The Systematic Trader | Trading Courses https://www.collinseow.com Learn a proven back-tested trading strategy and make money full or part-time Mon, 25 Jan 2021 08:13:13 +0000 en-US hourly 1 25400563 25th January 2021 – Position Trading Long: KC, PLTR… https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-14/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-14/#respond Mon, 25 Jan 2021 07:36:12 +0000 https://www.collinseow.com/?p=13421 Hello everyone! This week Collin shares a list of scan results for today (25 January 2021): Position Trading Long KC PLTR Prior Position Signal Long ESTC 18 Jan TENB 4 Jan NVCR 7 Dec ETSY 30 Nov NUAN 20 Nov CREE 20 Nov AMAT 19 Nov ZG 9 Nov GRMN 2 Nov FTCH 26 Oct […]

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Hello everyone!

This week Collin shares a list of scan results for today (25 January 2021):

Position Trading Long
KC
PLTR

Prior Position Signal Long
ESTC 18 Jan
TENB 4 Jan
NVCR 7 Dec
ETSY 30 Nov
NUAN 20 Nov
CREE 20 Nov
AMAT 19 Nov
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct
Prior Position Signal Short
NIL
Weekly Swing Long
TEAM

Prior Weekly Swing Long (Take Profit Progressive)
NIL

Prior Weekly Swing Short (Take Profit Progressive)
NIL

Long Term (1-2Years buy more when drop)
STI Apr 2020
H78 Jul 2020
0045.HK Jul 2020
700.HK Jul 2020
ETH Jul 2020
SPCE 19 Nov 2020
FEYE Jan 2021

S&P500 PD Blue, PW blue
Hedge 30%

Click the picture below to watch the video and find out more.

Enjoy the video!

If you’d like to learn more about systematic trading, click the banner below.

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What do you NEED to make outstanding returns https://www.collinseow.com/what-do-you-need-to-make-outstanding-returns/ https://www.collinseow.com/what-do-you-need-to-make-outstanding-returns/#respond Wed, 20 Jan 2021 08:04:55 +0000 https://www.collinseow.com/?p=13403 I’m not talking about turning $50 bucks into a million dollars. But outstanding returns, that will put your mutual fund’s return to shame at least. (Speaking from a perspective that you’re not market-making nor exploiting an arbitrage inefficiency in your trading.) This article deals with 4 aspects of trading in a systematic fashion. Where your […]

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outstanding returns

I’m not talking about turning $50 bucks into a million dollars.
But outstanding returns, that will put your mutual fund’s return to shame at least.
(Speaking from a perspective that you’re not market-making nor exploiting an arbitrage inefficiency in your trading.)
This article deals with 4 aspects of trading in a systematic fashion.
Where your trading methodology or framework, has rules which you consistently use to engage the market.

Have simple edges

An edge is simply anything which gives you an advantage over most participants in the market.
It doesn’t have to be a huge advantage.
AND you don’t need to have the advantage all the time.
You just need to have your advantage over other participants, at specific points of time during the market movements.
That’s when you make your move.

You edge would come from 2 main things.

One: The Entry

You just need to get in at places where you have a better than 50% chance of being right.
Also, it needs to be an entry where you can see a clearly defined risk point before you enter your trade.
So if the market reaches that point, the message it is simply telling you is, “I’m not ready to go your way yet, try again next setup”.
And what do you think you need to do at this point?
Yes!
This is where you put your stop loss to exit your trade.

This will come in many many forms.
It could be an entry when the trend context becomes clear.
On the other hand, it could be an entry when nothing is clear, everyone is panicking and the market is at extremes.

 

outstanding returns

Second: Reward Per Unit Risk

Reward per unit risk is how much will you get paid for the risk you’re taking.
By having a strong risk/reward, that means profiting $2-3 for every $1 which you risk on your winning trades.
If you are able to have an even higher risk/reward, then good for you.
But do note that risk/reward is a balancing act with your hit rate.
Hit rate is the rate at which you get a winning trade.
For example, if you made 100 trades and 60 of them made a profit, then your hit rate is 60%
So naturally, the higher your risk/reward, the lower your hit rate.

