on the close above the level. Eventually the other coins started to recover as well. I found myself wanting to buy these coins at these levels, a low risk entry level that offer significant asymmetric risk-to-reward. For diversification it is probably a good move, however, we have already discussed the pitfalls of diworsification. So I chose to stick with ETH and forgo the other coins. I realised that it will be easy to track one coin, also ETH had moved well past +3R return but still far from the short term target, the previous high. Once the target is reached I may consider covering the position and looking at another coin that promises good returns at low risk.

The Apple of my eye

In addition to EasyEquities USD account, I trade US stocks using eToro. So much for the plural when I actually trade one stock, Apple. Prior that I had few stocks; Cisco Systems, Plains GP, and have traded other stocks like Bank of America among others. I had to cut all the other stocks so I can focus on one company. The move was fueled by the fact that I have limited capital in that account, stretching it between different companies was not going to be productive. I have already published a video on how to invest when you have limited capital, I must walk the talk. So far the position is profitable, and it looks like it will be like that for some time, until it bends, I will be receiving dividends from it. Apple is near an overhead resistance, the earnings were okay, I expect the share price to break above this level.

Specialise. Focus.

The #R10KChallenge and the drive to reduce diworsification have made me to rethink my approach. I still have over 20 stocks in the ZAR account, I am still trimming some, closing poor performers, trying not to add new stocks. Eventually I will reach a level where I can buy few large positions, I will still manage to diversify. The trade off is the regular dividend payments; with few stocks, I will not be receiving dividends every week. The upside is that if and when dividends come, it will be fat dividends! It will also be much easier to compound my investments as the gains will compound relatively quicker.

Whilst I will not be investing in companies I understand like the Oracle of Omaha, I will still take trades without bias, up to the point where I run out of free cash. I will hold those positions until either the stop or take profit level is hit.

Avoid Diworsification

noreply@blogger.com (Umbhali Oqavile) — Wed, 21 Jul 2021 11:38:00 +0000

Diversification is key

This is the conventional wisdom, spread your investments to reduce risk. No doubt, it is a proven working formula. Few people are interested in placing all their eggs in one basket. But, Warren Buffett says those who diversify has no clue what they are doing. I am not in a position to argue with the Oracle of Omaha, he has made billions of dollars doing what he know.

Diworsification

Too much of something is a problem, just as too much diversification can defeat the purpose of diversification. Obviously, you are chasing the noble goal of minimising risk, while you are it, you are thinning out your investments! In the process, the risk and the returns just cancel each other out, making the whole process a pointless exercise.

Not all is lost though, if you want to own too many stocks, just buy an ETF Bro. An exchange traded fund (ETF) is a diversified tradable security, some of the ETFs are even less volatile than individual stocks. Even there, be careful not to buy overlapping ETFs, always remember to check the top 10 holdings of each ETF you buy. Okay, I am not here to talk about ETFs. The idea of this Blog came as I struggled to shed off stocks in my portfolio. It is over-diversified, at some point I had 35 stocks, I should have just bought the Top40 ETF. I am now sitting at 21 stocks, I shed 4 stocks this morning, all good stocks (in the money).

But why cut profitable stocks? Well, some were near 1% of the total holding, even if they doubled, the effect would have been insignificant. Eish. Yeah, it sucks and there is no guarantee that the stocks I topped with the capital will perform better than the stocks I sold.

How did I get here?

I use a cool trick called position sizing to manage risk. But I just effed it up. Instead of buying the large positions I was supposed to buy, I chose to play it safe and bought smaller positions. Eventually all these small positions became too many small positions. The painful part is that most of these positions were up over 30%, not a large figure but we are talking stocks here, few stocks double up in 12 months. It is these returns that made me to hold onto these stocks, but in the end I accepted that I was working backwards.

Also, I sell a portion of the position whenever the stock advance by a certain amount, in line with my strategy. Once I locked in some profits I used that capital to buy new small positions. I did not wait until I had enough capital to buy a large positions.

