DT Reminiscences of A Newbie Trader Ebook - Edited PDF

smvmoreno89@gmail.
com 03 Jan 2018
REMINISCENCES OF A NEWBIE TRADER

By Divergent Trader Ves

smvmoreno89@gmail.com 03 Jan 2018
2
Reminiscences of a Newbie Trader

ABOUT THIS E-BOOK
There are different trading systems and methods. Apply what is useful and most
effective for your trades then come up with your own trading style. Feel free to
share the contents of this e-book with proper citation.
To God be the Glory!
This e-book is a collection of my articles for the past two years, dedicated to all
newbie traders. To my family, mentors, fellow traders and close friends who
supported and guided me through my trading journey, thank you from the bottom
of my heart.
DISCLAIMER:
The information contained on this e-book is for information/educational purposes

only and does not represent the opinion and recommendation of other parties or
entities. Always perform due diligence. Be responsible for your trades. There are no
guarantees in the stock market. You have to define your own risk parameters.
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ABOUT THE AUTHOR
Ves was already a project manager in the IT Industry working for eight years at HP
and one year at Kaisa Consulting Company before launching her career in the stock
market. With a passion for financial advocacy, experience in personal investing and
trading, knowledge in fundamental and technical analysis under her belt, she
earned her Philippine Securities Representative Certification. Ves has also
conducted various stock market 101 seminars to various events such as Lady
Traders Confession, Swing Trading Insights and Strategies, Traders Apprentice
Pilipinas (TAP) Backdoor Session on the Review and Technical Analysis of Specific
Stocks, University of Caloocan Trading Insights and Basic Stock Market Concepts,
TAP Backdoor Session Newbies Guide in the Stock Market on Holistic Approach in
Trading – just to name a few. Ves also started The Divergent Trader Facebook
page, an open source of different trading insights that she learned from fellow
traders, books, seminars and her own trading experience. Recently, Ves signed
onboard the Regina Online Investing Team as a full time stockbroker.
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TABLE OF CONTENTS
I. Divergent Trader Principles

a. Can everyone be an independent trader?
b. Ten Tips from DT
c. For Newbies
II. Trading & Market Psychology
a. A Project Manager’s Perspective on Stock Market Trading
b. Learning Stages of a Trader
c. The Manipulation Game
d. When It’s Time to Let Go
e. Recognizing Scammers and Hypers: Train Your Brain to Trade
f. Perception vs Reality
g. Out of Pride and Prejudice
h. Cognitive Biases
i. Are You Trading the Markets or is the Market Trading You?
j. Dancing with the Wolves
k. Slow and Steady Wins the Race
l. A Tale of Aristocracy
m. The One Who Got Away
n. A Bad Trade Does Not Mean a Bad Life
III.Catalysts, Trends and Seasonality
a. Get the Truth Behind the Headlines Using Major Corporate Disclosures
b. Beware: Messages Can Move Markets, The Modern Market Manipulator
c. Rumors as the Black Market of Information
d. Leading Economic Indicators
e. What Markets Do Today Determines Future
f. Bonds that Matter
g. Is Buyback a Good Thing?
h. Fear Hungry Jockeys than Ghosts
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i. Importance of Institutional Sponsorship

j. Invest in A Sound Business and Good Corporate Governance
k. The Global Market
i. Crude Oil
ii. Precious Metals
IV. Order Types and Tape Reading
a. All About Orders
b. Bid and Ask
c. What’s So Special About Block Trades?
d. Ticker Tape Reading: It Speaks to Those Who Listen
V. The Trading Action and Technical Analysis
a. Looking Beyond Charts: A Holistic Approach to Technical Analysis
b. Different Price Forecasting Approaches
c. The Trading Action Behind the PSE Time Table
d. Parabolic Movements in Stocks
e. Speculative Trading in the Philippine Stock Market
f. The Never-ending Speculative Cycle
g. On Balance Volume
h. Buy On the Cannons, Sell on the Trumpets
i. Redundant Indicators Keeping It Simple
j. Breakout Plays
k. Hanging By a Momentum
l. Dead Cat Bounce and Reversals
m. Counter Attack Plan
VI. Trading Setups and Case Studies
a. $PX - A Momentum With Safe Haven
b. $ISM – Spotting Unusual Volume
c. $HOUSE – Disclosure as Catalyst
d. $I - I-Remit: 10 Minute Gap
e. $SUN – Trading Breakout
f. $PRMX: Buying on Breakout
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g. $NOW: Buying First Pullback After Breakout

VII. Study Notes
a. Trends and Volume Spread Analysis
b. Trend Channels and Trading Ranges
c. Seven Zones of Activity by William Gann
d. The Market Maker’s Campaign by Richard Wyckoff
e. Befriending the Trend: Base Counting by Mark Minervini
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DIVERGENT TRADER PRINCIPLES
1) There are many ways to become financially successful. Trading is one. You can
be a day trader, swing trader, position trader or a combination of swing and
position. Find and develop your own trading style and system.
2) Seek mentors and trading buddies who can help you in your trading journey.
Read books, join forums, subscribe to newsletters and attend seminars.
3) Be responsible and accountable for every decision you make. Never assume
that the market will always act based on your best interests and expectations.
4) Your stock analysis can be different from mine as well as with other traders.
5) If you are a risk-averted person, do not trade. Trading is based on

probabilities. Give yourself time to learn how the market thinks and works. Do
not be in a hurry.
6) Make the most of this site (e-book) and many other sources. Absorb whatever
is useful. Keep an open mind to learn new things. Ask the right questions.
7) Always strive to better yourself and always improve on your trades.

Consistency is key.
8) Pay it forward.
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CAN EVERYONE BE AN INDEPENDENT TRADER?
Some people rely on tips and inside info. Some people heavily rely on others'
opinion. While it is true that big fishes have more advantage than smaller fishes,
this does not have to be the excuse for not making an effort in studying the
market.
Since most already know when to buy, some people no longer bother knowing
when to sell. Sadly, this is the reason why many of us newbies fall victim of hype or
bash.
Self-reliance eliminates the risk of being easily persuaded into a seemingly
profitable trade or investment. Through discipline, the trader must reduce his risk.
He must see and know, or he should not act.
People get excited and pay attention only to concepts that teach them what and
when to buy. However once the market experiences a downturn, the newbie loses
his focus and starts hoping for a reversal instead of acting on it, while there's still
time to preserve his capital.
Easier said than done. We are intelligent human beings yet at the time it occurs, we
become stubborn.
It will take a huge amount of discipline. First to recognize one's emotions and
knowing how to overcome them. It's situational; case-to-case basis for everyone
have his or her own learning curve.
One thing I know, it's easier to learn the technical and fundamentals than
mastering oneself.
Can everyone be an independent trader? Maybe not. It's all up to you. Of course, it
is better if you can plan and execute your own trades. J
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TEN TIPS FROM DT
1) Never expect. Never assume.

2) No certainties, just probabilities.
3) Numbers don't lie, people do. If they tell you something that seems to be too
good to be true, then perhaps it is.
4) A professional trader does not worry about a bull or a bear market. He or she
does not brood over losses. He or she sticks to the trading rules without
emotional attachment whatsoever. He or she is quick to realize or admit
mistakes and so the professional trader always strives for excellence not
perfection.
5) There are no shortcuts to success.
6) You risk what you can afford to lose.
7) Execute your trades as planned. No plan, no trade.
8) Patience is rewarded. Stay in the game for as long as the trend remains intact.
9) Do not overtrade. Focus on learning than making money.
10) You already have the key to the best trading system because it lies in your
ability to control your emotions and adapt to changing situations. Knowledge is
power but mastering yourself is true wisdom.
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FOR NEWBIES
We often encounter the following questions in forums, discussion groups and chats
especially from our fellow newbies:
Q1: “Anong stock ang magandang bilhin?”

“Which stock is a good buy?”
Q2: “Tumaas/Bumaba na ba ng stock na to?”

“Has the stock gone up/down already?”
Q3: “Pwede pa ba pumasok sa stock na to? Anung TP nito? ”

“Can I still enter the trade with this stock? What’s the target price?”
Q4: “Risky ba tong stock na to?”

“Is this stock risky?”
Q5: “Lilipad ba tong stock na to?”

“Will the stock go up?”
Stock Picking – You don’t have to be a CFA, MBA or financial investment expert to
be able to distinguish good from bad stocks. There are good companies but their
respective stock can perform poorly depending on market conditions such as
increase in bank interest rates, unemployment rate etc. On the other hand there
are companies with no operations but surprisingly end up as one of the top gainers
for the day. The question you should ask yourself is: “Do you prefer to invest in a
company that has good fundamentals?” or “Are you a type of trader who just wants
to ride any stock that goes up?” For position traders, business value can be one of
their priorities in stock picking. What can the company offer? How does the CEO
envision the company 5 to 10 years from now? Plans for expansion or innovating
their goods and services? Will the future generation still find this company and its
goods and services valuable? And so on…
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For some, stocks are seasonal – for example mining companies may not do well
during rainy season. Remittances increase in December, balikbayans come home to
spend their money shopping in malls and playing in casinos.
Some are fearful in entering any trade during August for it has been known as the
“ghost month”.
For some, foreign inflows/outflows are important considerations. Who else is

investing in this company aside from local investors?
Bottom line:
You need to be aware of your own investment objectives prior to selecting any
stock. Do you want to invest in value? Are you patient? It’s not just a question on
how much you can invest but how long can you stay (staying power). Not all
expensive stocks have business value. Similarly, not all cheap stocks are candidates
for growth stocks. Some stocks are seasonal. Pay attention to economic indicators.
If you have time, check the global market indices and commodities.
Trend – the trend is your friend. Before you put your hard earned money in any
investment or business opportunity, you need to know where your money is going
and how you can profit from it. Know the bigger picture; you can use your trading
platform to check the general trend of the stock. Select a broader range – 3 years
to 10 years. From your online broker / trading software, check the stock chart to
determine the price direction along with volume. Is it going upward, downward or
sideways. Is the volume being distributed or accumulated? Yes - whether you like it
or not, you need to know how to recognize chart patterns (at least have a basic
understanding). Otherwise, most of the time you will end up following false
recommendations! And it will be too late to save your capital.
Bottom line:
Do not rely on spoon-feeding. Spend a few minutes or hours for familiarizing

yourself with what you are dealing with. Be resourceful. The Internet can give you
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lots of trading sources. Asking a friend is not a bad idea but don’t be too lazy to
type or search a word in Google or forums to know what it means. Check the official
disclosures from PSE EDGE. Attend free stock seminars from reputable brokers. The
trend is your friend. Anyone can tell you that the trend is up or down. Trust
experienced traders but verify!
Entry and Exit – You can buy any stock in anytime but the challenge is how to
profit or close a position without losing at all (or at least minimizing your loss). You
must also study volume spread. Be careful with bottom picking, what appears
cheap may not always mean “bottom”. Check Daily Time and Sales information if
you want to verify that the sellers have dried up or if the big brokers have started
re-accumulating. Your target price may be different from fund managers. For fund
managers, 3% gain is sufficient because they are managing big portfolios. For
people with lesser capital, 3% gain is not good enough. If stocks are too bullish
then you need to lock in some profits because you’ll never know until when it can
go up. If the stocks are turning bearish you need to cut your losses (or lighten your
positions) before you lose your entire capital!
Bottom line:
Your goal is NOT to enter & exit TOO early or TOO late but to buy and sell at the
right price. Do not catch falling knives. Important things to learn: Support and
Resistance, Pivots, Retracement Levels, Volume Analysis
Risk – If you are a risk avert, stock market is not for you. There are no
guarantees. Nothing is insured. Those who risk are often rewarded IF they have
planned their trades well. Again it all comes back to your personality as a trader.
Risk appetite differs from one trader to another. It may depend on age, short term
and long term plans and priorities.
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Bottom line:
A big company who managed to meet targets for many years is still susceptible to
failure. Do not always equate big company with big earnings. There are other
external factors to be considered like market sentiment, political and economic
stability.
Stock Volatility – there are stocks that go up and down along with the market
(PSEi). There are stocks that remain unchanged even if the market has gone up.
There are stocks that have their own world – meaning they are not really affected
by the market. This is what most stock specialists refer to as the beta coefficient.
Again there are so many factors (internal and external) that can affect how a stock
behaves. You must also be aware that some stocks are jockeyed especially for
small caps. (Volume Plays, Ceiling Plays without any related company disclosures)
Bottom line:
Stocks go up and down in cycles and waves. Oftentimes, they don’t go up or down
in a straight line. Trade illiquid and highly volatile stocks with great caution.
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TRADING AND MARKET PSYCHOLOGY
A PROJECT MANAGER’S PERSPECTIVE ON STOCK MARKET TRADING
For almost a decade, I’ve had the opportunity to work in the IT industry as a
consultant and most of the years as a project manager. A simple project gets done
in less than a month perhaps even in few weeks while complex projects takes
months or years before completion.
What’s in project management that makes it similar to stock market trading?
1. Preparation and Planning - A project has a defined scope, timeline, cost and
resources. All of these are documented in a Project Plan. It also contains the
methodology or lifecycle that will be used throughout the project. There are so
many factors that can influence the success of a project therefore risks must be
identified as early as possible to prevent them from developing into issues that
could impact project timeliness, quality and profitability. Similarly, you cannot start
trading without a trading plan. You have to define your own rules based on your
risk parameters. Learning technical analysis will help you identify entry and exit
criteria, recognize patterns and market behavior. There are different trading
strategies available that you can adopt. You just have to keep an open mind in
learning.
2. Execution and Monitoring - During project implementation, project managers

monitor the status and progress of the deliverables. If an issue arise, he or she
initiates the mitigation steps or corrective actions. In trading, you have to execute
based on your plan. When a trade goes against your forecast, you have to cut your
losses as early as possible. Setting trailing stops will help you protect your gains
and capital. Remember, stock market moves in cycles not in a straight line.
3. Evaluation - After project completion, a closeout or retrospective report will be

generated containing a collection of learnings and best practices. This can benefit
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future projects. In trading, we also have to evaluate our trades to check the areas
that we can improve on. We learn from our mistakes and failures. Learning all stock
market concepts is easier than being able to apply them with consistent profits and
minimal loss. It is very difficult to trade well but it is not impossible.
Sometimes you get small, random and multiple roles without realizing their value in
the beginning. It didn’t make any sense except for the fact that you have additional
work. As you grow in your chosen path or career, you will understand that going an
extra mile actually prepared you for a bigger and more challenging role. Being
unpredictable, the market has always been preparing you for your own success.
You don’t argue with the market, you learn from what it does.
LEARNING STAGES OF A TRADER
While it is important to keep an open mind in learning, it is equally important to

know that there are certain levels to go through before becoming consistently
successful in trading. The transition from one stage to another depends on the
individual’s personality, skills and priorities.
Level 0: The Starting Point
Most traders start having very limited knowledge on stock market or investing.
Looking at a stock chart brings back your dreaded subject: Calculus. This person
does not take any risk at all.
Level 1: The Curious Trader
You want to know what you do not know. Usually by word of mouth or by social
media, a curious trader is someone who intends to enter the world of stock market.
He starts to join forums and ask various (sensible and insensible) things about
trading or the stock market.
Level 2: The Impulsive Trader
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You thought you already know... but then you’re wrong.