All things equal, where there is no edge, a system which has a risk/reward ratio of 1:1, will have a hit rate of 50%

As a gauge, if your system allows each winning trade to capture $2 for every $1 you risk. (1:2 risk/reward ratio)
Then your hit rate needs to be approximately 35% to breakeven.
That’s before taking into account your trading commissions.
If your hit rate is 40%, you would expect about 20R profit after 100 trades.
The term R refers to the amount risk you take per trade.
Let’s say you risk $100 per trade.
Then after 100 trades, your profit would approximately be 20R = 20 x ($100) = $2000

If your risk/reward ratio is 1:3, capturing $3 for every $1 risk you take on a winning trade.
Then your hit rate needs to be 25% to breakeven, before account for commissions.
In this case, if your hit rate is 30%, then your profit after 100 trades would be 20R.

Just something to note here.
The system’s hit rate is out of our hands, so don’t focus on each individual trade’s outcome.
Focus instead on the overall picture.

I know someone, let’s call him Trader A who averages a risk/reward of 1:2.5, with a hit rate a little over 30%.
So his expected profit per 100 trades is 10-12R.
Does Trader A’s edge seem very slight compared to the numbers I shared above?
Not very interesting isn’t it?
However, he gets about 15 trades a day.
Over a period of a month, he will do approximately 300 trades, in a quarter, 1200 trades.
Over a year, he can expect to do well over 4000 trades.
What do you think of Trader A’s annual profit now?
Outstanding returns?

Which brings me to my next point which affects your profitability.

 

Frequency of trades

Trader A’s annual returns suddenly seem more respectable only because his system identifies over 4000 opportunities during a year.
Imagine a trader who had a risk/reward of 1:3, with an impressive hit-rate of 80%.
That sounds really awesome doesn’t it?
Wouldn’t you love to get your hands on his trading system? haha

However, let’s say this system gets only ONE trade opportunity a year.

What do you think of this trader’s system now?
Does it suddenly seem less impressive?

I hope the contrast in these examples will highlight that frequency of trades, is an important factor to making outstanding returns in the market.
There is no cookie cutter number which says you need to have 100 trades in a month to be profitable.
However, it certainly would affect your consistency, such as in terms of how many months in a year are you profitable.

Time

Time allows you to accumulate the large sample size required for your edges to churn out those outstanding returns.
Yes, you need patience.
Trading profits are extracted over time.
As traders, we don’t expect 1 single super huge win and then retire. (although that is something many traders dream about)
But it’s not something we can reliably depend on to consistently make money from the markets for years to come.

Lastly…

Luck

WAIT!
I’m not talking about the luck you get from a four-leaf clover or from praying at a temple to strike lottery.
The luck I’m referring to, is where preparation meets opportunity.
You can’t control when opportunity arrives, but you can control your preparedness to take full advantage of opportunity.
By being disciplined and trading your rules, at some points in time, the market will offer periods of opportunity.
This refers to the market trend and volatility being at a certain degree, which suits your trading methodology perfectly.
That’s when you get your abnormal winning streaks for outstanding returns.

 

Outstanding Returns

So there you have it.
If you are able to get these 4 aspects in order, and keep them in perspective…
There’s a very good chance that you can put your mutual fund’s returns to shame.

 

If you’d like to find out more about systematic trading, click the banner below.

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11th January 2021 – Prior Position Signal Long: TENB 4 Jan, NVCR 7 Dec, … https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-13/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-13/#respond Mon, 11 Jan 2021 05:21:16 +0000 https://www.collinseow.com/?p=13388 Hello everyone! This week Collin shares a list of scan results for today (11 January 2021): Position Trading Long NIL Prior Position Signal Long TENB 4 Jan NVCR 7 Dec ETSY 30 Nov NUAN 20 Nov CREE 20 Nov AMAT 19 Nov ZG 9 Nov GRMN 2 Nov FTCH 26 Oct Prior Position Signal Short […]

The post 11th January 2021 – Prior Position Signal Long: TENB 4 Jan, NVCR 7 Dec, … appeared first on The Systematic Trader | Trading Courses.