Solution

I need to remind myself that I use position sizing to manage risk. I must accept that I will miss many good setups as the capital will be tied in few large positions. But, I will be rewarded handsomely by those stocks that will deliver above average returns! I have already witnessed this from other Traders, I have also witnessed it in my eToro account. I have a 75% Apple position on eToro that does the heavy lifting in the portfolio. In the end I must decide if I want to own a lot of companies or if I want to make money, as and when the market allows. I choose money! Currently the largest position on the EasyEquities account is 14% of the portfolio, and the smallest is none other than Aveng (1.5%), but this is a speculative position.

Less is more. "Put all your eggs in one basket, and watch the basket."

Aveng Stock Analysis: Worth the cents?

noreply@blogger.com (Umbhali Oqavile) — Fri, 16 Jul 2021 15:14:00 +0000

Is Aveng a good investment?

I did something bad, I broke my rules and dived into Aveng's financial statements. It was for the Channel's viewers and subscribers, so it was done out of altruism. I do not do fundamental analysis, although what I did cannot be fully described as fundamental analysis. Note that I have already made a video of Aveng analysis using technical analysis. I did this to help the people who are supporting the YouTube Channel; most of those people are interested in Aveng, some of them know why whereas others do not, they bought the hype.

What is in the financials?

I used the company's 2021 interim results for the analysis. I then compared those with their most recent trading statement. Below is a summary of the interim results.

As you can see, it is green everywhere. I love the growth in revenue, it means that there is money coming into the business bank accounts. Another great thing is the net cash, I do not know what it means but it good to see the significant change; from a loss of R552 million to a positive figure of R579 million. Also, there is a positive headline earnings, from a loss of 1.1 cents to a positive 0.6 cents. Overall great results.

The elephant in the room of course is the debt burden. The R 1 billion Rights Offer helped to shave some debt, this led to the subsequent R100 million Rights Offer that was concluded in June. Plus the company is still sitting in a pile of assets that it is yet to dispose, and what is the story of the liabilities they want to dispose, if you have an answer leave it in the comments below.

I am not a Value Investor, in case you did not know, but I have paged through The Intelligent Investor. One of the things I learnt there and never forgot is the net working capital.

Net working capital = current assets - current liabilites

Current assets is anything that a company can convert into cash within 12 months. Current liabilities is those liabilities that are due within 12 months. A positive net working capital means that the business is healthy, it is the opposite for a negative value. In Aveng's case, you get a negative figure if you do the math. The picture changes if you take the assets & liabilities that are held for disposal, then you get a marginal R 263 million. So far these are good sets of results.

Net Asset Value

Well, I have no idea what this means in but humour me nonetheless. In my limited thinking, this is the fair value of the stock, theoretically what should be the trading price. I believe that if you ask different Analyst you will get a different NAV for Aveng, unless I am confusing NAV to intrinsic value. Anyway, Aveng already mentions that the share price is significantly below the NAV, at the time of reporting the share price was 2 cents/share. They reported a NAV of 10.8 cents. I will just use their figure. This implies that Aveng is significantly undervalued, except that it is now trading between 4 & 5 cents, but still undervalued.

Whilst this is all positive, I still feel sorry for those people who held the stock only to see it shave off half the market capitalisation. Based on these figures, assuming they are not engineered numbers, it is worthwhile to park a few cents in the stock for as long as it is selling below 10 cents, anything above 11 cent is a premium. However, keep in mind that the risk of delisting will always be there!

Where to from here?

There is not much that we find in the latest trading statement. Aveng shaved off some debts, still have assets & liabilities to dispose. Few jobs have been added on the order book. Ideally I want to see the company increasing revenue, earnings, cash in hand, and obviously reducing debt. As a shareholder, I am looking forward to their 2021 final results.

Worth it?

I cannot answer that for you but the technicals look good and I already have a speculative position on the stock.

