Saturday, May 2, 2009


"If you find yourself in a deep hole, the first thing to do is to stop digging"

Account 2 suffered some heavy paper losses, the equity balance as at 1st May is S$262,553.00. I am now holding long 2 Simsci/short 3 Tw and long 5 topix/short 10 Nikkei spread. Losses to date is S$4,315.00. The equity has dropped almost S$10,000 from last week since holding the positions. It's a good stress test for the account as we go for higher returns with higher risk following closely behind.

With Japan having the Golden Week holidays, the Japanese market will be closed for 3 days from Monday till Wednesday.

The automated Pat's system trading platform for the Topix/Nikkei spread failed twice last week resulting in some additional losses for the account. It's a cheap platform, we are paying peanuts and so getting monkeys. Since the account is not that active, we will have to bear with it, be extra careful and vigilant after putting in the orders.

The Taiwan market surged more than 10% last week on news that Chinese companies can now invest on the island. The big move came on Wednesday night when the Tw Futures Index was pushed all the way to 1st limit up of 7% which caught most traders off guard as major world markets were only up slightly. Investors started pouring in on Thursday on the bullish news and shorties start covering their positions pushing the Index much higher.

As I have written earlier, the Taiwan market is a gangster market that defies all logic with good daily volatility and loved by most traders. I watched the news about the signing ceremony on cross straits ties between China and Taiwan on Sunday evening. I was rather bullish on Monday with the news and traded mostly on the long side but was caught when the market was sold down due to the swine flu.

I was told by Robert that there was a big sell order on Wednesday evening of about 600 contracts before the big move up leading to most traders believing that the market is going to go down. When the buying started slowly, most were caught off guard and started selling on the way up as the rest of the world market remains in a tight range. Robert was caught and he told me there was no news he is aware of. It's a great deception to catch the shorties.

Once the buyers accumulated enough sizable positions, they started to buy aggressively leading to stop losses and higher prices. Stubborn sellers who averaged up their positions faces huge losses. With the buyers in control, they can play the game by occasionally selling down the market to take profit to mislead those who think that the market is correcting before buying up again to hit the 2nd limit up. It's a dirty game and I can only speculate that the Taiwanese government might be the operator behind it.

A trader in our arcade was caught badly on Wednesday night and average up on Thursday morning, he could have taken a small profit when the market corrected after the opening. Unfortunately, he did not cover his position and the market went up again furiously even as most of us thought that it's already been more than overdone. This trader busted his account with more than S$200,000.00 losses on that day as he was forced to cover his position. I felt sorry for him.

I suffered similar losses as a floor trader in 1998, as I average shorting the Nikkei until it went limit up. It was the biggest loss in my trading career. It's really painful and I didn't sleep well for the next 3 nights asking myself, WHY? Even after more than 10 years as a floor trader, I still make such stupid mistake and got carried away. Being human, I am are still vulnerable to make mistakes, the only thing is minimising the damage and having faith in my ability to recover it back.

Lesson here is never average on bad trades and admit that we do make wrong call, just cut the losses early. It's easier said than done, sometimes even for experience traders.

1 comment:

weird said...

Hi Master

So when do we cut loses?
eg when it drop till a certain % of ur capital?