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Hello everyone!

This week Collin shares a list of scan results for today (11 January 2021):

Position Trading Long
NIL

Prior Position Signal Long
TENB 4 Jan
NVCR 7 Dec
ETSY 30 Nov
NUAN 20 Nov
CREE 20 Nov
AMAT 19 Nov
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct
Prior Position Signal Short
NIL
Weekly Swing Long
NIL

Prior Weekly Swing Long (Take Profit Progressive)
NFLX 30 Nov

Prior Weekly Swing Short (Take Profit Progressive)
NIL

Long Term (1-2Years buy more when drop)
STI Apr 2020
H78 Jul 2020
0045.HK Jul 2020
700.HK Jul 2020
ETH Jul 2020
SPCE 19 Nov 2020
FEYE Jan 2021

S&P500 PD Blue, PW blue
Hedge 30%
Nas 100 and SPX
STI getting bullish…

Click the picture below to watch the video and find out more.

Enjoy the video!

If you’d like to learn more about systematic trading, click the banner below.

The post 11th January 2021 – Prior Position Signal Long: TENB 4 Jan, NVCR 7 Dec, … appeared first on The Systematic Trader | Trading Courses.

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28th December 2020 – Prior Position Signal Long: NVCR, ETSY, … https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-12/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-12/#respond Mon, 28 Dec 2020 07:02:43 +0000 https://www.collinseow.com/?p=13378 Hello everyone! This week Collin shares a list of scan results for today (28 December 2020): Position Trading Long NIL Prior Position Signal Long NVCR 7 Dec ETSY 30 Nov NUAN 20 Nov CREE 20 Nov AMAT 19 Nov ZG 9 Nov GRMN 2 Nov FTCH 26 Oct Prior Position Signal Short NIL Weekly Swing […]

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Hello everyone!

This week Collin shares a list of scan results for today (28 December 2020):

Position Trading Long
NIL

Prior Position Signal Long
NVCR 7 Dec
ETSY 30 Nov
NUAN 20 Nov
CREE 20 Nov
AMAT 19 Nov
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct
Prior Position Signal Short
NIL
Weekly Swing Long
NIL

Prior Weekly Swing Long (Take Profit Progressive)
NFLX 30 Nov

Prior Weekly Swing Short (Take Profit Progressive)
NIL

Long Term (1-2Years buy more when drop)
STI Apr 2020
H78 Jul 2020
0045.HK Jul 2020
700.HK Jul 2020
ETH Jul 2020

Market turning more bullish, resistance cleared turned support
S&P500 PD Blue, PW blue
Hedge 30%
Nas 100 and SPX Cleared Resistance

Click the picture below to watch the video and find out more.

Enjoy the video!

If you’d like to learn more about systematic trading, click the banner below.

The post 28th December 2020 – Prior Position Signal Long: NVCR, ETSY, … appeared first on The Systematic Trader | Trading Courses.

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Merry X’mas and a Happy New Year Everyone! https://www.collinseow.com/merry-xmas-and-a-happy-new-year-everyone/ https://www.collinseow.com/merry-xmas-and-a-happy-new-year-everyone/#respond Thu, 24 Dec 2020 08:59:20 +0000 https://www.collinseow.com/?p=13372 It’s that magical time of year again! A season of giving and a celebration of fresh beginnings for 2021. 2020 was an interesting year, but we all hope that 2021 will be a better and safer year for everyone. Stay safe folks!   If you’d like to learn more about systematic trading and prepare yourself […]

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It’s that magical time of year again!

A season of giving and a celebration of fresh beginnings for 2021.

2020 was an interesting year, but we all hope that 2021 will be a better and safer year for everyone.

Stay safe folks!

Merry Xmas and a Happy New Year!

 

If you’d like to learn more about systematic trading and prepare yourself to tackle an exciting 2021, click the banner below.