Disclaimer: This is an opinion piece, it should not be interpreted as financial advice.

Technical Analysis in stock investing: its limitations

noreply@blogger.com (Umbhali Oqavile) — Wed, 07 Jul 2021 04:16:00 +0000

Limitations of Technical Analysis

noreply@blogger.com (Umbhali Oqavile) — Fri, 02 Jul 2021 09:55:00 +0000

This was supposed to be a Facebook Post, but who does that when they have not published anything in days.

Today I want to touch on some limitations of using technical analysis exclusively for trading or investing. I have been caught off guard many times, thanks to risk management, I manage to swim out of those situations.

This list is by no means exhaustive, just what I can remember and what I have experienced.

You can buy a company that is about to delist. I believe that insider trading is rife, and you cannot convince me otherwise. Typically a company can make an offer to buyout existing shareholders, more often than not at a higher price than the trading price. Some insiders may want to load up, the retail trader will start to see irregular trade volumes, and jump in if it fits their strategy. The price can go up, making really good profit. Until one day you wake up to a letter telling you that your days as the company shareholder are numbered. Well, if the offer is higher than my purchase price, it is still good for me. Profit is profit, beke le beke.
Buying the same company. Briefly, you get a buy signal for, for the sake of simplicity, holding group, jiki jiki you get a signal for the subsidiary. Now you end up with the same thing. I have done it with Remgro, which partly owns FirstRand and Distell Group. Yes, I have all three and they are firing from all barrels!
Buy a company that cannot afford to pay dividends. I use Market Phases to buy stocks, any company that is coming out of the Accumulation Phases is less likely to pay a dividend. The company is still trying to find its feet, fixing its balance sheet and probably shaving some debt. Do not expect dividends from this stock. What you are more likely to get is capital appreciation. More people are now interested in this stock, so there is a demand for the stock, which according Economics 101, the share price will rise. Whilst I love dividends, I love capital appreciation more, that is how I make profits, unless I have invested for income, in that case I will buy a relevant product like a Real Estate Investment Trust (REITs).

The solution to this is not to discard Technical Analysis or to incorporate Fundamental Analysis into your strategy. The strategy works, it just has limitations, limitations you are aware of. Every strategy has its limitations and hoping from one strategy to the other will not help you.

In Technical Analysis I trust.

Technical Insight_002

noreply@blogger.com (Umbhali Oqavile) — Sun, 20 Jun 2021 16:58:00 +0000

Few interesting charts to kick off the trading week.

Anglo American Platinum (AMS)

The stock is back near R1500/share, an area of value. Although the stock is trading below its 200EMA, it may find support here, especially if there is still commodity appetite in the markets.

BHP Group PLC (BHP)

Another mining giant falling on its knees. The stock broke below the 200EMA, and the head-and-shoulder neckline, a not so attractive confluence. R365-ish is the next potential support.

DRD Gold (DRD)

In my defense, gold attempted a short-lived trend reversal, and I dived in to buy the dip. As you can see, it ended in tears. I am now bearing on gold, and most mining stocks after I exited my Sibanye position.

Pan African Resources (PAN)

Let us wrap up the horrible resources stocks with PAN. Another failed trade. You do not need any more convincing that at the moment gold stocks are a no go zone. Sure, most of these companies have loads of cash, they will afford to pay dividends. But, do you want to shed 10-20% of your capital for few Rands in return?

PSG Group (PSG)

On the positive side of life there is PSG. Do not have a position yet but I am keeping an eye on this stock. It may be a good buy in the near future.

Sun International Ltd (SUI)

The SUI trade is still shooting from all barrels. Tsogo Sun is doing great as well, to me it is more of a BEE company so I am of the opinion that its operation are limited to South Africa whereas SUI is "the largest gambling company in the southern hemisphere." Technicals first but I do think about fundamentals every once in a while.

Okay, enough charts for today. Have you seen my crazy plan? See below.