Testing the waters. Since this trader is not knowledgeable, he buys/sells based on
hype and recommendations. He is eager to make a profit but too lazy to make his
own analysis. He usually ends up losing a lot of his capital. In his thoughts: "It’s a
scam!" - very emotional and egoistic. Most traders at this stage no longer come
back or developed a negative bias towards trading.
Level 3: The Chosen Few
Education starts after accepting the fact that you need to know what you do not
know to be successful in trading. Even after losing, the chosen few choose to reflect
on their trades to identify what went wrong and how it could have been done
better. They start to commit towards learning what should be learned. They read
books or attend seminars to increase their understanding.
Level 4: The Novice Trader
Although the novice trader is already knowledgeable on basic fundamental and

technical analysis, his stock selection and analysis could be strongly influenced by
the crowd ("herd following”). Sometimes he is profitable but most of the time
suffers losses due to switching of stocks without having strong knowledge on its
business and a good base. He tries to apply what he has learned but because there
is no mentorship or guidance, the trading plan is not well defined and established.
He breaks his own rules when greed or fear steps in.
He is still easily swayed by market movements and often ends up overtrading. He
buys high and sells low.
Level 5: The Experienced Trader
About a year or two (or earlier), the newbie trader evolves into an experienced
trader who has developed his own trading strategy and technique. Through his
previous mistakes and failures, he is able to refine his trading strategy. An
experienced trader can mentor others by sharing his learnings and insights. He is
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already able to identify which stocks are volatile, illiquid and attractive
(technically/fundamentally). He is familiar with various stock patterns and has
developed an instinct to assess whether a stock has a high probability setup.
He knows the importance of building a strong base. He has more control over his
emotions and understands market psychology. He has a more disciplined
understanding of the market including cycles and seasonality.
The experienced trader knows how to balance between technical and fundamental
analysis in stock selection. He can manage some of the risks.
Level 6: The Skilled Trader
Mastered one or more trading techniques and has been consistently winning in his
trades since he is strict in applying the rules. He has also mastered his emotions.
He does not like chasing stocks. He knows that preparation for a big price
movement takes time. He does not overtrade. He can be a stock trading mentor.
He makes money in a bull or bear market. Strong risk management skills.
Which stage are you in right now? Perhaps this is a wake up call - a challenge to
move you out of the comfort zone.
THE MANIPULATION GAME
“The element of manipulation need not discourage anyone. Manipulators are giant traders,
with deep pockets. The trained ear can detect the steady “chomp, chomp”, as they gobble
up stocks, and their teeth marks are recognized in the fluctuations and the quantities of
stock appearing on the tape.” - The Day Trader’s Bible
Beyond chart patterns and candlesticks, Technical Analysis also involves human
psychology.
Chasing the stock to a higher price allows the market manipulator to succeed in his
intention to tease and lure you until the fear of missing out on seemingly profitable
trades kicks in. Market manipulators believe that the fools will always buy at a high
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therefore, you will see more hyping campaigns and good news as the stock climbs
to higher highs. Then one day, that spike on the chart will become a turning point
for distribution. Of course, only the minority will notice it. And just when you’re
about to let go of the huge losses, the manipulator steps in and starts re-
accumulating.
Have you ever wondered why a stock takes off even with little volume?
Volume is a simple indicator and yet many newbies ignore its purpose. When the
stock starts to trend up or triggers a parabolic ascent, you need to watch the
trading volume. The first sign that can warn you against a potential reversal is
when the trading volume tends to dry up as it moves to higher highs. This means
that there are lesser or no more buyers willing to pay for higher prices. Some
manipulators will urge newbies to stay at higher levels. There’s nothing wrong in
selling on the way up. In the market anything can happen thus stocks do not go up
or down forever. They move in waves or cycles. Complex indicators can create
more confusion as they overwhelm newbies. Stick to basics and keep it simple.
Ideal scenario has always been price and volume moving in the same direction.
When volume increases without causing sudden increase in price (or price is just
moving sideways) it could indicate that buyers are slowly taking over the sellers.
Experienced traders also use OBV (On-Balance Volume) to detect this movement.
Meanwhile, the worst-case scenario that you wouldn’t want to be left with is
increasing volume on falling share prices. Even companies with strong
fundamentals experience sell-off, which may transform into capitulation. Catching
falling knives is as dangerous as picking the bottom during sell down. Wouldn’t it
make more sense to buy or enter a trade after the sell-off? The only stock traders
that made any decent money are the small minority of traders that bought the
stock right after the sell-off - when the stock looked the worst.
Would you lend your money to the good guys or the crooked manipulators?
Take caution in trading speculative stocks with sharp price movements because
most of the time, whether it’s upward or downward, one or more manipulators are
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behind it, waiting for the best opportunity to sell to you at higher prices and buy
from you at a discount. Find good companies. Complete your due diligence. Avoid
speculative stocks when you do not have any idea of what’s really going on with the
stock.
Are you ready for the next play?
WHEN IT IS TIME TO LET GO
According to Richard Wyckoff, one of the great traders and pioneer of technical

analysis, a trader must close a trade:
1)
When the tape tells him to close
2) When his stop is caught
3)
When his position is not clear
4) When he has a large or satisfactory profit and wishes to utilize those funds for
better opportunities
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You can only lock in your gains when you sell. Otherwise you are holding on to
unrealized gains. Nothing wrong with that if you are an investor.
Why do most experienced traders sell then?
To protect capital and gains. Anything can happen. Daily fluctuations brought about
by internal and external factors can influence profitability.
When is a good time to sell?
Selling is subjective because it depends on one's risk tolerance and objectives.
Generally, experienced traders consider the following:
1) Resistance levels (if you are using trailing stops) Stocks may lose
momentum as it tries to breach resistance zones.
2) In case of False breakouts and dead cat bounce (to find possible re entry
points) In short, when the forecasted price movement based on technical
analysis does not materialize
3) Rebalancing portfolio - cutting losers and going long on stocks with intact
trends and good volume spread
4) Some traders set specific profit percentage for each type of stock depending
on market data
5) Changes to underlying company fundamentals (financial statements,

earnings)
6) Changes to money flows - foreign funds taking profits could lead to stock
decline
7) Taking profit during rallies (selling on strength) and positive disclosures
8) When the stock fails to make a higher low after a previous rally and
reverses.
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Try to determine and weigh your own reasons for selling. Check if the strength is
sustainable. Trade with the trend. Avoid hyping campaign. The greater fool is still a
fool.
RECOGNIZING SCAMMERS AND HYPERS
The social media is the new arena for the old manipulation game. Sadly, most of
the millennials are lured into different scams and eventually become victims of
hype.
Common Characteristics of Scammers:
1) Anonymous - most scammers and hypers use fake profiles, most do not
show up or leave any paper trail.
2) Great pretenders - Some show up disguised as market experts. They
pretend to share the same sentiments and concerns.
3) Inconsistent - actions contradict words, they actually sell when they tell you
to buy and they actually buy when they tell you to sell.
4) Absence or lack of basis for analysis - are you going to believe a hot tip
and execute a buy order immediately just because the “insider” or “informed
trader” said so?
5) Masters of Reverse Psychology - Whether directly or indirectly, they tell
you to do the opposite of what you’re supposed to do and to see the opposite
of reality. If a stock rises and they are not yet done warehousing, they would
emphasis that the move was due to temporary reactions, point out low volume
or selling instead of actual rising interest towards the stock. Conversely if they
want to start accumulating a particular security they can initiate bashing
activities to spark fear. They know how to take advantage of a trader's
emotions.
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6) Multiple False Identities - Imagine someone delivering a monologue. Yes

sometimes scammers and hypers own more than 2 accounts to carry out their
manipulation game similar to a good cop bad cop scenario.
7) They are excellent in playing with words, using questions to trigger critical
thinking and statements to influence your decision. Some would use technical
terms which a newbie trader wouldn’t spend time verifying because the usage
itself already adds "credibility" to the analysis.
8) Unpredictable - they move like speculative stocks, sometimes you feel their
presence through active participation in forums then one day, they just
disappear.
Responsible and experienced traders admit and show their mistakes so that
newbies can benefit from their learnings. They do not conceal truths. They know
that the market can always go against their best analysis and methods.
In trading, you will learn who your real friends are. Real friends will stick with you
through bull and bear markets.
My friend - don’t get left holding the proverbial bag. Your brain is the greatest
trading tool that you have. Train your brain to trade. Start and keep on learning.
PERCEPTION VS REALITY
Most of us witnessed how news and rumors attract market sentiments (PSEi
reaching new highs and lows). A new truth emerges from the real truth until it
becomes fiction. Regardless if it’s a bull or bear market, herd mentality influences
the wisdom of the crowd.
How safe is safe enough?
As of this writing: China announced a GDP growth of 6.9% for 2015, which fell
below government expectations, lowest in 25 years. Crude oil has been falling near
$30 level. Corporate bond market in EU is at recession levels.
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The stock market is a “safe haven” at least while the Fed and Central Banks are on
its side, maintaining the “Wall of Liquidity” through QE and other aggressive
monetary stimulus policies. According to Bert Dohmen, “As Europe and China
struggle with recessions, or at least weakening economies, their central banks will
only become more aggressive.”
Stock market analysts see growth potential in emerging markets. In fact, the
Philippine Stock Exchange was cited as the Best Stock Exchange in Asia for 2015.
However, nothing stays the same. Everything changes. Market and business cycles.
Traders and investors cannot afford to be complacent about financial security.
There should be a continuous and proactive effort to manage one’s exposure to
different investment vehicles especially when economic conditions change.
If you are willing to accept the risks involved in stock market, be prepared to learn
how the market works. It will not happen overnight and learning must not stop
even after you earn. Aside from your money, it requires commitment and passion.
Some tips for Traders & Investors:
1) Diversify your investments.
2) Always compare the recent and historical trading pattern to a broader market
index.
3) Never rely on unsolicited and false recommendations. You see this phrase all
the time: Do your own research. You really have to.
4) The security must have ample liquidity on a daily basis. (Check daily traded
volume and value turnover). Penny stocks are more susceptible to
manipulation. In the absence of news, a volume play can be funded and
triggered for as low as 1-2M.
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5) Do not follow what the “media” wants you to see. Read official company and
financial disclosures. Listen to volume and price action. At the same time do
not ignore global market conditions.
6) Aside from the moving averages, pay attention to trading ranges. What is the
buying range of the institutional traders? At what price does the stock
experience a surge in volume? Frequent trades (often with volume) happen on
a specific range when: a) the stock establishes a new support/low or
resistance/high; b) the stock is about to make a reversal/bounce; c) the stock
has a pre-arranged deal (cross-transactions, block sale).
7) Volume always precedes price. Stock prices follow the path of least resistance.
8) Have enough discipline to stick to your trading plan.
Trading is not about "taking sides". Focus on learning and respecting different views
while not losing your character. Nobody has the same experience from Day 1. We
all started somewhere, got burned and lost in the middle but the desire and
commitment to move forward is always up to you. Criticize how you trade. Criticize
how you make your decisions. Criticize how you react to uncertainties. That's how a
mature person learns and grows.
OUT OF PRIDE AND PREJUDICE: TROLLING
Out of pride and prejudice, it’s easier to judge others simply by the words they
utter and how others speak of them through:
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• Selective Perception - on the basis of our own interest, background, experience

and attitude
• Halo Effect - making a general impression based on a single characteristic
• Contrast Effects - comparison with other’s characteristic (superior or inferior)
• Projection - attributing our own characteristics to other people
• Stereotyping - judging based on the perception of a group where the individual
belongs to
Do we know who they really are when nobody is looking?
What if…
The boy who you called “idiot” was always beaten by his parents for every little
thing that he couldn’t do right?
The girl who you accused “flirty” have been cheated many times?
The man who you called “insensitive” was spending half of his salary to feed street
children every month?
The woman who you accused “liar” was anonymously helping the old sick strangers
on their medical treatments?
Everyone has a story to tell. A story of hope, fear, anger, love. People love talking
about different stories day by day.
In the world of trading, we meet trolls. There are good trolls (like my previous
mentor) and there are bad trolls. Good trolls keep their identities either for security
or personal reasons and most of the time is simply lurkers trying to learn in silence
without making a scene. Bad trolls often engage in trolling.
There haven’t been many studies in the act of trolling. However I was able to find a
good explanation from Urban Dictionary:
“The act of DELIBERATELY, CLEVERLY and SECRETLY pissing people off, usually
over the Internet, using dialogues…Trolling requires deceiving. As such, victim must
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not know that you are trolling; if he does, you are an unsuccessful troll…The most
essential part of trolling is convincing a victim that either 1) truly believes in what
you are saying, no matter how outrageous 2) give your victim malicious
instructions, under the guise of help.”
Psychologically speaking, bad trolls are impulsive and charming manipulators with
narcissistic motives (status-enhancing activity).
Bad Trolls and Their Stories
It’s inevitable to stick with conventional ways to quench the never-ending thirst for
money, power and fame. That thirst makes stories so complicated, unbelievable or
twisted. Some developed a necessity for being right while finding faults in others.
Sometimes stories are used to gain sympathy - an emotional weapon that will
penetrate and influence your thoughts, decisions and later on, your actions.
Good Troll Gone Bad
Before making any conclusions, there must be a deeper reason why good people
turn into bad trolls and eventually trolling. I couldn’t speak on their behalf - I don’t
even know most of them personally. Life is a struggle to be good and fend off evil
ways. There’s a constant battle of light and darkness within us.
What Newbies Can Do
It’s difficult to be caught between two great walls that are leaning towards you. It’s
even more difficult to choose between two truths. It’s not about taking sides. The
challenge is in going out there ourselves to find the answers to our questions. If
you want free and instant information, try Google. We cannot do what we do not
know. We have to educate ourselves with the resources available to us (from e-
books to hard bounds). Do not rely 100% on mentors and gurus. They are still
people and nobody is perfect. There’s no perfect system either. It’s a series of trial
and error. You do not only manage money, you manage risks. It’s not prediction
but probabilities that will determine your chances for a successful trade. Keep the
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motivation and energy until you feel comfortable in a strategy. Preparation.