 

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“Focus on the process.” Why? What? How? https://www.collinseow.com/focus-on-the-process-why-what-how/ https://www.collinseow.com/focus-on-the-process-why-what-how/#respond Thu, 17 Dec 2020 07:44:30 +0000 https://www.collinseow.com/?p=13348 How do you think she attained this level of Yoga proficiency? “Focus on the process.” This is a quote which gets said too often, without enough details to go along with it. When people hear it or say it, the first thing which comes to mind is the Trading Plan. Although trading the plan is […]

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Focus on the processHow do you think she attained this level of Yoga proficiency?

“Focus on the process.”

This is a quote which gets said too often, without enough details to go along with it.

When people hear it or say it, the first thing which comes to mind is the Trading Plan.

Although trading the plan is a huge part of it, but here’s something which most people don’t tell you.

It’s NOT ONLY about the trading plan.

Zoom out a little more.

What is the process beyond the trading plan?

The Psychological Aspect

This is actually a huge huge area, but let’s just look at the simplest thing right at the start.
Detach from the results of your trading.
Your self-worth is NOT tied to your trading results.
Results are the consequence of the trading system and usually just part of the numbers.
This mindset allows traders to handle losses better and avoid the mess that comes from losing your emotional stability.
Your job as a trader during the trading session, is to execute the strategies to the best of your ability.
After the trading session, take off your trader hat, then put on your researcher hat and do your trade reviews.

Focus on the process.

Look for the next best opportunity

Focus on the processEvery trade is an opportunity to do better.

This is key.
You can’t trade by always looking backwards, you need to keep looking forward.
Just like you can’t drive a car by only looking in the rear view mirror.
Only by continuously participating in the next best opportunity, can we progress as traders.
Mike Bellafiore, founder of a world-class proprietary trading desk, wrote a book called “One Good Trade“.
I personally consider this to be one of the “trading bibles”, right up there with Market Wizards, Van Tharp’s, Alexander Elder’s works.
In that book, he clearly explains why we need to keep looking forward.
Save your trade reviews for your downtime outside the trading session, like on weekends.
Do your visual backtesting as well, look for your opportunities, look for new market opportunities which you think can be exploited.
Visual testing helps build confidence.
For those who can code, see if looking at the results of the coded backtest is enough for you.
I mean enough for you to gain confidence to actually trade the strategy or opportunity.

Focus on the process.

Consistency

It’s only when your actions are consistent, can you truly identify if your trading has an edge.
Being consistent also helps you exploit the edge as often as possible.
Having consistency in your actions, will also give you visibility of how best to sharpen your edge.
If you make any tweak to your system, change only 1 variable at a time.
It will allow you to more accurately identify if the tweak is beneficial to your trading or not.
Imagine if you tweaked 3 variables in your system at a time, how would you know which variable was contributing to any changes in the results?

Focus on the process.

It’s not only about what you can see

Not just what you can seeIt’s not all about the eyes.

Besides knowing what’s going on with the market, there’s something else you need to keep an eye on.
You have to look inside yourself.
How are you feeling stable at this moment?
Any residual emotions from dealing with your world outside of trading? (Yes there is a world outside of trading, please remember that)
Are you a little tilty because of a few losing trades?
Too eager to get into trades because of FOMO?
Or hesitant to get into trades because of the fear of losing money?

Focus on the process.

Active Trade Management

Each decision point means additional stress for you.
Humans generally have a limited daily capacity for “making great decisions”.
This is one of the reasons that Steve Jobs and Mark Zuckerburg wear the same thing every single day.
They want to save their decision-making capacity for the important issues.

Therefore, it’s always good to set some ground rules on exactly when you need to make a decision.
For example, if there is a parabolic price move, or if price makes a very large gap in favour of your trade.
Don’t keep staring at the screen and repeatedly asking yourself, “Should I take some profit off the table NOW?” or “Should I take a smaller loss on the position NOW?”
If you find yourself doing this, then you need to make some decisions beforehand.
Determine the decisions points as part of your trade plan for the trade.
Then queue your order in the market or use some automated tools to help you with exits at pre-determined points.