Crypto Analysis and Forecast

noreply@blogger.com (Umbhali Oqavile) — Mon, 14 Jun 2021 10:43:00 +0000

I have been following cryptocurrencies for a while now, and I own a few coins through VALR. VALR is one of the South Africa's cryptocurrency brokers.

Since Bitcoin broke down I have been generally bearish on crypto. However, I had a buy signal for Litecoin and XRP; I have since exited the Litecoin position, with a tiny loss. Let us look at what to expect from the cryptocurrency space.

Bitcoin:

$BTC moved up from the near $30 000 support level back to the near $40 000 resistance level. Note that the 200EMA is now facing downward and the 50EMA is approaching it. If we see a death-cross here we can then expect the price to go back to the support level. However, if there are enough buyers to push the price beyond the resistance level, then we might see Bitcoin go back to the previous high of $60 000.

Dogecoin:

DOGE just broke below the 50EMA. It is common that price can retest the 200EMA level once it breaks down the 50EMA, we saw it with Bitcoin. If that happens then we might see DOGE go down by -45% at current price level. Unless you have a stomach to hold that drawdown, it may be prudent to cover your long position until DOGE is back above the 50EMA, or find support at the 200EMA. For now, I do not have a position on DOGE.

Ripple:

XRP is my only open cryptocurrency position. So far it has not triggered the stop loss, the price is still above the resistance level. But, with most cryptocurrencies in the shambles, I am keeping an eye on this position in case it goes south.

Trade level:

Entry: 0.854

Stop: 0.63

Target: 1.95

Here we have a potential of a 1:5 risk-to-reward. I am are targeting the all time high of XRP.

Let me wrap it here for today. If you do not have a cryptocurrency account, open one with VALR.

Comments, suggestions, leave them below.

Happy trading, always manage risk.

What's the actual price of that IPO?

noreply@blogger.com (Umbhali Oqavile) — Sat, 12 Jun 2021 09:15:00 +0000

Investors are always searching for investing opportunities, both in publicly listed and private companies. There are interesting private companies, except that it is a challenge to get a piece of them. So, you have to wait for the Initial Public Offering (IPO). Companies sell shares to the public to raise funds; they use these funds to grow the business, or to pay debt, it is a more complicated than this but you get the picture.

A handful of smart people work collectively to get the company listed in the securities exchange. This often include company founders, management, investment bankers, and other advisors. These people disagree on a number of things but the focal point of this Blog is the value of the business; from a trading perspective, the listing price.

The founders want a fair price for their business. They will not settle for anything less that what they perceive to be the value of their brainchild. They will fight tooth and nail to get the highest possible price.
Investment bankers want to seal the deal and get their fat paycheck. They will push founders to accept reasonable value just to close the deal.

Obviously the numbers do not fall from the sky, they are based on valuations. Subjective valuations; what is the price of goodwill anyway? Eventually they come up with a number, and they notify the public about the listing price.

Cue madness. Other smart guys start number crunching to assess if the proposed number is indeed a fair price. Again, arguments ensue but who cares? The founders have already calculated their loot and chose the colour of their Lamborghini, I will buy an Audi R8 when my company go public. Investment bankers are ready with their invoice.
It is the retail investor who is about to be shafted. Sharp investors will have done their due diligence, but everything is subjective so they are mostly wrong despite their efforts. Lazy investors are ready to buy the hype, they rarely care about the numbers, they just want to own the good company.

I used to like IPOs until I read Shoe Dog by Phil Knight (free on Amazon with Audible Plus trial, check the banner on the left hand side of this Blog to sign up). Phil disagreed with the evaluators on Nike's listing price. He was adamant that Nike is worth at least $22/share; he got his price, and just like that he was a millionaire, he deserved it, he built a great business!
Ever since I read this book I stopped buying IPOs, or anything that has just started trading like SAB Zenzele Kabili shares, check what #fintwit is saying about it below. I cannot guesstimate the fair value of the company or the fair price of the stock. I also know that going public is an exit strategy for founders, that is where they make most money by selling some of their equity. As the new investor you are just starting your journey with the company and hoping for great times ahead.