Execution. Evaluation. Repeat. Consistency is key.
Which story do you want to believe in?
The choice is yours. All I know is that real stories are always better than made up
stories. Sometimes even the simplest stories could bring great inspiration. It won’t
only be as how as it is told but how it was actually lived. How you live or lived is
your story.
“Educating the mind without educating the heart is no educating at all.” - Aristotle
COGNITIVE BIASES
We make a lot of decisions everyday from as simple as choosing the food we eat or
the clothes we wear to more complicated decisions of choosing the right career or
partner in life. We have our own "predefined standards" based from experience. We
may develop presumptions or hunches towards people we haven't met or events
before it even occur.
Cognitive biases are common and inevitable. Sometimes we encounter situations

wherein we are forced to think fast but end up confused or lost.
In trading, it's also important to watchout for cognitive biases that could prevent us
from seeing and recognizing what is real vs perceptions and facades.
Image credit: Samantha Lee and Shana Lebowitz/Business Insider
29

30

ARE YOU TRADING THE MARKETS OR ARE THE MARKETS TRADING

YOU?
Everyday we see a lot of stock picks, opinions and analysis in social media, in our
own news feeds. There’s obviously a high level of hype all over the Internet. It’s
tempting you to trade now and frequently to be an active trader. Long term has
shorter time frame in a millennial’s mind.
Remember: Everyone has an agenda/objective (mostly to make money in stocks

trading), everyone is trying to sell/tell you something - whether it’s the market,
false guru or other traders.
Stop playing the blame game just execute the trading plan. Because once you have
given others the right to fool you, you already lost the chance to learn. There's no
such thing as to learn by being foolish. Blaming others is like hiding the bad habit of
"bahala na", blindly following recommendations and then you'll probably end up
irrationally thinking of something that would justify this behavior.
“It was sort of like a game of Poker. You play your opponents, not your hand. At times
intuition played a part. You learnt how people would move and you had to act fast but the
most important attribute was neither instinct nor patience. It was, KNOWING when to be
instinctive or patient.” Excerpt from "Deadstock: The Story of a Wall Street Trader" By Tom
Robertson, Antony Hammond
At this time the PSEI is a make or break at 7200, check your positions. Watchout
for opening gaps and thinning volume on uptrend. Trade the range if you don't
have a good base, remain liquid and reserve fund if you cannot monitor your
position(s). Use fill or kill orders to find icebergs. Locate the brackets / intraday
limit orders to identify temporary support and resistance. Know when to go long or
short.
There is subjectivity in the interpretation and inference of potential future price

action based on historical price behavior because each analyst will interpret and
infer future price action based on his or her own experience, knowledge, objectives,
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beliefs, expectations, emotions or temperament, psychological biases and

sometimes personal interests.
DANCING WITH THE WOLVES
The strongest instinctive force in humans is to fight for survival. In the stock
market, most people strive to make a profit.
Regardless of how many stock market trading books one reads, it will always be
about the same old game. They will play with your emotions; they will mess up
your logic. You will be tempted to break your own trading rules.
It is impossible to discern the ulterior motive behind every trade. However, one can
already learn a lot by observing. For example, how market operators use sentiment
or volume to drive stock prices up or down. This can be done by finding a group of
participants (or brokers) that trade actively and act similarly. You just don't make
analysis based charts and financials. Study local and foreign investors' behavior and
activity.
You have to be aware of the manipulation that is currently taking place. Is it

informational or transactional? Informational manipulation involves market
participants/operators who spread false rumors or misleading information to
influence stock prices. Transactional manipulation is also referred to as the volume
play wherein market participants/operators creates an illusion of market activity by
increasing trading volume and liquidity.
Will the market always be manipulated? Yes, probably in the short term but not
perpetually. At some point in time there has to be a check and balance in free
markets thus some securities cannot remain overvalued or undervalued forever.
Will the market makers always manipulate you and operators like how a predator
hunts its prey? Or are you willing to learn how to dance with the wolves?
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SLOW AND STEADY WINS THE RACE
It seems that most people today are in a hurry. Rushing to get ahead everybody
else. Rushing to get early to the office to avoid a memo. Rushing for promotion at
the shortest time possible. Rushing to settle down and have a family. Rushing to
look more matured by imitating trending styles from head to toe. Rushing to get
things done according to plan.
In the world of stock trading, newbies aggressively aim for quick profits. Newbies
are lured into different investment scams. Newbies are slaughtered like hogs by the
pack of wolves. It happens all the time because of greed.
There is absolutely nothing wrong with the goal: "to make money in stocks in the
short-term or long-term." However trading should be treated as a process and not
as a race. One way or another, you will outgrow other people who do not exert
much effort in studying and developing their skills. Since it is a process, there has
to be a system because this will provide a balance between the normal life and your
(hidden) addiction in trading.
Remember 3Ps – Purpose, Patience, Perseverance. Lacking of any of these

three qualities will make you more susceptible to greed. Do not be envious or
jealous of other people’s success. Instead, focus your energies in finding better
ways to overcome your own weaknesses.
You can be a good and successful trader but do not forget that there are also other
aspects in life that can make your learning process more meaningful. A good
character is better than a famous title and a good heart is always better than
recognition.
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A TALE OF ARISTOCRACY
When two to three DUKES meet, they do not spend (or waste) whole day or weeks
or months talking, arguing and knowing about charts and indicators. Perhaps a little
bit on global markets. Unlike the PEASANTS who sweat all day long to feed a
hungry family.
It's usually fast transactions - and by fast, they only need to agree on buy and sell
price, most of the time without paper trails.
Then they summon the WOLVES who will hunt in packs to work on the "how" and
"when"; the PAINTERS who will bring their visions to life; the SCRIBES who will
write the "present" and history.
And when the bell rings, the story shall be known, fools will be thrown into the cliff
and the hogs will be slaughtered one by one.
Unfair advantage? Naahhh. It is just the way it has been or maybe you haven't
noticed yet.
Be careful, the WOODS is a dangerous place. Come prepared.
THE ONE WHO GOT AWAY
As indices and prices swing back and forth with the media broadcasting positive and
negative press releases, we tend to overlook simple but effective ways of
minimizing loss.
The trend should be our friend but sometimes we ride what's trending in social
media not what is technically sound. Hype built on rumors, seemingly positive or
realistic figures and stories carries us away. The sad part is we are the ones left
hanging on stocks with so much paper loss. Our failed momentum trades
transformed into "long term investments".
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Recognizing our emotions can help us manage our risks. It's not enough to know
the logical side of trading, there's also much to learn on the psychological aspect.
Opportunity knocks only once. Twice, if you get lucky. Next time it does, be wise
enough to do what should be done. Otherwise you will be among the herd who's
always left with nothing.
The one who got away (profitable) should've been you.
A BAD TRADE DOES NOT MEAN A BAD LIFE
With the market volatility due to global conditions, it's inevitable that we as
newbies get caught in the "bull trap" and end up cutting huge losses or worse -
hoping for a major reversal of our favorite stocks.
Most of us who will be whipped out of the market may no longer get back as an
investor or trader because of the "trauma". Only few survive the unforgiving
correction and unpredictable movement.
Is there really something good left after getting burned in our trades?
Well it depends on your attitude, on how you'll take and handle the loss.
Perhaps it's the best time to do a reality check:
What went wrong? Why it went wrong? Maybe there's a lack of preparation and
proper knowledge. Maybe it's hype or bash. Maybe it's emotional panic. Warren
Buffet said, "Unless you can watch your stock holding decline by 50% without
becoming panic-stricken, you should not be in the stock market."
What can you do about it?
Although it won't happen overnight, you have to do what it takes to control your
emotions. You can attend stock seminars to gain proper knowledge but more
importantly, you will need a mentor. You also have to invest time and passion in
35

learning about the stock market. Learning includes making expensive mistakes. You
need to have your own risk management strategy because only you can define how
much loss or profit is good enough. Next time follow your trading rules.

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CATALYSTS, TRENDS AND SEASONALITY
GET THE TRUTH BEHIND THE HEADLINES USING MAJOR CORPORATE

DISCLOSURES
Forget about “hot tips”. Today, most of the vital information that can help investors
makes sound decisions can be viewed online. Go to http://edge.pse.com.ph/
Listed companies in the stock exchange are obliged to comply with reportorial
requirements governed by Securities and Regulations Code, Corporation Code of
the Philippines and Investment Houses Law. Whether it’s good news or bad news,
they need to update stockholders periodically. To avoid penalties, companies need
to comply and submit applicable reportorial requirements promptly.
Here are the important and “most awaited” corporate disclosures for investors:
1) General Information Sheet – this is required annually for all stock

corporations within 30 days from the date of annual stockholders’ meeting.
2) Financial Statements – Audited financial statements (income statement,

balance sheet) are submitted on a quarterly (within 45 days after end of
quarter) and annual (within 105 calendar days after end of fiscal year) basis.

3) Material (Public) Information – this information could affect a stock’s

market value and influence decision of existing and prospective investors such
as earnings results, merger activity, acquisition, bankruptcy, changes in
control and press releases. Trading while in possession of material non-public
information is considered as illegal insider transaction.
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4) Ownership Filings – certain investor groups have a special obligation to

disclose their relationship and ownership in terms of the number of shares and
market value especially when there are changes to their current holdings.
These include insiders, beneficial owners and institutional investors or qualified
institutional buyers (QIBs).

a. Insiders – corporate officers, directors and owners who buy and sell
stock in their companies
b. Beneficial Owners – An individual or group having at least 5%
ownership of a company’s shares.
c. Institutional Investors - Qualified buyers such as banks, insurance
companies, mutual funds, pension funds.
Ownership Filings include:
1. Initial Statement of Beneficial Ownership of Securities (within 10 calendar

days after the effective date of the registration statement or after
becoming an officer, director or 10% holder)
2. Statement of Changes in Beneficial Ownership of Securities (within 10
calendar days after the close of each month thereafter)
3. Report of 5% Beneficial Ownership (Within 5 business days after
acquisition)
4. Report of 5% Institutional Buyers (Within 45 calendar days after end of
fiscal year in which such person became obligated)
5. List of Top 100 Stockholders (disclosed quarterly) contains specific list of
individual stockholder names (sometimes including citizenship), Top 100
Philippine Depository and Trust Corp. Participants – investor type,
country
6. Public Ownership Report (disclosed quarterly) contains stock holdings of
directors, officers, principal/substantial stockholders, affiliates,
government, banks, employees (stock options) and lock up shares
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Sometimes there are hidden gems in these disclosures that other investors haven’t
discovered yet. If you want to find out the “real story” behind a company or a
unusual stock price/volume movement, it might be worth your time to dig up.
Want to know more? You can download the Citizen’s Manual on Reportorial
Requirements from SEC website through this
link: http://www.sec.gov.ph/…/Citizens-Manual-on-Reportorial-Requ…
BEWARE: MESSAGES CAN MOVE MARKETS: THE MODERN MARKET

MANIPULATOR
Who would think that technology will dramatically transform the classic game of
pump and dump or painting the tape?
Several decades ago, it would take enormous time, effort and resources to initiate a
market manipulation campaign. Today, even a computer and finance literate can
already contribute to market manipulation through message boards and groups in
various social media sites using the Internet.
Contrary to what most people think, even major companies are not spared from the
misuse of Internet for disseminating false information. Telecoms network giant,
Lucent Technologies and computer network hardware vendor Emulex suffered
major stock price values in a matter of hours due to bogus press releases. This
proves that cyber-crime poses a grave threat to market integrity. The underlying
motives could stem from financial and political interests.
The Short's Handbook: The Modern Market Manipulator
1) Be anonymous, of course.
2) Use 10% fact and 90% suggestion in one's posts. Facts give credibility, while
suggestion does the "sell".
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3) Let others "help" you learn about a stock, thereby developing rapport and a
support base.
4) Use multiple handles, but develop a unique style for each.
5) Use multiple ISPs.
6) Start each new handle slowly to build acceptance.
7) Occasionally, use two handles to "discuss" an issue.
8) Do not show all your cards at once when slamming a stock. It's a war - it's ok
to lose a battle as long as you save enough ammo to win the war.
9) Know your enemies - they will end up being your best weapons.
10) Only slam until the tide starts to turn. Let doubt carry the stock back with the
tide.
11) Maintain an appearance of being open-minded, but slant in either direction is

acceptable.
12) Don't appear meek. No one follows the meek.
13) Strike just as your opponent starts to gather momentum but not before, or
you lose your sting.
14) Don't worry if people peg you for a slammer. The doubt will remain, and that's
what you are after.
15) If pegged, put up a brief fight, then let them feel they've won. This makes
them drop their guard within a few days, and your other handles can take over
from there.
16) When slamming a stock, the intent is to minimize its rise, not to create an
instant plunge.
17) To slam a stock requires you only to kill the dream not the company.
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18) Use questions to invoke critical thinking, and use statements to reinforce.
19) You can be liberal in your questions, but be specific and precise in your
statements.
20) Don't lie but bend the truth.
21) When you are slamming, encourage research beyond calling the company. You
know people are far too lazy, and it's only doubt you are after, not
confirmation.
22) When you are slamming, discourage people from taking the company's word -
encourage them to seek outside proof. If the company's history is bad, point
them there.
23) When you are slamming, refer to missed deadlines and weak financials.
24) When you are slamming, if the price rises, blame it on a temporary mass
reaction to a press release rather than real interest in the stock. Point out low
volume and emphasize the selling.
25) Pretend to share the same concerns by learning what they want to hear.
26) And above all else, be unpredictable.
RUMORS AS THE BLACK MARKET OF INFORMATION
Mergers, acquisitions, takeovers, backdoor listings, bankruptcy, resignation of a