 

Focus On The Process

There is a lot to remember at each step of the process.
Write down on sticky-notes, the aspects you want to remind yourself.
Stick these notes around your monitor or on your writing notebook.
Write more detailed reminders in a “reminder document” to yourself.
Read this reminder document every day.

Focus on the process.

 

If you’d like to pick up a more systematic approach to trading the markets, click the banner below.

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14th December 2020 – Prior Position Signal Long: NVCR, ETSY, … https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-11/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-11/#respond Tue, 15 Dec 2020 07:50:11 +0000 https://www.collinseow.com/?p=13340 Hello everyone! This week Collin shares a list of scan results for today (14 December 2020): Position Trading Long Prior Position Signal Long NVCR 7 Dec ETSY 30 Nov NUAN 20 Nov CREE 20 Nov AMAT 19 Nov ZG 9 Nov GRMN 2 Nov FTCH 26 Oct Prior Position Signal Long Weekly Swing Long Prior […]

The post 14th December 2020 – Prior Position Signal Long: NVCR, ETSY, … appeared first on The Systematic Trader | Trading Courses.

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Hello everyone!

This week Collin shares a list of scan results for today (14 December 2020):

Position Trading Long

Prior Position Signal Long
NVCR 7 Dec
ETSY 30 Nov
NUAN 20 Nov
CREE 20 Nov
AMAT 19 Nov
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct
Prior Position Signal Long
Weekly Swing Long

Prior Weekly Swing Long (Take Profit Progressive)
NFLX 30 Nov
AMD 28 Sept
MSFT 28 Sept

Long Term (1-2Years buy more when drop)
STI Apr 2020
H78 Jul 2020
0045.HK Jul 2020
700.HK Jul 2020
ETH Jul 2020

Market turning more bullish, resistance cleared turned support
S&P500 PD Blue, PW blue
Hedge 30%
Nas 100 and SPX Cleared Resistance

Click the picture below to watch the video and find out more.

Enjoy the video!

If you’d like to learn more about systematic trading, click the banner below.

The post 14th December 2020 – Prior Position Signal Long: NVCR, ETSY, … appeared first on The Systematic Trader | Trading Courses.

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30th November 2020 – Position Trading Long: ETSY, NUAN, … https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-10/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-10/#respond Wed, 02 Dec 2020 15:49:50 +0000 https://www.collinseow.com/?p=13332 Hello everyone! This week Collin shares a list of scan results for today (30 November 2020): Position Trading Long ETSY NUAN 20 Nov CREE 20 Nov AMAT 19 Nov Prior Position Signal Long ZG 9 Nov GRMN 2 Nov FTCH 26 Oct Weekly Swing Long NFLX Prior Weekly Swing Long (Take Profit Progressive) REGN 28 […]

The post 30th November 2020 – Position Trading Long: ETSY, NUAN, … appeared first on The Systematic Trader | Trading Courses.

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Hello everyone!

This week Collin shares a list of scan results for today (30 November 2020):

Position Trading Long
ETSY
NUAN 20 Nov
CREE 20 Nov
AMAT 19 Nov

Prior Position Signal Long
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct
Weekly Swing Long
NFLX

Prior Weekly Swing Long (Take Profit Progressive)
REGN 28 Sept
AMD 28 Sept
MSFT 28 Sept

Long Term (1-2Years buy more when drop)
STI Apr 2020
H78 Jul 2020
0045.HK Jul 2020
700.HK Jul 2020
ETH Jul 2020

Market turning more bullish, watch resistance 3550-3590
S&P500 PD Blue, PW blue
Hedge 30%
NAS 100 consolidating for next move up

Click the picture below to watch the video and find out more.

Enjoy the video!

If you’d like to learn more about systematic trading, click the banner below.

The post 30th November 2020 – Position Trading Long: ETSY, NUAN, … appeared first on The Systematic Trader | Trading Courses.