The share structure is often complex, the founders can sell a large chuck of their equity but still retain control through complex share structure. But ke, I trade stocks for other reasons not to control publicly listed companies. I now wait for the market, buyers and sellers, to vote on the fair share price. I also want the stock to have a bit of a trading history so I can look at price action and plan my trade.

Are IPOs bad?

No, you need to understand what are they and their implications, and if buying IPO is part of your investing/trading, by all means, do it. Be aware that the trading price can be out of sync with the listing price or the fair value, SAB Zenzele Kabili quadrupled in under two weeks, but other IPOs have tanked few minutes after listing. Anything is possible with IPOs!
Always do your due diligence before investing in anything.

Multibagger Stocks: How to miss them.

noreply@blogger.com (Umbhali Oqavile) — Thu, 10 Jun 2021 15:54:00 +0000

I find myself wondering if I will ever have a multibagger in my portfolio. Granted, I have had trades returning north of 100%, but I have never went past 200% in a single trade.

Trade. There lies in my biggest enemy; I trade stocks and I am not ashamed of it. Trading, or price action investing, is different to the conventional way of investing, value investing. I do not dive into the company financial statements to try and assess if the company is trading at the fair value. I look at the price action of the stock, make my mind if the risk is worth the potential reward, if it does, I buy few shares of the company.

Some trades do well, multiple R returns, some beyond 50% return. Sure, 50% is not that great but if you look at it from risk management's perspective, it is a lot, assuming you risk -10% on that position. See, a 1:5 risk-to-reward is a big deal, unlike 1:2. In this case, you do not look at stock with the intention to double your money. You determine how much you are willing to lose, then determine how much you want in return for the risk you are taking, taking into account your trading record. Thus, 1:3, or more, is really worth it. But multibaggers?

Well, in a strong trending market anything is possible. A 1:3 risk-to-reward trade can turn into a +11R return trade, I have done it but the stock only went up by 48% (my risk was a tight -4.4% 😊). But, can the stock go beyond 100% from my entry point, yes; can I have a 100% return in that trade, possible.

Market move in ebb and flows, major moves and corrections in between. During the correction I can buy more of the stock, which changes the average buy price, and as you have guessed it, the return. Also, I can add on breakouts, or anytime a sign of a strong uptrend happens, all these buys affect my average buy price and returns. Combine this with my goal of limiting drawdowns ( a topic I discuss a lot with one of the OGs in trading), say a stock is up 60%, then it pull backs, I am not going to sit and wait for the stock to resume an uptrend. In fact, every trend reversal begins as "just a healthy pull back". If the stock does recover, I can go back and buy it again, starting from 0% return. Now you see why I it is almost impossible for me to bag multibaggers.

I can cry about it, or I can just keep on sticking to the same rules that grew my account without chasing these elusive multibaggers. I do not buy stocks with the intention of picking stocks that will become multibaggers, although I would like to bag a few every once in a while, that is if the market allow.

Understand your strategy, assess regularly if it still fits your investing objectives, and tweak it wherever it needs tweaking. Trading is continuous improvement game.

How not to blow up a trading account

noreply@blogger.com (Umbhali Oqavile) — Wed, 12 May 2021 15:07:00 +0000

If you have traded LEVERAGED DERIVATIVES and blew you account, it was your fault and a combination of other factors.

Derivatives, weapons of mass destruction

If you trade derivatives, if the market moves against you then you are going to lose, period. Derivatives are exotic financial instruments that track underlying assets. Share derivatives, or contract for derivatives (CFDs) as they are widely known, track the underlying shares. So, if you trade these you do not have the luxury of keeping your valueless shares if the market moves against you. The broker will close the trade and debit the value of the shares you lost. If you buy and OWN shares, and the share price drops, you will always own your shares even though their value will have dropped.