CEO…. the list goes on regardless of the season. Despite having the primary
characteristic of unverified information, rumors excite traders in the absence of
news.
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Spreading false information is clearly illegal. However, rumors are everywhere and
it is normal to read or hear about it in a financial market where people heavily rely
on news. The rumors fill the gap or the lack of verified information. What makes it
illegal is when it is used for insider trading and price manipulation. The distinction
between the two:
1) Price Manipulation: Insider takes a position (Trade) and spread the news
2) Insider Trading: Insider receives verified information and acts upon the
private information. Inside information can be disguised as rumors.
In both cases, the insider closes his position making a profit. Note that either an
individual or group of people may be involved in such acts.
Trading Strategies:
1) Be careful what you read or hear. Verify the source and the information itself.
What was the context used for the claim? Did it come from a reputable
source?
2) Observe brokers’ trading patterns if possible especially when you suspect that
price manipulation such as pump and dump scheme is under way (i.e.
speculative stocks). Identify unusual transactions. Volume is key.
a. During a period of consolidation (defined narrow trading range), there are

less broker transactions. The smart money accumulates without causing
much price movement. Most of the time, the volume and number of
trading transactions increase as the price goes up.
b. Which broker(s) frequently trades this particular stock? Does the broker
only buys or sells on a given day? Does the broker reverse this the next
day he traders or does he buy or sell exactly the same number of shares
on a single day? Who is acting as the intermediary broker (buy and sell
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transactions done on a single day)? Who is acting as the principal buyer

or seller? It becomes tricky with done thru transactions.
c. As a stock moves nearer to its breakout point, expect a lot of hyping

campaign in the social media (or through rumormongers). Check who
among the brokers are getting out (selling their positions) if a stock price
move is significant.
3) Fear is more powerful than greed as it raises more uncertainty. Negative news
will have more adverse effect on stock price movement and investor sentiment
than positive news. (Example: WEB). In some cases, even though the news is
bad, stock prices remain unaffected or don’t go very low.
4) Even though the local headlines or news are positive, global economic news
can also affect the Philippine Stock market.
5) As you plan your trades, think about liquidity. For most illiquid or thinly traded
stocks, it’s easier to buy than to sell. When the price spread becomes too wide
intraday, it will be difficult to trade without having a good base.
And since it's still the Ghost Season I’ll be reminding you again...
Watch out for:

Pump and Dump
Whipsaws
One Day Wonders
Dead Cat Bounce
False Breakouts / Head fake
Misleading Posts of Hypers & Bashers
Iceberg Orders
Wide Spreads
Gap Ups/Gap Downs
Falling Knives
Rumors
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LEADING ECONOMIC INDICATORS
Leading Economic Indicators (Inflation Rate, GDP, Labor Market Data and Interest
Rate)
Leading economic indicators (LEI) are market movers. Earnings and other corporate
disclosures may only have a short-term effect on stock prices. However, economic
conditions tend to have a greater and longer impact on the market movement.
Leading Economic Indicators (LEI) determine whether the economy is starting to
recover or when there is an upcoming bull or bear markets.
Inflation rate - How much of the real value of an investment is being lost? Our
100 pesos today may not buy as much in the future (purchase/buying power).
When inflation kicks in, it has the tendency to decrease the corporate earnings due
to higher costs.
Gross Domestic Product – How much finished goods or services are produced
within the country on a yearly basis? If the economy is growing then it would drive
positive sentiment from the investors.
Labor Market Data (Employment and Unemployment Data) – A rise in

unemployment generally signals a decline in interest rates (good news for stocks)
and a decline in future corporate earnings and dividends (bad news for stocks).
Bottom line: Even if a company has good fundamentals, various external forces
such as economic condition can affect it. Given the correlations between stock
prices and economic conditions, it’s best to consider leading economic indicators in
your investment decisions.
How to access the information?
You can visit Bangko Sentral ng Pilipinas to view the real time Economic and
Financial Data for the Philippines:
http://www.bsp.gov.ph/statistics/sdds/sdds.htm
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Or search BSP statistics database:
http://www.bsp.gov.ph/statistics/statistics_key.asp
What’s up with INTEREST RATE?
One of the most influential indicators that affect the consumers, businesses and
stock market is the interest rate.
How does interest rate affect the consumers?
Higher interest rates tied up to special deposit accounts means higher returns for
savers. On the other hand, interest rates for credit cards and loans may rise or fall
depending on the prime rate used (lowest rate of interest at which money may be
borrowed commercially). Higher interest will make it difficult to avail car or housing
loans for a typical employee.
How does interest rate affect the businesses?
When interest rates fall, it will be easier for businesses to finance their expansion
and operational activities. At the same time the economy could benefit from
increased spending. This generates a positive outlook on the economy and
eventually, stock market.
How does interest rate affect the investors and stock market?
As an investor, the interest rate is the amount you earn, but as a borrower, it's the
amount you have to pay. When interest rates fall, the stock market rises and when
interest rates rise, the stock market falls. Stocks appear more attractive compared
to bonds when interest rates fall. For example, a 5% return on bond is lower than
capital appreciation derived from stock trading. When the buyers for stock market
increases, the demand also moves the prices higher.
Who decides on the interest rates?
In the Philippines, BSP (Bangko Sentral ng Pilipinas) provides policy directions in

the areas of money, banking and credit. The powers and function of Bangko Sentral
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are exercised by its Monetary Board such as the conduct of monetary policy and
supervision of the financial system.
As of the latest Monetary Board Meeting at Bangko Sentral ng Pilipinas last month,
it has been decided "to maintain the BSP's key policy rates at 4.00 percent for the
overnight borrowing or reverse repurchase (RRP) facility and 6.00 percent for the
overnight lending or repurchase (RP) facility. The interest rates on term RRPs, RPs
and special deposit accounts (SDA) were also kept STEADY. The reserve
requirement ratios were left unchanged as well."
(Source: http://www.bsp.gov.ph/monetary/monetary.asp)
WHAT MARKETS DO TODAY DETERMINES FUTURE
"Artificially" keeping interests low no longer have much effect on stimulating

economy growth. That's clearly a manipulation. EU is still facing migrant crisis.
China's economy is slowing down for years. At the start of 2016, China’s exports
and imports fell substantially. Crude oil moving below $30. And so on..
Observe real market trends. Go beyond what theories and conventional wisdom
teach in textbooks and universities. Experience it for yourself because stock trading
is not an ordinary game. It goes beyond disclosures. It is not enough to distinguish
what is bearish from Bullish but also crucial to understand what professional market
participants do in any given sentiment especially during Capitulation. Methods are
also evolving. Study how the market moves today because it is a survival skill - if
you want to achieve financial freedom, retire young, send kids to school 5-10 years
from now...
Bring reason to chaos, a reason that is developed with one's ultimate desire and
passion to learn through time with consistent efforts despite the odds.
Brace yourselves for another bumpy ride.
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BONDS THAT MATTER
In basic terms bonds issued by corporations are like IOUs. Issuing bonds is another
way of raising funds wherein investors agrees to lend corporations specific amount
of money for a specific period in exchange of periodic interest payments until the
investor's loan is repaid at it reaches the maturity date.
Instead of borrowing from banks, bond issues can provide more freedom to
operate, invest in its growth, infrastructure and other development or expansion
projects with no strings attached. This attracts investors.
What compels companies to issue bonds than stocks?
1) Protection of Ownership - the bondholders remain creditors and not owners

rather than issuing additional company shares that spread ownership and
earnings across a larger pool of investors.
2) Simple Record keeping because every investor gets the same deal.
3) Aside from that it also reduces the tax liability just like every other type of
corporate debt.
4) Bonds have maturity dates too unlike stocks, which investors can hold forever.
By the time the company owners intend to buy back shares, they have to offer
a premium price.
IS BUYBACK A GOOD THING?

Most of the time people see stock buyback as positive news especially when indices
start to decline and major correction is anticipated. When a publicly listed company
buys its own stock in the open stock market, it is considered a "stock buyback" and
47

the shares purchased are re-classified as "treasury stock." Simply put, it is a

company re-investing in its own business.
What happens when a company initiates buyback program?

1) Increase Shareholder Value – It reduces the number of outstanding shares,
which makes the stocks more valuable and attractive to investors (earnings
per share) – yes even if the earnings are flat.
2) Increase Stock Prices – Attractive earnings per share will result to an
increase in demand
3) Increased Float – The remaining shares now represents a larger portion of
the float (outstanding shares minus insiders’ shares and treasury stock)
Other important considerations prior to “riding” the buyback program:
1) Volume / Quantity of the Buyback – Millions or billions worth of shares

means the company has substantial cash reserve to make the repurchase.
However, don't assume that a large number of shares is actually equivalent to
a large percentage.
2) Buyback Price – How a buyback is executed can make a difference. Large
buy orders at market or even at premium price have stronger impact. There is
also a possibility that a portion of announced buybacks are not executed.
3) Reason for Buyback – It’s not enough to know that a company has cash to
reinvest. An investor should also verify whether the repurchase will be used to
facilitate the growth of the company, acquisition or other expansion plans.
While there could be positive effects of buyback program, one should not
overlook the other factors. Sometimes buyback program fails to save a
declining stock. Always perform due diligence.
FEAR HUNGRY JOCKEYS THAN GHOSTS
At this point in time, many of the investors especially those who are just about to
enter the stock market may ask: “Should I buy stocks during the ghost month?”
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The sudden changes in stock market prices from August to September have been
attributed to the traditional Chinese superstition. Here's a snapshot of the Philippine
Stock Exchange Index (PSEi) in case you're wondering how the market performed
for the past nine years.
Investing and Trading Strategies for August
For Investors: Majority of the index stocks experience "correction" from August to
September. Long-term investors like those who practice peso cost averaging take
this opportunity to buy at a discount. They are the ones who are after intrinsic
value than price movement. For investors with lesser risk tolerance, some can lock
in profits and re-enter the market once the reversal is confirmed.
Others switch to defensive stocks wherein there is steady demand for goods and
services. Experienced investors also perform portfolio rebalancing.
For Traders:
Before riding the hype and momentum of third liners, make sure that you can
monitor this trade. Short term plays are prone to pump and dump scheme. Yes,
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there are stocks that can rise as far as 50% only to fall the following day. Don't get
caught up holding the last bag.
Others are told not to buy or sell during this period. While most investors who
believe in superstition tend to stay away, newbie traders must beware of the
hungry jockeys who feed on third liners or speculative stocks. Speculative stocks
and ceiling plays become attractive and tempting. Adjust your trading and risk
management strategy depending on the kind of season you’re dealing with.
Equip yourself with basic knowledge technical analysis.
Know the type of play
Is the active stock being traded near 52wk high for a potential breakout play? Be
careful if the stock is sitting few points above the 52wk low as the reversal is more
prone to failure once a strong shakeout or sell down is initiated by the operator. Do
not catch falling knives. No one can always predict the bottom.
Is it a sleeper stock that has completed a long consolidation phase?
It is important to recognize the patterns but always remember that even tough the
exact patterns do not happen, a resemblance of the BEHAVIOR will always be
prominent.
Historical Price Charts
Check the historical price charts look for buying and selling patterns. Is this stock
being played on a certain year or month consistently?
Support and Resistance
Check the ceiling and floor price. Support and resistance levels could be influenced
by the rule of round numbers. For example, if the target is 5. Check how the stock
will trade between 4.80 – 4.99. Resistance levels must be broken with good volume
to become sustainable. Previous resistance should become the next level of
support. If it does not hold above this level, then a failed breakout is more likely to
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happen. Catching up with breakout plays without having a good base also increases
the risk. Wait for a healthy pullback after the breakout as long as it is above 30-
50% of the previous high.
Price and Volume
Watch out for bullish and bearish volume. When price and volume goes up OR price
and volume goes down together, it is considered bullish. If price goes up but
volume does not follow, supply may be thinning out indicating a declining interest
to buy at higher levels. If price goes down and volume increases, the sellers are
dominating and therefore considered bearish. If stock closes forming doji patterns,
check the volume for buy and sell orders. Wait for the next candle that will confirm
a bullish or bearish movement. If stock is in a consolidation phase, look at the
range (if it is moving sideways or forming an imaginary rectangular box). Always
buy near support and sell near resistance levels. Use trailing stops.
Bid-Ask Spread
Don’t get burned by chasing speculative stock movements having very wide bid-ask
spread if you do not have any base. Instead you may opt to wait for pullback or
place buy orders near support levels.
Gains are Gains
Once satisfied with profits, lock in. Sell in tranches if possible. Upsize only when
there is clear sign of continuation supported by volume.
There are also additional technical indicators that can complement and make your
analysis more accurate such as moving averages, divergences and crossovers, RSI,
Stochastics. Just remember to keep it simple.
Will the ghost month effect this year? Let's see... are you prepared?
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IMPORTANCE OF INSTITUTIONAL SPONSORSHIP
Volume represents the buying and selling transactions in the stock market. Higher
volume indicates greater liquidity. Liquidity pertains to how quickly you can get
your money for investment or spending (ex: selling your “x” shares of” ABC”
company). A thinly traded stock lacks both institutional sponsorship and market
liquidity.
Investment houses, mutual funds, pension funds, banks, insurance companies are
the common institutional buyers. As an investor you need to be careful because
these institutions support not all stock picks that appear in the newsletters.
Aside from the technical trend of stocks, one must also monitor the quality and
quantity of institutional sponsorship.
According to William O’ Neil’: “It’s less crucial to know “how many” institutions own
a stock than to know “which” of the limited number of better-performing
institutions own a stock or have bought it recently.”
As wise traders, remain cautious because the same institutions can provide a good
support (huge source of demand) which will push prices higher OR trigger a sell-off
when fundamentals weaken and if a bear market begins.
Which institutional buyer(s) are you following? Does it help you with your
investment/trading plan? Feel free to share your thoughts and experience.
INVEST IN SOUND BUSINESS AND GOOD CORPORATE GOVERNANCE
Today, it’s not enough to have a popular brand or various advertisements and other
kinds of publicity to make a company attractive to potential investors. Strong stock
price do not always equate to strong management. When you select a stock,
remember that apart from the business, you are also investing in the people who
own and run them. Know the key people (CEO, COO, CFO, Board of Directors etc).
52