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23rd November 2020 – Position Trading Long: NUAN 18 Nov; … https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-9/ https://www.collinseow.com/20th-april-weekly-webinar-sneak-peak-position-trading-long-new-gild-prior-position-signal-long-ctxs-6-apr-5-2-mrna-6-apr-47-regn-2-mar-22-zm-17-feb-65-weekly-swing-short-new-ptr-bch-wee-3-2-2-2-2-2-9/#respond Mon, 23 Nov 2020 08:25:15 +0000 https://www.collinseow.com/?p=13320 Hello everyone! This week Collin shares a list of scan results for today (23 November 2020): Position Trading Long NUAN 18 Nov Prior Position Signal Long ZG 9 Nov GRMN 2 Nov FTCH 26 Oct   Weekly Swing Long NFLX Prior Weekly Swing Long (Take Profit Progressive) REGN 28 Sept AMD 28 Sept MSFT 28 […]

The post 23rd November 2020 – Position Trading Long: NUAN 18 Nov; … appeared first on The Systematic Trader | Trading Courses.

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Hello everyone!

This week Collin shares a list of scan results for today (23 November 2020):

Position Trading Long
NUAN 18 Nov

Prior Position Signal Long
ZG 9 Nov
GRMN 2 Nov
FTCH 26 Oct

 

Weekly Swing Long
NFLX

Prior Weekly Swing Long (Take Profit Progressive)
REGN 28 Sept
AMD 28 Sept
MSFT 28 Sept

 

Long Term (1-2Years buy more when drop)
STI
H78 (Support Level)
0045.HK (Support Level)
700.HK (Support Level)
ETH Jul 2020

Market turning more bullish, watch resistance 3550-3590
S&P500 PD Blue, PW blue
Hedge 30%
NAS 100 consolidating for next move up

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The post 23rd November 2020 – Position Trading Long: NUAN 18 Nov; … appeared first on The Systematic Trader | Trading Courses.

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Defensive “Mainly Food” Stocks on Sale https://www.collinseow.com/defensive-mainly-food-stocks-on-sale/ https://www.collinseow.com/defensive-mainly-food-stocks-on-sale/#respond Thu, 19 Nov 2020 08:21:53 +0000 https://www.collinseow.com/?p=13294   Market has been on a bullish run since the world breathed news of Pfizer’s COVID19 vaccine with an efficacy of more than 90%. Market crept higher on Moderna news that its vaccine is slightly better than Pfizer’s. While we are feeling optimistic about a resumption of the normal that we were used to, I […]

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mainly food

 

Market has been on a bullish run since the world breathed news of Pfizer’s COVID19 vaccine with an efficacy of more than 90%. Market crept higher on Moderna news that its vaccine is slightly better than Pfizer’s. While we are feeling optimistic about a resumption of the normal that we were used to, I believe most of us can’t help but feel pity that perhaps we had missed the lows in March 2020 and early November 2020. Should we ride the upswing as charting indicators seem to suggest or should we build some defense in our portfolio?

 

This is the TradersGPS daily chart of Moderna. It has been moving up ever since CoVid came into focus and TradersGPS system was able to capture a massive 180% first leg up and then a quick 30% on the recent vaccine news.

 

Here is the TradersGPS weekly chart of Pfizer, it’s been generally range bound for a number of years, not the ideal candidate for trend trading.

 

I would say build a portfolio with some allocation to companies you are perfectly comfortable to hold in a downturn yet continue to give out some dividends. Food and beverage sector is easy to understand, especially a debt-free F&B company. Picture a mainly food (MF) business that sells and records fast-moving food products to consumer as revenue. Ingredients and food preparation cost, salaries of service staff, shop space tenancy form the business cash expense. Generally, revenue less such cash expenses would lead to the derivation of the operating cash flow.

 

If the MF company does not intend to invest too heavily in expansion, the bulk of the operating cash to available cash for dividend distribution. As a shareholder, it is always nice to have dividends in a bearish market, and capital gains in a bullish market. However, most of these stable MF companies are also boring and unloved with limited daily trading liquidity.