You can trade actual shares, if you sell lower you will just lose the difference between the buy price and sell price, the opposite of making a profit from your trades.

Are derivatives bad? Not really, if you understand them. Familiarise yourself with CFDs first before opening a CFD account, ensure that you understand how they work, and how you can protect your capital. Brokers states that over 70% of derivative traders lose their capital, do you think you can be part of the 30% that is profitable?

Leverage

Leverage? This is what accelerate your account to blow up. Trading and investing require serious risk management; risk management on derivatives is just as simple as trading non-leveraged account, except that there's no point trading derivatives without leverage.

Leverage means amplifying your capital; the broker lends you the other half, for a 50% margin requirement. As long as you hold the position the broker charges, and debit, interest on your account on a daily basis, the interest rate is declared upfront.

If you over-leverage your account, then you'll blow up. Share CFDs have an average requirement of 20%, making them 1:5 leverage, the broker lend you the 80%. Forex can have as much as 1:1000 leverage, there it's much easy to blow up, a few pips against you, you are toast. But leverage is what makes forex trading attractive to traders who have limited capital; this allow them to place a 0.01 EURUSD trade for as little as $1 margin.

The problem of course is that the new trader will want to open many 0.01 positions, if you open ten of those why don't you just open a 0.1 lot trade? Once your free margin approaches zero, know that you've now bit more than what you can chew, and your account is about to blow up.

Solution to your problems

The assumption is that you know how to trade and you have a trading system in place, therefore your only challenges are derivatives and over-leverage.

Consider trading the actual asset, not the derivatives. This will eliminate any broker's effects; yes some brokers play around with the prices. With actual asset you will pay the full price, no leverage. This saves you in the event that your analysis is incorrect and you still want to hold your position a bit longer, although I don't recommend it.
Reduce your leverage. If you trade stocks, 1:5 is not bad but if you cannot manage with it, reduce it to 1:2; this will mean you will put in 50% of the share price to hold your position. For forex, try 1:200; this will be a challenge in the beginning but it will save your account.
Reduce exposure. For shares simply trade an ETF instead of individual shares, brokers like iqOption allow leveraged ETF trading, remember do not exceed 1:5 leverage!

Mentorship in Trading

noreply@blogger.com (Umbhali Oqavile) — Wed, 12 May 2021 11:42:00 +0000

How many experienced Traders or Investors do you have in your circle of friends? People who use their experience and knowledge to help you grow in the path you have chosen. Basically, I am asking if you have the necessary support to achieve your market aspirations?

Not that you will not make it on your own; they might make the learning curve short & less steep for you. In hard times, you may have someone who have walked the journey before giving you an ear, and probably a tried and tested solution.

We know Warren Buffett and all other great traders and investors' values, but we do not have the privilege to talk to them. You may know that you must buy low sell higher, or do dollar cost averaging or buying when there is blood on the street. But how do you keep on buying when it is your own blood in those streets?

I never knew that I needed support until I had it, it made my life easy.

We are in the business of making money, we are not just winging it hoping that we will make it. If, say you want to return 20% this year, where is this number coming from, what are you going to do to get this number, is your skill & experience in line with your expectations?

Before you pull up any number, it must be backed with your previous performance, your skills, the securities you are trading and risk thereof. We cannot let Lady Luck dictate our trading outcomes; whilst we may rely on luck, we cannot just leave everything to it.

Find people who share similar interests to yours, those who use the same strategy as yours, and those who have more experience on the market than you. Buy trading or investing books, invest time learning more about the market. I did most of my learning on YouTube, but I also spent a fair amount of money on books, I am an avid reader after-all. Engage like minded people on social media, follow other traders on Twitter, Facebook and Instagram. You are not going to get more information about the market from talking with your friends who are into performance cars; find fit-for-purpose discussions. And have friends to talk about other things on the side, the market is one of the many exciting things happening in your life.