What kind of businesses are they involved in? How long have they been working for
the company? What are their vision, mission and plan for the company moving
forward? Are they innovating their products or services? Are they meeting or
exceeding market expectations? Are they only concerned whether the company’s
shares are over or undervalued? Or, they take a step further and use market
signals to compare and evaluate their expectations with that of the market?
The effectiveness of the organization does not only rely in its ability to generate
revenue and profits over the short-term. Look for leaders who consistently
demonstrate their commitment in providing business value to customers and
investors. Participate in annual stockholders meeting or in Investors’ Briefing.
THE GLOBAL MARKET: CRUDE OIL
At this moment, crude oil is one of the most present and essential resources in
everyday life. The oil industry is one of the most powerful branches in world
economy. More than four billion metric tons of oil is produced worldwide annually.
Nearly one third of this amount is generated in the Middle East region. Saudi Arabia
and Russia are the world’s leading oil producers, each responsible for around 13
percent of the total global production. The United States is the third top producer,
generating nearly one tenth of the world's total oil production.
What drives crude oil prices? Volatility explained...
1) Many types of crude oil are produced around the world. Variations in quality
and location result in price differentials but because markets are integrated
globally, prices tend to move together.
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2) Crude oil prices are the primary drivers of petroleum product prices like
gasoline and in some cases gasoline breaks away due to refinery outages or
other downstream events.
54

3) Crude prices react to a variety of geopolitical and economic events, which

disrupt supply or increase uncertainty about future oil supplies - this tend to
drive up prices. Once the problem subsides and oil and product flows return
to normal, prices usually return to previous levels.
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Dynamic relationship between Crude Oil (OIL) & Global Steel Index (CRU)
The impact of crude oil prices and the global steel price index on the economy is
closely related to the shipping industry. Marine transportation is heavily dependent
on the supply of crude oil, and crude oil costs account for a significant portion of
operational costs.
A study has been conducted to establish the dynamic relationship between the
Crude Oil and Global Steel Index.
The results indicate that:
1) A unidirectional relationship exists between the crude oil price and the global
steel price index, which means that crude oil price is only be affected by its
own price movement. On the other hand, both its own index movements and
crude oil price volatility affect the global steel price index.
2) Crude oil price moves prior to the global steel price index, which means
increases in crude oil price will increase the global steel price index.
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In Philippine Context:
Peso - Dollar Rate: Stronger peso means more barrels for major oil importers like
the Philippines
Supply and Demand: Discovery of new sources and technological developments led
to new producers and eventually caused an increase in supply which means more
barrels for oil importers and dropping oil prices. However if the demand is not able
to cope with supply due to global and local economic conditions, there will still be
an oversupply.
Philstar Columnist Gerardo Sicat provides a detailed historical perspective on Crude

Oil prices from the rule of economic and political empires, the aftermath of World
War II and state diplomacy. Overall, crude oil prices are greatly affected by politcal
and economical conditions.
For further reading please refer to the citations below:
http://www.statista.com/topics/1783/global-oil-industry-and-market/
http://www.bapress.ca/Journal-
7/A%20Study%20of%20the%20Dynamic%20Relationship%20between%20Crude%20Oil%
20Price%20and%20the%20Steel%20Price%20Index.pdf
http://www.eia.gov/finance/markets/spot_prices.cfm
http://www.philstar.com/business/2014/11/03/1387309/falling-oil-prices-boon-philippine-
economy
http://www.philstar.com/business/800023/crude-oil-prices-historical-perspective
57

4
ORDER TYPES AND TAPE READING
ALL ABOUT ORDERS

Going Short or Long?
Long Trade = profit from a rising market
Short Trade = profit from a falling market
Buy or sell?
At which price — the current price, a higher price or a lower price?
Types of Orders:
1) Market Orders (TRADE NOW AT THE CURRENT PRICE) – executed

immediately at the prevailing rate (Buy/Sell)
2) Limit Orders (TRADE AT YOUR PRICE OR BETTER) –guarantees the specified

BUY/SELL price but NOT the execution. It may be executed immediately or not
at all.
3) Stop Market Orders (PROTECTS AGAINST BIG LOSSES) - This is a market

order that is triggered once your stock reaches a specific target price, the stop
price. IF Buying or Covering a Short: Act. Price must be higher than current
price. IF Selling or Shorting: Act. Price must be lower than current price.
4) Trailing STOP LIMIT – Same as stop loss BUT when it is activated (your
stock reaches a specific price) instead of becoming a market order, it becomes
a limit order.
5) Trailing STOP ORDERS (MAXIMIZE PROFIT, MINIMIZE LOSS) – stop order

based on a percentage change in the market price basically a dynamic price
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that adjusts to the current market price of the stock. When a trailing stop is
triggered is become a market orde
6) Sell Short – Betting that the price will fall so you are borrowing the stock at
its current price and selling it immediately, come back at a later time, hoping
to get it at a cheaper price. SEC only allows for selling short to occur on an
uptick or a zero-plus-tick. Therefore, you cannot sell short a stock that is in
the process of plummeting (dropping significantly)
7) Buy to Cover – After selling short, you buy back the shares you borrowed and
return them to the market
8) Order Fill Amounts - All or None (AON) – broker will only fill your if the full
amount of shares desired can be bought.
Order Durations:
1) Day Order - An order that lasts until the market close
2) GTC Order (Good ‘Til Cancelled) - An order that lasts until the trader cancels
it. (ex: valid until 60 days)
3) Fill and Kill Order – If order is not filled at the desired price, it will be
cancelled automatically
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WHAT’S SO SPECIAL ABOUT BLOCK TRADES?

A block trade or block sale corresponds to a very large volume of securities, which
does not go through the automated order matching system, but instead, it is
directly entered into the trading system. The price is usually pre-arranged (“done
deal”) between the brokerages and its clients (usually large institutions or private
investors). The investing public is informed of these transactions through their
respective stock brokerage. In the Philippine Stock Exchange, the minimum value
for a regular block transaction is P20M, the block price typically range between +/-
5% from previous close.
Block trades can be used to maintain market liquidity especially when they are
executed properly. If not handled appropriately, it can trigger a sudden rise or fall
in stock prices. Sometimes traders use the block sales as indicator when executed
at higher prices because it “might” be motivated by good news (buying large
block). Conversely, selling large blocks “might” indicate that institutional investors
anticipate (or has seen) bad news about the company therefore unloading shares.
Will it move the market? That would depend on the size of the transaction
compared to the typical volume of shares traded on a stock in any particular day
(average volume traded). The price impact will also depend on the stock’s market
capitalization, liquidity and if it is part of a major index that most fund managers
and investors watch.
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TICKER TAPE READING: IT SPEAKS TO THOSE WHO LISTEN
The ticker represents the “present”. It tells you three things:
WHO is in control
WHAT stocks to buy, hold or sell
WHEN to buy, hold or sell.
Ticker tape reading technique may not be applicable or preferred by most traders.
Based on my experience so far it’s been very helpful in my intraday trades since I
only use mobile phone for trading and most of the time I don’t have access to
charts (even intraday). Ticker tape reading is a good mind exercise. It's somewhat
similar to “database” concept wherein you try to remember the previous/current
price and volume of a stock you are monitoring making sure you secure a good spot
within the intraday trading range. It takes a lot of patience and experience to
develop a ticker tape reader instinct. In fact I am still learning and unlearning.
Sharing some tips - it’s up to you if you want to try.
1) FOCUS (it’s just between you and the ticker), the ticker will tell you if a
bad/news came out anyway.
2) Distinguish the market makers or big brokers from retailers. Research about
big brokers (ex: those that are driven by foreign investors/traders).
For me the first 30 minutes or hour has always been crucial because it can
already tell you which stocks are leaders and laggards. Check which sector and
stock(s) in that sector is/are also leading.
3) Limit your picks - you cannot trade/monitor 15 stocks and expect to gain from
all of it. As a starter choose only 1 or 2. You can add later on when you
developed the instinct.
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4) Volume is the engine of the trade. Pay attention to supply and demand (bid-
ask spread).
5) Paper trade or simulate to avoid/minimize losses before actual trade.

Start with low priced/penny stocks (0-10).
6) Ticker can be tricky – watch out for cross sale transactions, false rallies, stock
transfer from strong to weak holder and jockey plays. These can give you false
assumptions that a stock can sustain its upward momentum.
Beware of fake bids which appears/disappears from time to time. Check the
bid-ask spread. Some jockeys tend to buy up to catch your attention.
Some brokers may buy in consecutive batches (with not much volume). Some
just buy a board lot and minutes later you’ll be surprised that the stock price
has started to jump. Check time and sales transaction.
7) As a starter, try to avoid very volatile or highly fluctuating stocks.

Select a stock that has moved 2-3 points right after opening. Buy when there’s
enough bid volume. Only initiate a panic buy if the momentum is sustainable.
Likewise initiate panic sell when momentum significantly go against upward
trend.
8) Hold if the stock is still moving in an upward trend at least every 3 to 5

minutes with good volume. If stock goes down 2-3 points don't sell
immediately, the market maker may only be testing your loyalty.
Sell if the stock starts to pullback and buy back only if there is enough volume
to push the price up again. Sell if it the price remains unchanged with very low
volume (again, check bid-ask spread). Sell if you have already met your
target.
9) If possible, use other tools and indicators such as Intraday Charts, RSI,
Stochastic, Standard Pivot, and Fibonacci Retracement Levels.
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10) Be quick. Buy and sell at will. Don't argue with the ticker tape. If you entered
a trade and start to lose about 3-5% in a matter of minutes - get out, wrong
entry.
11) Recognize the general trend before testing the market. You don't do intraday
trading in a crashing market.
12) Ticker tape reading works best in a bull market.

What goes up today may not go up again tomorrow especially for stocks
without an established fundamentals. That's why I trade penny stocks
intraday. I don't care about fundamentals in this case since I only trade by the
numbers shown in the ticker.
13) Intraday trading requires time. If you cannot monitor, don't even attempt.
Most of the time I do intraday trading in the morning.
14) This is one of the skills that I would like to develop as I spend time and effort
in studying the market (especially how the market makers operate).
The art of ticker tape reading is most effective with the help of time sales; Use
mental stops, support & resistance, volume and price spread. The tape tells
whether you need to buy hold or sell at the current situation and you must be able
to determine if the operator is accumulating or distributing as soon as it is
manifested.
However, not all stocks that pass in front of you are worth trading and must end up
in your Watch List. Do not be tempted to ride these stocks especially when you are
lacking knowledge on their businesses. Do your research.
While it is true that you should never argue with the tape, you must not allow it to
fool you either.
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Don't worry, you can still make time for trading and investing. Your trading profile
and objectives will dictate how much effort and commitment you need to put in.
You don't necessarily have to start trading full time. It is an ongoing process of
learning and unlearning.
64

5
THE TRADING ACTION AND TECHNICAL ANALYSIS
LOOKING BEYOND CHARTS: A HOLISTIC APPROACH TO TECHNICAL

ANALYSIS
Give one stock chart to 10 different chartists and you could have 10 varying
interpretations. This is because there are biases unique to each analyst. Each has
developed his or her method(s) of judging or evaluating stocks including risk
parameters. What appears attractive to a swing trader might not be acceptable for
a position trader, vice versa.
A lot of traders think that Technical Analysis is just merely reading or interpreting
price charts and patterns. In reality, technical analysis can also include statistical,
sentiment and behavioral analysis.
Classical technical analysis use basic indicators such as chart/bar patterns,

candlesticks, support and resistance, oscillators, market breadth and cycles.
Statistical analysis involves quantitative methods.
Sentiment Analysis includes psychology of market participants like insider trading

and seasonality of stocks (based on macroeconomic indicators or global market
conditions).
Behavioral Analysis studies market reaction like herd behavior everything that is
related to emotions, expectations and biases of other market participants.
One can combine the methods mentioned above.
Every bullish interpretation can have a corresponding contradicting bearish

interpretation.
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Remember that there is no perfect system. It is the market that decides the overall
direction and therefore as a trader, you have to be prepared for both positive and
negative scenarios. Risk management is vital.
DIFFERENT PRICE FORECASTING APPROACHES
SPECULATIVE TRADING IN THE PHILIPPINE STOCK MARKET
"Speculation is only a word covering the making of the money out of the manipulation of
prices instead of supplying goods and services." - Henry Ford
For the past three ghost months...

In 2014 I missed a lot of profitable trades because I got too scared of the
correction.
In 2015 I spotted some speculative stocks, which I was able to trade but I got
whipsawed in some trades.
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Now in 2016, I've been observing how speculative stocks are traded.
I'd say each year offered different lessons.
Hope these insights can provide you guidance.

