Technical trading paradigms
DEN SOMERA
A reader who has been following closely the progress of the virtual stock trading challenge in the hope of improving his performance in the market requested for more insights as to how exactly Pixiu, the current leader of the contest, managed to churn out a record of 109.47 percent return on investment (ROI) while all of the other players understandably remained under the weather as the market showed a negative year-to-date performance of 13.32 percent.
Pixiu’s performance is unbelievable, if not simply too amazing, as the market has been largely on the slide by as much as 13.32 percent since it started the year. Her initial virtual capital of P0.5 million has grown exactly to P547,359.04 in 19 weeks of trading under real market conditions, with trading decisions made at least by midnight before actual trading hours the following day.
“How does Pixiu exactly manage her trades? Does she use any mechanical tool to arrive exactly at what prices she will buy or sell? Does Pixiu ever had bad trades?” he inquired, among other questions.
To start with, the market value of Pixiu’s investment portfolio at the end of last week was up 1.64 percent compared to the previous week. In contrast, the market was up within the period by 212.47 points or 2.96 percent. The benchmark Philippine Stock Exchange index (PSEi), then, closed at 7,399.18.
What this meant was that Pixiu’s performance was not as great as that of the market. Her performance was only equivalent to 55.40 percent of the market’s total gain for the period.
However, I would imagine that this was already more than great, for all of the other players – like many of us in the market last week – failed to take advantage of the market’s uptick.
Had she invested all of her capital then, she could have a higher rate of return. At the time, only 85.37 percent of her capital had been committed to the market while a good 24.10 percent was still left in cash.
As to how she manages her trades, Pixiu is a short-term trader who trade for a living rather than investing for wealth in the long run. She also belongs to that group of investors who use technical analysis to guide their investment decisions – like when to buy and sell.
This style of investing is working well for her as we’re also running a short-term trading contest in pursuit of finding ways how to make money out of our little savings – especially under the present low interest rate regimen – where the present risk we face from investing in the stock market is worth trying as the payoff is much bigger than what our little savings could currently get from saving in the bank.
The cost of this style, on the other hand, is spending hours of study on the price behaviors of many stocks to spot those with short-term potential market plays. This may also include getting your nose close to market events and news developments.
Technical analysis with its tools and indicators of forecasting market developments aren’t absolutely accurate.
They appear “foolproof” indicators only when used to plot past market data. But as indicators of future events, they could only present probabilities, at best.
Actual story
A good example is Pixiu’s investing affair with Global Ferronickel Holdings, Inc. (FNI).
Using the same technical tools and indicators to invest and trade – buy and sell – FNI shares as in other stocks she had invested and traded, the following was her story: She started to buy 30,000 shares of FNI at P2.45 per share on April 16, 2018. She followed this up with another “buy” of 20,000 shares at P2.40 per share on April 18, 2018 – for total holdings of 50,000 shares of FNI.
She tried to make a fast buck out of her market position on FNI by posting a “sell” order on April 19, 2018 at a share price of P2.74. Proving to be too high for the transacted prices for the day, it stayed “Not Done.”
She left FNI intact in her investment portfolio as a “prospective” stockholding. There was no hurry to sell it considering how the price of nickel is doing in the world market.
She left her exposure in FNI untouched until May 9 when she posted a “sell” order for all of her stockholdings for P2.26 apiece.
Fortunately for her, it was considered “Done” at P2.27 as FNI’s share price opened at said price (following the bourse’s computerized trading system), but she ended with a loss of P9,395.40 in process.
Still with the same technical tools and indicators in use, Pixiu tried her hand in FNI again on June 1, 2018 for 30,000 shares at P2.42 per share. Of course, she did this on the assumption that she got a “buy” signal from her technical analytical tools.
On June 5, 2018, she posted to sell all the shares at P2.39 apiece. Of course, this was on the assumption that the expected uptick failed to materialize. Unfortunately, they were “Not Done” because the “ask” price turned out too high. FNI’s highest trade for the day was P2.38 per share.
She kept the position in her investment portfolio until July 17, 2018 when the price of FNI shares were falling and that her technical indicators were giving out strong “sell” signal.
Pixiu posted a selling price of P2.09 per share, in an apparent move to take a big – inevitable – loss. It was considered “Done” at P2.10 per share when FNI shares opened at the said price.
Pixiu’s accumulated losses as a result of this latest play in FNI has climbed up to a total of P19,785.62.
Bottom line
As you will observe in Pixiu’s trading story in FNI, the technical indicators fell short in giving her “failsafe” forecasts, much less “accurate” pricing for the shares. Pixiu still had to make the final judgment as to how much to sell them. This was the reason then for her missed attempts to sell. Her indicators couldn’t give her the precise prices at what to sell.
So, even with technical analysis, the process of trading still isn’t entirely mechanical. It still requires some element of judgment from the investor in the execution of its signals.
Meanwhile in the game, aside from Pixiu, only Small Time Trader and Play Hard had some trading moves in Week 19. Small Time Trader posted a “buy” order for 2,000 shares of Ayala Land, Inc. (ALI) at P36.70 per share first thing Monday morning of July 9, 2018. It was “Done.” It fell within the prices traded for the day.
Like Pixiu, Play Hard made his only trades for the week on July 13, 2018. He posted two “buy” orders for 700 shares of Metropolitan Bank & Trust Company (MBT) – to augment his existing exposure on the stock – at P70.50 apiece and 300 shares of Jollibee Food Corporation (JFC) at P250.00 per share. All trading orders turned out good as “Done” for the day.
Below is the investment summary and performance standings of the active players in the contest as of Week 19, ending July 13, 2018:
Den Somera is a licensed stockbroker. The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. E-mail address of the writer is den.somera@manilatimes.net
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