We have our in-house mentorship programme, talk to us to learn more about it.

Technical Insight_001

noreply@blogger.com (Umbhali Oqavile) — Thu, 06 May 2021 11:31:00 +0000

Some charts of interests this week. Nothing much, just the same boring, profitable technical analysis that revolves around the price has reached this level blah blah blah. Stories are cute, but ngifuna imali mina hhay izitori.

Alviva (AVV)

I have held this stock since it broke above the 200 day exponential moving average in October 2020; there was a bit of a pull back, hitting my stop loss. But I went back in when it closed above the level again, a move that so far has given me a net 39% return (after the initial ~10% loss).

The stock is currently trading near a potential resistance level. If it breaks above R13.40, there is a possibility that it can test R20 and probably move further up to reach the previous high of R24.00

Invicta (IVT)

Second time is a charm, right? Another stock that I bought when it broke above the 200EMA, the trade move as anticipated before (briefly) going nowhere. I needed cash to buy something that is moving, so I covered my position. IVT has managed to stay above the 50EMA, signalling a healthy uptrend. After finding support on the previous R20-ish resistance, I dived in again. Mid-term target is R24 with a full target at R30.

Stadio (SDO)

It hurts to talk about this one. I covered Stadio earlier this year, but funds we nowhere to be seen to take a position. The stock went up by over 80% without me, it hurts doesn't? Yeah, story of my life, but if a stock can go up by 100%, there is a room for another 100% move, which is why I'm buying the stock now. I am not hopeful, there is a solid uptrend and I have my stop loss just in case things goes south.

Few more stocks:

Which stocks are you buying now? Ever missed a stock, how did you feel about that incident? Share your experience in the comments.

Trend Trader | Top Stock to Trade Today | Stock Market Analysis | EasyEq...

noreply@blogger.com (Umbhali Oqavile) — Thu, 06 May 2021 06:15:00 +0000

Trend Trader | Realty Income Stock Analysis | Buy this stock to receive ...

noreply@blogger.com (Umbhali Oqavile) — Tue, 04 May 2021 13:28:00 +0000

Gold trade idea

noreply@blogger.com (Umbhali Oqavile) — Mon, 03 May 2021 14:19:00 +0000

I have been keeping an eye on the gold price. As I mentioned before, patience is needed to have positive results in trading. Today gold reached the level I was waiting for, however the signal is not confirmed yet. I am waiting for the price to close above the 200EMA, then I will buy gold. I am targeting the previous high at $2100/ounce. At this level, the risk to reward is justified.

Always practice risk management when trading derivatives; to minimise risk, it is better to buy a gold price tracking ETF or ETN.

Trading System: A Beginners Guide

noreply@blogger.com (Umbhali Oqavile) — Fri, 30 Apr 2021 11:33:00 +0000

To succeed in the market you need to have a trading (or investing) system.

System = A set of rules

What to buy
How much to buy
When to exit; profitable and losing trades

Design a system that is in line with your personality, and time allocation for trading purposes. Don't design a system that uses H1 time-frame when you have other commitments during trading hours. Don't design a fundamental analysis system when you don't understand the information presented in financial statements. Can't read a chart, forget about technical analysis based systems!

After you've designed your system, it's time to test it (or back test it if you're an advanced Trader), you can use a demo account but I prefer to use a small, reasonable, real cash account (you can't back test emotions on a demo account).

If the system is profitable, and you're emotionally ready to trade it, use it in 10, 50, and 100 trades. Check the numbers.

Win rate, percentage of winners vs losers
Win size

Ideally you want a system that has over 50% win rate. However, if your win size is large; your win size dwarfs the losses, you can get away with a system that has less than 50% win rate. With a risk to reward of 1:3 you only need a 33% win rate.