*Speculative stocks in this article pertains to shell companies (no operation), small
to micro caps (most of them priced below 1 Php), there is price movement in the
absence of disclosures.
1) Trading Volume / Value turnover - Ghost month is usually characterized by
thin trading volume (overall market). During this period, do not be surprised if
a shell company awakens and suddenly hits the ceiling or floor price. One or
two day wonders are rampant. Prepare your eyes and ears for rumors.
Speculative stocks move even without disclosures. Recently despite the ghost
month, we've seen stocks that broke out of the previous 52wk high (MAXS,
PRMX to name a few). The same thing can happen to speculative stocks.
2) Use Multiple Time Frames - There have been several cases wherein
speculative stocks got mixed technical indicator signals. Using multiple time
frames can increase the accuracy of your trading analysis.
3) Liquidity - It seems that the best time to buy illiquid or thinly traded stocks is
when you can wait. Sometimes they are "sleeping" above support levels
and/or moving averages for days, weeks or months. The last thing you'd want
to happen is to be forced to sell at lower prices just because there are no
ready buyers.
4) Mind the gap - Stocks can open higher or lower than previous close. Once
momentum steps in, watch the spread (difference between the highest bid and
lowest offer) and the intraday trading range (difference between intraday high
and low). Most of the time, thinly traded stocks have higher or wider spreads.
Each stock has a corresponding fluctuation/tick for example increments by
0.05, 0.02. To illustrate this, let's use FJP when it was trading between 6.62 -
7.25. The bid and ask table shows you 7.05 | 7.19 in the first row. Obviously
this is a wide spread. Imagine that the operator is tempting you to buy at an
expensive price of 7.19. And when you fall for this, he will sell some of his
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shares at 7.05. Since you do not have a good base, you already have a paper
loss of 0.14 points. Emotionally or psychologically if you are not used to this
setup, it will immediately hit your stop. Only to learn that the operator
continued to buy and mark up even after you sold your position. You just got
whipsawed.
5) Use protective stops and limit orders - Think of limit orders as [brackets].
Market makers or operators usually place a huge order quantity near support
and resistance levels. Since you are trading speculative stocks, setting stops
can help you protect your capital gains. Speculative stocks are not
recommended for long-term investors with low risk tolerance.
6) Set aside a portion of your capital for speculative stocks - Limit your
trading budget i.e. 5-10% of capital especially if this is your first time. Better
yet, do paper or virtual trading. It's all about Risk vs Reward.
7) Watch the volume - Don't be deceived by stock price alone. Remember that
speculative stocks having wide spread can rise significantly even with less
volume.
8) Recognize Iceberg Orders - Sometimes there are small order quantities
posted at the sell side that seems to be "refilled" every time another trader
buys up - the tip of the iceberg. It is actually a large order.
9) Avoid overtrading - As much as possible choose 1-2 stocks and stick to your
trading plan. Switching between different stocks increases the risk of losing.
10) Knowing When to Be patient - If you have a trading plan for a speculative
stock, wait until your order gets filled. Do not buy at an expensive price.
Similarly do not chase a declining stock unless there is clear sign of reversal or
bounce.
One of the most difficult things to learn is how to trade the gaps on illiquid stocks.
It's not just about timing but being able to recognize its behavior. The next two
months can either break or sharpen your trading skills. Opportunities are disguised
as challenges and sometimes by fear.
Choose your "battles" wisely.
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THE TRADING ACTION BEHIND THE PSE TIME TABLE
Philippine Stock market opens at 9:00AM and closes at 3:30PM from Monday –
Friday (excluding holidays and weekends). Brokers, traders and investors can enter
their orders from 9AM until 9:29AM but there will be no matching of orders yet.
Trading hours will commence at 9:30 wherein matching of orders will be done by
the system. There will be continuous trading between 9:31 until 11:59AM. Market
recess is from 12NN to 1:29:PM. Continuous trading resumes by 1:30PM until
3:16PM. Stock closing prices are set between 3:17-3:19PM and orders cannot be
cancelled or modified. Orders are matched based on the pre-close from 3:20-
3;29PM. (See image below courtesy of Regina Online Investing)

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For most of the position traders and investors who have a long time frame, the
daily fluctuations do not matter as long as the price is within the major trend and
the company is performing well fundamentally.
For short to medium term traders, it is important to recognize the phases to every
trading day. They key is to monitor a few stocks very well in order to determine
how current global and local economic conditions affect price movement. Price and
volume analysis will also help understand why some stocks encounter failed
breakouts and how speculations influence investment decisions.
Here are the phases of the trading action (with samples below on BLOOM and
WEB):
Phase 1 (9:30-10:00AM): The Hype is On (Expect high volatility, breakouts,
breakdowns, reversals, gap up/down)
Phase 2 (10:01-11:00AM): The Real Deal (Breakouts won’t last until this phase
unless it is sustained with volume or follow through)
Phase 3 (11:01-11:59AM) & (1:30-3:00PM): Make or Break - Range Trading,
support and resistance will be (re) tested. If a breakout fails in the morning, the
market maker may attempt to do so before market recess or during the afternoon
session (at least 2-3x within the trading day). Some stocks remain flat during this
period. This could also be the turning point after a downtrend during Phase 1 & 2.
Sometimes the trading range becomes narrow making it more challenging for
traders.
Phase 4 (3:01-3:29PM): The Final Judgment (At this point only one side of the
market will win – the bulls or the bears) During window dressing period, this is
when the “magic” happens.
In the stock market, everyday is not the same. There are various factors that can
influence price stock movement that is why it is important that you know the type
of stock and the season you are dealing with. There can be quick stock plays that
can be done in 5 minutes. There can be uptrend or downtrend that can last the
70

whole trading day (for the index or a selected stock). When an institutional order
needs to be filled, the operator can knock the stock back down before buying at
lower prices with volume. The overall market condition also influences the
sustainability of the trading action.
As a trader, you must learn how to take advantage of these phases to maximize
your profit and minimize your loss.
71

PARABOLIC MOVEMENTS IN STOCKS
Many traders are lured into buying

stocks as they ascend. Who wouldn’t be
attracted to an upward price action
chart?
When stocks go parabolic, it is usually a

warning that a potential reversal is
foreseen like overbought or oversold
condition. As ascent becomes more
parabolic, the sooner you have to plan
for an exit strategy.
If you think you’re too late, or may not

have ample time to monitor the price
action, do not risk your money
immediately. You have to check and
study the quality of the trend before
entering any trade. Remember, trade
based on probabilities.
It’s also better to monitor few stocks

very well and wait for the right moment to act. Because when the time comes and
it is too late, there is only one way to correct the mistake of buying or selling a
stock against its trend, and that is to place and execute a stop loss order.
THE NEVER-ENDING SPECULATIVE CYCLE
Generally, our understanding of the market cycle is associated with the long-term
price movement of a specific index, which includes complete uptrend cycle, or bull
72

market and complete downtrend cycle or bear market. In between, we have shorter
primary market cycle, which is known as the secular trend.
This article aims to explain the existence and significance of interdisciplinary studies
such as Philosophy and Psychology in stock market. It also describes how
perception affects the way an individual understands reality and the challenges
brought by logical fallacies and illusions resulting to individuals inverted reasoning
and poor emotional intelligence. Altogether, these concepts form the Never-ending
Speculative Cycle.
The way we perform reasoning is highly dependent on our understanding of

perception and reality. Plato, one of the great philosophers established the theory
of forms. According to his theory, reality is based on two levels: visible world and
intelligible world. He encouraged readers to have the ability to form their own
opinions instead of being told how to think. In short, be a freethinker. Plato also
came up with the allegory The Cave echoing that knowledge gained through senses
and perception is not knowledge at all, but opinion. Similarly perceptual relativism
defines perception of a situation based on pre-conceived ideas as a result of the
beliefs and expectations from the origin of a group or individual. In a practical
example, let's say most of the people Manila speaks Tagalog while some groups
speaks different dialects. The differences in cultural, scientific and moral
foundations result to different perceptions. Thus we have unique traditions.
The Psychology Behind Stock Market: Fluctuations in the stock market, regardless
of the prevailing trend, is highly attributed to various sentiments from short-term
traders. On the other hand, broader movements in the market (in a span of months
or years) are dependent on the general financial and economic conditions.
Therefore, short-term traders have different perspective from long-term traders. If
majority of the market is composed of short-term traders who decided to go long,
many will be provoked to sell on any sign of weakness. This leads to market
decline.
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Another interesting point of discussion is how perception affects success rate of an

individual. The Speculative Cycle can explain this.
The participants in Speculative Cycle include the Big Speculative Capitalist (Smart
Money), Big Capitalist's Advocates (Friends of the Smart Money) and Small Traders
(Suckers). In planning your trades it is important to identify the phase and
participants to gauge if you can still play their game.
ON BALANCE VOLUME
According to Joe Granville, “Stocks do not rise in price unless demand exceeds supply.
Demand is measured in volume thus volume must precede price.”
Can you really catch the top or bottom?
Most of the time you can spot the tops and bottoms if you will use the right
indicators. It’s easier to spot the top and bottom if you can identify the trend and
pattern of the stock. I avoid highly volatile and illiquid stocks since these can mess
up my readings and analysis. If you want to do this, choose a stock with an
established pattern.
Since I am mostly fond of volume and price analysis, aside from the daily traded
volume I also look at Volume at Price and On Balance Volume.
Volume at Price
Most of the online brokers have the Intraday Volume at Price in their consoles. It
shows you which price attracted high or the highest volume (and the opposite).
From here, it can give you a perspective of where support and resistance lie. A
reversal or breakout can be triggered when the price action rejects the zone/range
where there is high volume.
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On Balance Volume
Aside from momentum indicators like Relative Strength Index, there’s also a
volume indicator counterpart called OBV to identify bottoming or topping
formations. It’s best used with Weighted Moving Average for a 21-day period. This
can be applied in any time frame (ex: daily, weekly).
Positive Divergence often happen at the bottom wherein demand gradually exceeds
supply as a stock reaches a (major) low point. Volume rises. Even though the price
may not breakout immediately, the increasing OBV can indicate an accumulation
point. Validation point: OBV shows clear uptrend followed by price.
Negative Divergence often happen at the top wherein fewer buyers attempt to push
the price higher. Volume decreases. To keep it simple, it’s best to watch stocks with
long rallies or breakouts to be able to take profit before the upcoming reversal.
Validation point: Even though the price establishes a higher high, the OBV moves
lower or drops to a new low.
When OBV and Price remain flat for some time (flat volume), it can also signify an
accumulation. You can check the broker transactions to get your initial entry and let
the succeeding price action confirm this. If OBV remains flat but the price action
continues, then it’s more likely that the stock is looking for a potential
breakout/breakdown.
Can you spot the other divergences (+/-) in the chart?
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REDUNDANT INDICATORS: KEEPING IT SIMPLE
Using redundant indicators can cause other variables appear to be less important
than they really are.
To avoid this technical indicators should be arranged and used according to specific
categories (Just pick one of the indicators from each category and do not use the
others):
Momentum TRIX
Rate of Change (ROC) Ultimate Oscillator (ULT)
Stochastics (%K, %D) Aroon
Relative Strength Index (RSI)
Trend
Commodity Channel Index (CCI)
Moving Averages
Williams %R (Wm%R)
Moving Average Convergence
StochRSI
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Divergence (MACD) Chaikin Money Flow (CMF)

Average True Range (ATR) Volume Rate of Change
Wilder's DMI (ADX) Volume Oscillator (PVO)
Price Oscillator (PPO) Demand Index
On Balance Volume (OBV)
Volume
Money Flow Index
Accumulation Distribution
BREAKOUT PLAYS
If this is your first entry, it’s better to be conservative with your criteria before
considering a breakout play.
Before Trading…
1) Do you have a base or is this your first entry?

2) Do you have time to monitor your trade?
3) Do you have your trading plan and risk parameters? Have you identified the
support and resistance levels? Have you set your trailing stops?
4) Have you checked the chart pattern and volume?
5) What is the overall market condition for the previous days? Is it bullish or
bearish?
6) Is there a prior consolidation? It’s better to have a breakout after successful
consolidation than a series of breakouts without a healthy pullback. Is it in a
trading range?
7) Is there any disclosure?
During Trading…
At market pre-open, check the bid and offer. Is there a gap from previous close? Is
the opening intraday average greater than previous close as well? Normally if the
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smart money is extremely bullish towards a particular stock, it should manifest

within the first hour of trading. Observe the price and volume spread. Check overall
market condition since a reversal in the index could also influence the movement of
any given stock at some degree. (beta coefficient)
The Breakout Checklist
1) How far is the stock price from the 52-week high? Is it moving into another
high? A good breakout forms long bullish candles with small to almost no tails.
Remember, the larger the bar, the better.
2) Is it sustainable? What is the trading volume? Is the volume greater than the
average traded volume for the previous days? It takes a significant volume to
make a significant move. This increases the chance of follow through.
Check the volume spread. Are there any price gaps or all prices on bid and ask
are filled?
3) Check for pullbacks and potential sign of reversal. At the early stage, it may
not have sign of pullback. If it is sustainable, a pullback may never come
intraday. Be watchful as it moves nearer to the breakout point. Anticipate a
pullback. If it happens, the previous high should serve as support. Move your
stops accordingly.
4) If you have decided to make an entry, use intraday chart to monitor the price
and volume action.
5) Check buying and selling pressure.
Is it trending up? Is the stock trading above the short and long MAs?
6) Can you spot the support and resistance levels? Normally, smart money would
put large limit orders in the bid and ask. This is where you can adjust your
trailing stops. Remember to raise your stops whenever the stock moves
upward.
Upon successful breakout, you may opt to leave your base and add on the first
pullback after the new high and support are established. Don’t chase a stock that
has moved up so high.
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HANGING BY A MOMENTUM
Santa Claus got stranded somewhere.
Since the start of the year, most index stocks went down, shaken by the global
economic and political tensions along with other commodities.
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Some even dropped to new lows….or maybe trying to find its true bottom...
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Surprisingly, some have an intact short-term uptrend despite the bearish sentiment
over the past weeks...not to mention consistent foreign buy transactions
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Some have well-guarded bases or support levels (in the long/short term)….
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Some have high liquidity to push prices up or within a specific range......
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Or still going sideways....
Some are still sleeping and waiting to be “discovered”…
........... you have to find them.......
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DEAD CAT BOUNCE AND REVERSALS
Learn to wait for the right moment, and then act on it.
RULE OF TWO: “Generally, no one candlestick should be judged in isolation.
The general principle is even if you see a key reversal candlestick; you should wait at least
part of one more day before acting. If for example, you spot a candle called a doji, seek
verification from the action of the next trading day. If there is a down gap and prices begin
to decline then it is prudent to take your position.” - Dr Melvin Pasternak
Bottom Reversals
The following rules are applicable for a bottom reversal:
• A bottom reversal is only possible AFTER a downtrend.

• A confirmation must appear one up to three candles after the pattern.
• This confirmation is a big white candle, high volume with the new up-move, a
rising window, or breaking a resistance.
• A reversal pattern during price reaction must be considered a continuation
pattern.
Top Reversals
The following rules are applicable for a top reversal:
• A top reversal is only possible AFTER an uptrend.

• A confirmation must appear one up to three candles after the pattern.
• This confirmation is a big black candle, high volume with the new down move,
a falling window, or breaking support.
• A reversal pattern during price reaction must be considered a continuation
pattern.
Reminders:
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• AN UNCONFIRMED PATTERN HAS NO FURTHER MEANING.