 

Just 3 criteria to get us going. First, I like domestic companies that I can have a gut-sense on the business. Second, I build my defensive position with net-cash companies that continue to bank in cash every quarter. Third, with a layman perspective, I want to buy at a bargain in that the companies have to be price chart-wise cheap in recent history.

 

My MF list is not exhaustive, but here are some that fit the criteria. It should not be taken as a recommendation to buy, but solely sharing my perspective on what makes a fundamentally-sound and defensive stock. If you have some spare travel cash not spent this year, and can live with low trading volume counters, ladies and gentlemen, be introduced to Old Chang Kee, Japan Foods and Kimly. You would have seen these MF businesses every day, if not every week in your neighbourhood. Old Chang Kee provided catering services to foreign workers in community care facilities, which partially offset the revenue weakness at their retail mall outlets.

 

mainly foodThis is the TradersGPS weekly chart of Old Chang Kee. Prices haven’t recovered to pre-covid levels, so there is some decent upside when society return to more normal levels of consumption.

 

The first criterion is essentially revenue exposure. Thankfully, Singapore is one of the very few countries in the world with single-digit new COVID19 cases daily. Europe, Japan, South Korea, United States are experience third or fourth wave of the pandemic. On the contrary, let us appreciate that Singapore is prudently easing COVID19 restrictions and that the government has been supportive of businesses. The 3 “mainly food” companies, which predominantly serve Singapore market, shall see a resumption of revenue to pre-COVID19 levels faster than the other international companies.

 

mainly foodThis is the TradersGPS weekly chart of Kimly. Prices appear to have found a bottom with the massive market drop in March. It has since moved beyond pre-covid price levels in a sign of strength.

 

The second criterion on cash position is an important consideration. The whole defensive concept would fall apart if these MF stocks do not have positive cash flow to dish out dividends. The table below shows the latest financial positions filed with the SGX. Kimly and Japan Foods are likely to report their 1H 2021 earnings in a few weeks’ time.

 

Old Chang Kee Kimly Japan Foods
Latest results ended 30 Sept 2020 30 Jun 2020 31 Mar 2020
Cash 25.3 76.4 20.4
Debt 7.3 4.4 0.0
Net cash 18 72.0 20.4
Operating cash flow before working capital changes 15.0 45.6 12.1
Investing cash flow -0.1 -4.5 -1.9
Free cash flow 14.9 41.1 10.2
Annual free cash flow 29.8 82.2 20.4
P/E (TTM) 21.5 23.2 57.0
P/B 2.5 3.8 1.8
P/FCF (TTM) 3.3 9.0 3.0

 

Evidently, all the 3 MF companies have the financial capacity to distribute dividends to shareholders. And they have continued to dish out dividends in these tough times. Japan Foods yields 2.9%, Old Chang Kee at 1.5% and Koufu at 3%. The dividends may be humble, but these are the rates the companies are comfortable to part their cash at.

 

This is the TradersGPS weekly chart of Japan Foods. Price has plateaued since the massive market drop in March this year.

 

The third criterion must be price point. Everyone in Singapore loves a good bargain. Even in a company that has solid fundamentals but has seen its share price ran up might draw some concern from you that it looks toppish for a correction. Good for us, these three “mainly food” companies have not run up that much compared to the Straits Times Index.

 

Source: POEMS, as of 17 Nov 2020

 

We take the view that 23 March 2020 was the lowest market price of 2020. Since then, STI has risen ca 20%, while Old Chang Kee and Koufu tallied about 16% gains.

 

With Phase 3 reopening of the economy, and possibly a resumption to the normal we were used to, we are looking at their share prices about 20-30% off their peaks. An uncomfortable question we might have to deal with is, what if the vaccines come up short, just like the Oxford vaccine? I guess the market would crash. However, I can be confident that their cash coffee should be enough to tide through a couple more years of COVID19 lockdowns.

 

This article was written by Victor, a veteran analyst who consistently ranked top 3 on Bloomberg within his niche, seaport infrastructure. He is a firm believer of a hybrid investment approach with both technical and fundamental knowledge. 

 

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