A simply as that, you now have a profitable system. Use it with discipline, sit and watch your equity curve grow. There will be draw downs, part of the game, you can't run away from them. But you won't be fazed as you know your system has an edge. Each loss brings you closer to your large win which will cover most of your tiny losses.

Still confuses? Worry not, I have created a simple, easy to follow Systematic Trend Following Cheat Sheet that includes how to videos. But if you don't need the videos, you can just get the Cheat Sheet only.

Did this Blog help, hit us in the comments.

To exit or not to exit. A Risk Management Lesson

noreply@blogger.com (Umbhali Oqavile) — Fri, 30 Apr 2021 03:51:00 +0000

You buy a stock, for whatever reason. Then it starts to trade lower and lower, you're now not sure if you should exit or not. It doesn't matter whether the buy decision was good or bad, the assumption is that you had conviction on the buy.

You have two option; exit or keep the position. I don't recommend changing from being a Trader to being a (value) Investor at this point.

Exit

You take a loss, hopefully a small loss (< 2% of your total portfolio, position sizing) and move on with your life. You could be wrong and the market start to reverse, but heck you'll sleep better from now on. Your account will also recover quicker.

Stay

The market continue to fall, that initial -10% is now -35%. You don't want to exit now because the loss is bigger. You continue to stay, down another 10%. You can no longer handle the loss emotionally, and there's an amateur who keeps on saying "you only lose when you sell."

One day your emotions will be too strong for you and you'll be forced to exit at with a large loss. See, there's no point sticking with a losing position.

It may not recover.
Even if it recovers, it'll take time. During that time you'll miss a lot of opportunities because your capital is tied in a losing position. Opportunity cost.

Take home message

Predetermine your exit levels, for profits and losses. Plan ahead.
Exit when the exit level is hit, don't second guess it. It's easy to turn a winner into a loss, you can turn a small loss into a large loss.
You don't have to be right, or try to prove that you're right and the market is wrong. There's only one side of the market, the right side. You're there to make money not to stroke your ego.

Enjoyed the Blog, feel free to share it.

Surving a 20% Drawdown

noreply@blogger.com (Umbhali Oqavile) — Thu, 29 Apr 2021 17:14:00 +0000

It's been over a year since the stock market humbled me but I still get PTSD thinking about that incident. Once again, let me share my story.

The emergence of Coronavirus disease (COVID-19) interrupted life as we know it. Equally, the securities markets were affected. In the beginning of 2020, South Africa was yet to feel the wrath of the virus, but on February 24 the dominoes started to fall in the Johannesburg Security Exchange (JSE).

As a Systematic Trend Follower I have an obligation to adhere to the set parameters, particularly stop levels, and to bend with the market. Majority of my positions started to hit stop losses, I sold ALL my shares in order to either take a loss or lock in whatever small profit I had. In the end I was down -20%, phew.

I stayed in cash position for 2 weeks before I started getting buy signals again. Despite the signals, the risk of ruin table paints a grim picture. In addition to working twice as much to break-even, trading costs also begin to be significant even if you use a cost-effective broker like EasyEquities. Six months later I broke-even, the account was back to where it was before the COVID-market meltdown. There was a glimmer of hope, I knew that I was now ready to get some profits, unless Mother Nature had other plans. I closed the year marginally up by 5%.

Lessons from this experience:

Always stick to the plan. When the stop is hit, get out, don't think twice. As you can see the market recovered weeks later, some of my stocks never recovered. It's difficult to know which stocks will recover and which will struggle.
Risk management is key for survival. Never risk more than 2% equity on a single trade, total portfolio risk should be below 15%. Seven stocks are enough to give you descent returns whilst minimising draw down. Anything greater than 20% portfolio risk will give you sleepless nights.
The ability to end the year with a tiny profit made me realise that I'm now a tried and tested Trader. It reinforced my belief in Systematic Trend Following, the advantage of being a disciplined Trader, and I saw how easy it is to return 30% in a year.
I don't want to experience this ever again!

What's your worst experience in the market, share in the comments below.