• Most of the patterns need a confirmation.
Source: Stocata.org
Dead Cat Bounce
It's important to determine whether you are an aggressive trader or a conservative

investor. It's even more important to know if your emotions can affect your trading
and investment decisions.
What's the point of having or adopting a system if you're the first one to break your
own rules?
On anticipating stock bounce or reversals - you'll never really know until it happens.
Use the stops as part of your risk management strategy.
Whether you like it or not, regardless if there are news or none, stocks would
continue to move up and down. It's part of the normal cycle as buying momentum
increases and weakens (law of supply and demand). However this doesn't mean
that you discard the bigger picture like global economy especially for commodities
and cyclical stocks.
Select one of the few stocks that you've been following (yes, observation is critical -
ticker tape, charts, transactions). Check the stock, which shows a steady, trending
price movement. Locate the support and resistance levels or the "psychological
barriers".
Where to find them?
Use Moving Averages, horizontal lines, trend lines, and Fibonacci retracement
points.
When and where to enter?
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The specific price point depends on your time frame and risk tolerance. Stock
specialists love trading volatility (upward or downward) because they know their
trading setup and trigger. Just because a stock drops down to support level and
slightly below the support temporarily, doesn't mean that bounce entry is already
invalid - that's why a lot gets whipped in the end. Stocks may bounce at different
support levels.
What could convince you that it's a "real bounce"?
If it begins to move higher even before it reaches the support level followed by
volume. Always refer to previous price action to determine your bounce / reversal
zone. Contrary, it's a head fake when it fails to close strong on the upper price
range.
Lastly, don't play with "unpredictable" stocks.
COUNTER ATTACK PLAN
Disclaimer: I hope this article will not be misinterpreted. I’m not saying that market
makers or floor traders are bad. The word opponent symbolizes the Stock Operator
who is in control or has taken control of the stock.
We’re often told to plan our trades accordingly – we select the stocks based on
fundamentals or technical indicators and set our entry exit and cut/stop loss level.
In reality, the unpredictable market movement, strings attached to each stock’s
operator(s), can sabotage our trading plans.
Entering a trade is like entering a battle. We can only prepare based on what we
know and how we know ourselves. Sometimes we overlook the importance of
preparing by studying the movement and strategies of our opponents.
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We must also have a counter-attack plan. Think about the possible scenarios that
can happen while you are fighting on the battleground. Think about how your
opponent can deceive or manipulate you. Think about surviving rather than falling
for the trap.
Unlike the floor traders and other market participants, we do not have the
advantage of seeing the whole picture – market breadth and depth. Our online
brokerage may be limited to 5 or 10 order flow. But this shouldn’t hinder us from
reading our opponents actions.
The market will always be right. The goal is to trade at the right side of the market.
Stock operators can draw charts. They are not concerned whether we win or lose in
a trade. They are there to do their jobs – to fulfill contracts and to provide market
liquidity.
Now how do you make a counter-attack plan? You study the Stock Operator’s
movement. This is something that you can do on your free time if you are not a full
time day trader. Just try to observe the price and volume for a given stock – which
broker(s) is/are control, at what price range did they buy or sell and so on…
Here are some scenarios that you have to prepare for:

Setup 1: Stock Operator initializes buy orders at previous close having no effect on
stock price. The uninformed trader barely notice, stock not included in the “stock
screener” or watchlist. Price spread 0. Stock Operator continues until supply is
fulfilled. (Intraday line chart remains flat).
Setup 2: Stock Operator buys up during or near the end of trading hours or at
market close within 1% markup and does this until the pattern is established and
uninformed traders begin to notice, price spread remains narrow during
consolidation.
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Setup 3: Stock Operator initializes shakeout while forming the base or cup pattern
to weed out weak holders depressing the stock price to a certain level -3% to -5%
or even more, intraday. Price spread is wide. Just before the trading hours is
completed, the Stock Operator buys up/back at previous close.
Setup 4: Stock Operator sells down to uninformed trader who assumes the pattern
and attempts to join the accumulation. Being a retailer, the uninformed trader is
forced to cutloss in the hope of buying back at a lower price.
Setup 5 (Opening Gaps): At pre open, Stock Operator (with existing stock supply)
fills the gaps with fake bids and sell orders at trailing stops to narrow down the bid
and ask spread. At market open, buys up at a % that appears to be bullish.
Uninformed trader falls for the bait and buys up as well raising stock price until it
hits the stock operator’s stop(s). Stock Operator sells down at retracement level,
the uninformed trader’s stop is hit (due to higher average) and decides to sell his
shares. Before market close Stock Operator initializes buy up orders and the stock
closes at upper price range.
Setup 6: Padding & Iceberg Orders - Stock operators fills up price gap with bid
usually in small quantities until the spread narrows down at a specific range. When
other traders get in and stock rallies, operators lock in and distributes all the way
back to day's low.
Do your homework. I’m sure there are many other ways the Stock Operator can
mislead or fool you. Be responsible for your trades.
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TRADING SETUPS AND CASE STUDIES
PX: A MOMENT-UM WITH SAFE HAVEN
Trigger/Catalyst: Precious Metal Gold as "Safe Haven" while global market indices
are bleeding
Methods: Momentum Trading, Tape Reading, Time & Sales
Considerations:
Frequency of "Buy" orders placed in a specific time frame, for example every
minute or every hour
Price & Volume Spread - the lesser the gaps, the lesser the risk (Check intraday
range. Check the quantity of orders placed. Are there more bulk buy orders at
higher prices? Refer to Volume at Price)
Rate of Change - how quickly does the price change on a specific time frame?
Trading Volume - consistently rising with higher volume
Relative Strength Index - check the historical pattern. At what price is it usually
oversold/overbought?
Intraday pattern/chart forms a “stable” uptrend with obvious support (bracketed

support and resistance, by 5s or 10s, rule of round numbers, psychological support
& resistance)
Remember: Establish an entry or base below the intraday average in case of

sudden pullback.
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ISM: SPOTTING UNUSUAL VOLUME
The problem with trading based on news from the media (tv, radio, social network)
is that most of the time it's already too late because the stock operators and
insiders have already prepared ahead of the crowd hence the saying "buy on the
cannons, sell on the trumpets". Usually, the insider buys in anticipation of good
news and sells in anticipation of bad news.
Who is an insider? How are insider transactions reported?
An insider is defined by the Securities and Exchange Commission (SEC) as an

officer or director of a public company or an individual or entity owning more than
10% of a company's stock. Take a look at the firm's annual report, Top 100
Shareholders or proxy to identify the insiders. Insiders are required to report their
transactions in the company's shares to the SEC. Both acquisition and disposal of
shares are reported. These filings are usually done electronically - in PSE, through
EDGE. This is documented using SEC Form 23-B: Changes in Beneficial Ownership.
What can help newbies identify insider transactions?
While it is not a perfect system, this strategy can help pinpoint insider activities
prior to press releases or announcements:
1) Spot unusual volume (easier to do with non-active or illiquid stocks)
Ask yourself:
• Is this stock ranging on a certain level?

• What support/resistance level is being "guarded"?
• Is the pattern established? Does the historical pattern resembles previous
trend?
• What is the average traded volume / turnover of this stock?
Caution: Do not trade unpredictable stocks especially when you cannot

understand the chart patterns or monitor it properly.
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2) Check SEC Form 23-B: Changes in Beneficial Ownership and compare

against the actual completed transactions through your online
brokerage.
Ask yourself:
• (Price) At what price range did the insider acquire or dispose shares?
• (Volume) How much shares were acquired or disposed? Do the basic
price and volume analysis
• (Time) When did the transactions occur? At what frequency did they
occur? Did the insider acquire shares during market correction? Did the
insider dispose at market tops?
Illustration:
To plan your trade, check EDGE for SEC Form 23-B and other documents showing
beneficial ownership of shares. In the picture below, the disclosure shows that the
director/owner acquired 6000 shares on Sep 7 at the price of 1.34 and 159,000
shares on Sep 10 at the price of 1.39. This will give you an initial range (possible
entry and target price). Reminder: Skip the stock if the insider disposed shares. It's
easier to spot unusual transactions in thinly traded stocks.
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To further verify this, proceed to actual completed broker transactions. Look for the
exact quantity. This can also help you identify the brokerage used for the insider
transaction.
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Once you have identified the broker(s) used for the transaction, check the
completed historical transactions using the longest look back period possible (or use
a start date on the 1st candle of the established trend if known). Ideally your
average should be equal or less than the insider's. In the example shown below, an
average of 1.30 below should be able to cover your trade. This somehow minimizes
the risk of incurring huge losses. As always, use trailing stops. Identify your setup
(ex: breakout play, cup and handle formation, earnings play, div play,
bouce/reversal play) and triggers (ex: support/resistance level broken, unusual
volume, volume or price spikes).
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Update 11/3/2015:
Here's the latest disclosure on insider transaction (Nov 02, 2015 11:12 AM):
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HOUSE: DISCLOSURE AS CATALYST
At 9:26AM on October 29,2015, a disclosure was uploaded in EDGE.PSE.COM.PH

regarding the purchase of P1.0 Billion of 8990 Contract to Sell Receivables. This has
triggered a positive sentiment as shown in the price action (intraday).
While the PSEi started to drop few minutes before 10AM, the informed traders
refueled the price action with a buy up and series of orders initiated by brokers of
CLSA, UOB and Angping. Clearly, the stock started to move against the market
index as if it has its own world. Notice the increase in momentum and wide price
spreads (difference between bid and ask). Started to build volume at 6.45 followed
by 6.50. From the open of 6.30, stock was already up by 3.50%.
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After bottoming out at 6, the stock managed to establish a higher low above 6.20.
With the disclosure and price action earlier, we have a cross (MA).
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Will it be sustainable in the next trading days? Is HOUSE ready to fly again?
Will the position traders at 6-6.30 range be able to maximize their profits given the
potential reversal?
As always, we wait and let the market decide…
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I: THE 10-MINUTE GAP
An opening gap on a daily chart does not seem to be as exciting as it looks from a
5-min chart. In fact, this movement could lose momentum along the way especially
when volume does not follow. In this case it could be that the stock has been thinly
traded even before ex-date. Gaps must not be ignored but one should be careful in
trading them. For the next days, if this is a breakaway gap we should see rising
volume (interest) in the market considering the disclosures as well. Otherwise, it
proves the opposite.
Parameters used for this trade:
Entry 2.21
Exit 2.45
*This is not a recommendation to buy or sell.
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SUN: TRADING BREAKOUT
October 7, 2015
Was there really a catalyst to cause this breakout?
Or was it just result of a syndicated trading - traders accumulating in the morning

session?
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PRMX: BUYING ON BREAKOUT
PRMX must have been one of the favorite stocks of breakout traders ever since it
reached 9php. I usually buy near the breakout rather (lower risk) than during
breakout but it seems PRMX is an exception as it is still able to make higher highs
towards 12. A pullback after trading near (and at) 11 did not pierce through the
short term moving averages.
Swing (Breakout) Enter 10, sell 11, reentry 11 sell 12, and even those who just
entered 12 have gained 0.20-0.50 cents per share intraday and I wonder if they will
sell at 13 as we see volume diminishing on its way up at least for now.
For position traders, a good entry point is near 7 or 8 level. Set your stops or sit on
it.
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NOW: BUYING ON FIRST PULLBACK AFTER BREAKOUT
Parameters used for the latest trade: 3.63 - 4.11 (note the opening gap earlier)
Reasons for Exit: Failure to hold support at 4.10 and 4. Price went below short term
moving averages with increasing volume. Retesting a higher low near 3.60 level.
Let's see if it can revisit trading range above 4. It seems that it's better to enter
when a pullback (after the breakout) also reaches selling climax. Pullback from new
All Time High must also not exceed 50%.
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STUDY NOTES
*Credits to the author specified in each topic from hereon.
TRENDS AND VOLUME SPREAD ANALYSIS
The trend is your friend:
• Timing your moves

• Maintaining your awareness of the underlying flow of the market
Trend Lines are important because:
• They show the DIRECTION of the trend

• They establish points of SUPPORT and RESISTANCE at some time in the future
• They identify BREAKOUTS and changes of direction
What is the correct way of drawing trend lines?
1) If the market is in UPTREND the convention is to use 2 LOW POINTS and 1

Intervening HIGH POINT
2) If the market is in DOWNTREND the convention is to use 2 HIGH POINTS and
1 intervening LOW POINT
Bottoms and Tops

1) Consecutive higher lows/bottoms = medium term sign of strength, where each
significant low point in the chart is higher than the previous one.
2) Consecutive higher lows = short term sign of strength, where the low of each
daily bar (or whichever time frame used) is higher than previous one -
meaning professional money is supporting the move
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Higher high, higher low = upward trend
Lower high, lower low = downward trend
Change in trend = 1st lower top in a bull move and 1st higher bottom in a bear
move
Tips:
Old trend lines from the past may be used with some success to locate areas of
support and resistance especially when grouped together (trend cluster).
Compare 2 or more timeframes, looking for trending across a longer and shorter
timeframe.
Do not interpret trend lines mechanically.
Trend lines represent potential resistance. The market always wants to take the
path of least resistance. The existence or lack of effort will determine if it will hold
or not.
If the trend channel is NARROW STEEP or BROKEN by a counter-trend in the short

term then it is a SHORT TERM TREND.
If it exhibits resistance characteristics in the medium term, it is an INTERMEDIATE

trend.
Why do Trend Lines Appear to Work?

Where there is a mean gain or loss in trending data, there may also be a tendency
to return towards the mean. Where a sharp rally occurs and moves well above the
mean gain slope, it is often followed by a reaction back down through the mean and
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below it, automatically compensating for the up move. This is the property of the
mean NOT the data.
Market index moves up and down because of an imbalance between supply and
demand in stocks.
TREND CHANNELS AND TRADING RANGES
The market is in a never-ending cycle:
Trend > Trading Range > Breakout in Either Direction > Trend
If Trend = Strong = Breakout = Spike
If Trend = Weak = Channel
If Trading Range = Small/Narrow Range = Pause in a Trend
If Trading Range = Big/Wide Spread = Breakout in Either Direction
*All Trends Begin with a Spike (Strong Trend)
>> Momentum slows and a Channel Begins (Weak Trend)
>> Channels evolve into Trading Ranges - As the Momentum in opposite direction
increases, a trading range forms
Drawing Channels
- Draw lines using Highs or Lows
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- Draw 2nd line using a Parallel of 1st Line
- After Every Breakout Below a Bull Channel
- Draw a New Trendline - the New Channel is Broader and Flatter
- Channels in the Opposite direction control the market
Channels Offer Trading Opportunities
- When Market Tests the Top or Bottom = Breaks Out / Reverses
---- It Creates Trades where Reward > Risk
- Strong Channel is a Spike on a Higher Time Frame
Here are some possible reasons for entering a trade (remember, you need two or
more):
Good signal bar pattern, like a good reversal bar, a two-bar reversal, or an ii.
Moving average pullback in a trend, especially if two-legged (a high 2 in a bull trend
or a low 2 in a bear trend).
Breakout pullback. Pullback in a clearly always-in market (a strong trend).
Test of any kind of support or resistance, but especially trend lines, trend channel
lines, breakout tests, and measured move targets.
Dueling lines.
High 2 buy setup in a bull trend or at the bottom of a trading range (whenever you
see a double bottom, it is a high 2 buy setup). Low 2 sell setup in a bear trend or at
the top of a trading range (every double top is a low 2 sell setup).
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Most bull reversals (bottoms) come from micro double bottoms, double bottoms, or
final bear flag reversals.
Most bear reversals (tops) come from micro double tops, double tops, or final bull
flag reversals. Sideways to down high 3 pullback in a bull trend, which is a wedge
bull flag.
Sideways to up low 3 pullback in a bear trend, which is a wedge bear flag. High 4
bull flag.
Low 4 bear flag. Weak high 1 or high 2 signal bar at the top of a trading range
when you are looking for a short. Weak low 1 or low 2 signal bar at the bottom of a
trading range when you are looking to buy. Failure of anything (the market
reverses before going as far as expected):
A breakout of a prior high or low.
A flag breakout
A reversal from an overshoot of a trend line or a trend channel line.
A failure to reach a profit target.
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SEVEN ZONES OF ACTIVITY BY WILLIAM GANN
There are different stages of activity in the stock market. Some people call it
"(Four) Stages of Stock Prices" but William Gann came up with the seven zones of
activity as follows:
Normal Zone – buying and selling is about equal and fluctuations are very narrow,
no incentive or reason apparent for any wild speculation up or down
(accumulation/distribution).
First Zone Above Normal – quiet advancing prices, which attracts very little
attention and it, can last for one month to one year depending on the cycle of the
market.
Second Zone Above Normal – greater activity when pools begin marking up
stocks, starts releasing reports of better business.
Third Zone or Highest above Normal – distribution period, great activity takes
place and extremely wild fluctuations. Stocks are very feverish, reports of big
earnings come in, dividends are increased and stock dividends are declared. In this
stage, for weeks and months, every few days stocks will open up anywhere from 1
to 5 points higher and keep on going up without much reaction. After this has
happened and the end is near, although no one can see it, traders all go home
some night, hopeful with the sky clear and not a sign of disturbing cloud, and come
down next morning and find stocks opening off anywhere from 1 to 5 points. There
may be no news out or any reason at all for the decline, but the real cause of it is
that the market has reached the stage where Supply exceeds Demand. Everybody
has bought to full capacity and there not being any large amount of buying orders
in at the opening to support prices, they open off. This is your first sign of the end.
Take warning! Get from under, for with this first lightning strike, you may know
that the storm is gathering, and it behooves you to protect yourself. After this first
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sign of the end, stocks may go lower for a while and then rally up near the high
points and hold for a time, but it is the warning that the “saturation point” is about
reached, and the wise man will get out in time.
First Zone Below Normal – quiet decline from high prices and what might be
termed the first bad “shake-out” of the weak holders. A rally follows but stocks
become dull on the rally because the Supply is still greater than the Demand and
distribution is still going on. A lot of people who miss the market in the third stage
above normal are wise enough to sell out in the first stage down, and professional
traders, seeing that the bull market has terminated, go short of the market on
every rally with the result that prices begin to work lower slowly.
Second Zone Below Normal – liquidation increases, breaks become bigger and
rallies smaller; reports of falling earnings. People are less hopeful, more
conservative and stop buying. And without enough support, the prices gradually
move lower.
Third and Final Zone Below Normal – exactly the opposite of the third zone.
Panicky conditions, extreme pessimism; investors lose confidence and start selling
out. Supply is unlimited. Everyone is a seller. In this stage, it may be necessary to
watch and wait for several months until you see that liquidation has been
completed and that accumulation is taking place, as there is always plenty of time
to buy after the quiet advance starts.
Remember, it is always darkest just before dawn, and it is always brightest at

noontime, just before the sun starts to recede.
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There are different stages of activity in the stock market. Some people call
HOW A CAMPAIGN IS CONDUCTED
Section 9M by Wyckoff
All stocks do not move in harmony with the prevailing trend of the market at all
times.
Stock market is like any other merchandising business. Those who understand it
buy only when prices are low with the idea of selling when they are high and they
operate only in the stocks or commodities which they can move best so they may
secure the highest possible rate of turnover of inventories.
A stock carries the earmarks of its chief sponsors. Its action usually indicates the
CHARACTER, METHODS and ABILITY of those who operate heaviest in it. All the
various stocks should be studied as if they were the RESULT of ONE MAN’s
OPERATIONS – the COMPOSITE MAN.
Not all of the manipulator’s moves can be detected. Manipulators make not all of
the moves. In fact it does not matter to the tape reader of the chart reader whether
the moves are real or artificial.
Most of the important moves in the market are PREPARED, EXECUTED and
CONCLUDED.
PREPARATION
Takes a lot of considerable time (MM buys 25,000 – 100,000 shares distributed in
days, weeks or even months)
MM prefers to do this while the market is WEAK, DULL, INACTIVE and DEPRESSED
Accumulation of stocks at low prices
EXECUTION
When ready to go forward with the campaign, the MM waits for a favorable market
and proceeds to mark the price up gradually or rapidly
If he knows of some favorable announcement due in 30 – 60 days, his operations
will be timed and the stock will sell at the highest price fooling the public or by
inducing the public to fool themselves
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Attracts buying attention by making many transactions, great activity and trading
large number of shares as seen on the tape.
When the MM wishes to accumulate a line, he raids the market for that stock,
makes it look very weak and gives it the appearance of heavy liquidation by selling
orders through a great number of brokers.
As a rule: The MM DOES NOT go into a campaign unless he sees in prospect a
movement from 10 – 80 points.
The typical process of working a stock up or down within a certain range means
nothing to most people, but to the tape readers and those who know how to
interpret charts, it is evidence of important selling, marking the culmination of the
move.
CONCLUSION
Operator disposes at the peak of the good news where everyone has already
bought into the news
Distribution to weak holders
Operator makes a turn to short sell and cancels all buying orders
Stock specialist tells floor traders that the stock is in a weak technical position and
that there is no support for the next 8 – 10 points and they all get together and
raid it down to a point which the Operator covers his shorts.
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BEFRIENDING THE TREND: BASE COUNTING BY MARK MINERVINI
How Can the Trend Be Your Friend?
Sometimes even a fundamentally sound company needs to meet technical criteria

to be considered as “good buy”. Given this, it is also important to recognize at
which stage the stock is, at a given time.
Mark Minervini discussed the Stage Analysis and Four Stages of Stock Price
Maturation in his book Trade Like a Stock Market Wizard.
According to Mark, “Virtually every superperformance stock made its big

gain in stage 2 of its price cycle.”
These are the 4 stages on the basis of what is happening with the stock in terms of
price action:
1. Stage 1 – Neglect Phase: consolidation
2. Stage 2 – Advancing phase: accumulation
3. Stage 3 – Topping Phase: distribution
4. Stage 4 – Declining: capitulation
Stage 1 Characteristics:
§ Stock price will move in a SIDEWAYS fashion with lack of any sustained price
movement up or down.
§ The stock price will OSCILLATE around its 200-day (or 40-week) moving
average. During that oscillation, it lacks any real trend, upward or downward.
This can last for months or years.
§ This basing stage takes place after stock price has declined during stage 4 for
several months or more.
122

§ Volume will generally contract and be relatively light compared with the
previous volume during stage 4 decline.
§ NO BOTTOM PICKING – trying to buy a stock at or near its bottom will only be
frustrating since it lacks momentum. Do not buy the lowest or cheapest price
but at the RIGHT PRICE.
Transition from Stage 1 to Stage 2:
§ Stock price is above both the 150-day and the 200-day moving average.
§ The 150-day moving average is above the 200-day.
§ The 200-day moving average has turned up.
§ A series of higher highs and higher lows has occurred.
§ Large up weeks on volume spikes are contrasted by low-volume pullbacks.
§ There are more up weeks on volume than down weeks on volume.
§ Stock price is ABOVE its 200-day (40-week) moving average.
§ The 200-day moving average itself is in an UPTREND.
§ The 150-day (30-week) moving average is above the 200-day (40-week)

moving average.
§ Stock price is in a CLEAR UPTREND, defined by higher highs and higher lows in
a STAIRCASE PATTERN.
§ Short-term moving averages are above long-term moving averages (ex: 50

over 150-day moving average)
§ Volume spikes on big up days and big up weeks are contrasted by volume
contractions during normal price pullbacks.
123

§ There are MORE UP DAYS and UP WEEKS on above-average volume than down
days and down weeks on above-average volume.
§ Volatility INCREASES, with the stock moving back and forth in WIDER,
LOOSER SWINGS. May look similar to Stage 2 BUT the price movement is
much more erratic.
§ There is usually a MAJOR PRICE BREAK in the stock on an increase in volume.

Often, it’s the LARGET ONE-DAY decline since the beginning of the stage 2
advance. (ex: largest weekly decline since the beginning of the move with
overwhelming volume.
§ Stock price may undercut its 200-day moving average. Price volatility around
the 200-day (40-week) moving average line is common as many stocks in
Stage 3 bounce below and above the 200-day average several times while
topping out.
§ The 200-day moving average will LOSE UPSIDE MOMENTUM, FLATTEN OUT
and then roll over into a DOWNTREND.
§ The vast majority of the price action is BELOW the 200-day (40-week) moving
average.
§ The 200-day moving average, which was FLAT or turning downward in stage
3, is NOW in a DEFINITE DOWNTREND.
§ The stock price is near or hitting 52-week NEW LOWS
§ The stock price pattern is characterized as a SERIES OF LOWER LOWS and

LOWER HIGHS, stair-stepping downward.
§ Short-term moving averages are BELOW long-term moving averages.
124

§ Volume spikes on big down days and big down weeks are contrasted by low-
volume rallies.
§ There are more DOWN DAYS and WEEKS on above-average volume than up
days and up weeks on above-average volume.
The Base Count
Stocks need to rest too. After a run upward, there is profit taking, causing a
temporary pullback, during which the stock builds a BASE. If the stock is truly in
the middle of something significant, the longer-term trend will resume. The short-
term pauses allow the stock to digest its previous run-up so that it can move even
higher as it emerges from a constructive consolidation period.
At some point, the upward momentum ceases; the stock tires and the top is put
in. Generally this occurs after three to five bases have formed along the way in a
stage 2 uptrend. The later-stage bases coincide with the point at which the stock’s
accumulation phase has become too obvious, tapping out the last of the heavy
institutional demand.
Bases 1 and 2 generally come off a market correction, which is the BEST TIME for
JUMPING on board a new trend. As the stock makes a series of bases along the
stage 2 uptrend, base 3 is a little more obvious but usually still tradable. By the
time the fourth or fifth base occurs (if it gets that far), the trend is becoming
extremely obvious and is definitely in its late stages. By this point, abrupt base
failures occur more frequently or it can turn up in a parabolic fashion and end in a
climax run or blow-off top.
By itself Base Counting will not tell you if a stock has topped or is about to move
substantially higher but it is a great way to gain perspective on where you are
within the stage 2 advance. Combined with specific price and volume analysis
along with fundamental analysis, it can be a very powerful tool.
125


REMINISCENCES OF A NEWBIE TRADER
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com 03 Jan 2018

REMINISCENCES OF A NEWBIE TRADER

ABOUT THIS E-BOOK

To God be the Glory!

The information contained on this e-book is for information/educational purposes

ABOUT THE AUTHOR

I. Divergent Trader Principles

i. Importance of Institutional Sponsorship

g. $NOW: Buying First Pullback After Breakout

5) If you are a risk-averted person, do not trade. Trading is based on

7) Always strive to better yourself and always improve on your trades.

CAN EVERYONE BE AN INDEPENDENT TRADER?

TEN TIPS FROM DT

1) Never expect. Never assume.

Q1: “Anong stock ang magandang bilhin?”

Q2: “Tumaas/Bumaba na ba ng stock na to?”

Q3: “Pwede pa ba pumasok sa stock na to? Anung TP nito? ”

Q4: “Risky ba tong stock na to?”

Q5: “Lilipad ba tong stock na to?”

For some, foreign inflows/outflows are important considerations. Who else is

Do not rely on spoon-feeding. Spend a few minutes or hours for familiarizing

TRADING AND MARKET PSYCHOLOGY

A PROJECT MANAGER’S PERSPECTIVE ON STOCK MARKET TRADING

What’s in project management that makes it similar to stock market trading?

2. Execution and Monitoring - During project implementation, project managers

3. Evaluation - After project completion, a closeout or retrospective report will be

LEARNING STAGES OF A TRADER

While it is important to keep an open mind in learning, it is equally important to

Level 0: The Starting Point

Level 1: The Curious Trader

Level 2: The Impulsive Trader

You thought you already know... but then you’re wrong.

Level 3: The Chosen Few

Level 4: The Novice Trader

Although the novice trader is already knowledgeable on basic fundamental and

Level 5: The Experienced Trader

Level 6: The Skilled Trader

THE MANIPULATION GAME

stock appearing on the tape.” - The Day Trader’s Bible

Are you ready for the next play?

WHEN IT IS TIME TO LET GO

Why do most experienced traders sell then?

When is a good time to sell?

Selling is subjective because it depends on one's risk tolerance and objectives.

Generally, experienced traders consider the following:

5) Changes to underlying company fundamentals (financial statements,

7) Taking profit during rallies (selling on strength) and positive disclosures

RECOGNIZING SCAMMERS AND HYPERS

Common Characteristics of Scammers:

6) Multiple False Identities - Imagine someone delivering a monologue. Yes

How safe is safe enough?

Some tips for Traders & Investors:

1) Diversify your investments.

8) Have enough discipline to stick to your trading plan.

OUT OF PRIDE AND PREJUDICE: TROLLING

• Selective Perception - on the basis of our own interest, background, experience

Do we know who they really are when nobody is looking?

Bad Trolls and Their Stories

Good Troll Gone Bad

What Newbies Can Do

motivation and energy until you feel comfortable in a strategy. Preparation.

Which story do you want to believe in?