In some recent editorial I have referred to methodology and making sure whatever system you use is well founded and has been successfully tested. I would like to elaborate a little more on this.

Firstly let’s look at methodology. Basically these fall into four categories. The first is Fundamental and even though I don’t personally use this approach nevertheless it is used by the vast majority of investors - retail and institutional.

The next three are technical. The first are what I would call trend following indicators; the second range trading indicators and the third are what I would call pattern recognition such as Elliott Wave and Gann.

I personally use Elliott and have so for the last 15 years. Perhaps conservative at times but it does not lose you money in my view. If you are going to use technical’s then it is important to have at least a basic understanding of each of the three so you can make an informed decision. No approach is the Holy Grail. Yet I see many would-be successful investors waste effort searching for the easy route to riches. It does not exist. It is like the ‘Long March’ it is one step at a time. But with experience under your belt there are short cuts.

The reason I mention this is that I also see many study one approach, try it and give up as it does not bring the instant riches. And they then spend a fortune studying the next system.

But I also see others who are too mite minded to properly invest in education.

I will also say here that it does not matter which system you use as long as you use it with an applied approach and with discipline. They all work. I would say you could choose any approach and apply it in this way and you will succeed.

The other key point is that you must apply it in a measured way. That is, you try your new found knowledge steadily. Many investors jump in head first after a training seminar. You apply your learning in small easy comfortable steps at first using a small trading kitty.

The sleep test is important here but to mix my metaphors - you must at some point fully immerse yourself after putting your toe in the water.

It reminds me of that old adage ’slowly slowly catchee monkey’.

Values, Singapore Investors ,australia investors,singapore stock market news,singapore stock market

Should you study the markets or watch football? Spend your spare cash or save it? Will you make your own decisions or trust a fund manager? Should you stay home and look after your kids or go to work and take them to day care? Will you do overtime at work or go home to your family? How you make your decisions and how you allocate your time and money depends on your values.

Have you ever been puzzled by others’ decisions? Have you ever said: “How can they do that? It does not make any sense.” They simply are using a different set of values. They may be putting people before profits, or the other way around. They may value money more than friendships or the other way around. They may value leisure more than study. They may be after short term pleasures and not care about long term plans.

Would you give up your life savings to help a family member? Then you value family more than money. Have you dealt with computer companies that make you pay for every support call? You are dealing with a corporation that has money high in their values.

Your decisions, especially when the pressure is on, when you are tight on resources, are filtered through your values. Different people have different values and each make their decisions based on their own values. Before you judge someone find more about their values. Before you align yourself with someone find more about their values.

What are your values? Where do they come from? Your values are derived from your needs. If you have had financial hardships, money would be fairly high in your values. You may be pursuing money every which way. On the other hand if you have experienced financial abundance all your life, then pursuing money may not be a big deal. Carrying this to the next level, if you’re trading requires a little bit of studying, charting, analysing you may find this too hard and give up very quickly.

Your decisions are filtered through your values. Different people have different values and make their decisions based on their own values. Before you judge someone, you better find more about their values. Before you align yourself with someone, you better find more about their values. It is equally important and useful to figure out your own values. Here is a list to choose from:

• Money
• Friendship
• Contribution
• Health
• Trading
• Family
• Career
• Leisure
• Spiritual
• Self improvement
• Health and fitness

Add to this list as you like and then put them in priority order. If you have limited time, if you have limited money or both, which one of these would you go for? Which one of these would you sacrifice? You will then know why your life is the way it is. Want to improve? Review your list of values.

Position Sizing is the part of the trading system that determines how large a position you will put on throughout the course of a trade

Professional gamblers have long claimed that there are two basic position-sizing strategies - martingale and anti-martingale. Martingale strategies increase one’s bet size when equity decreases (during a losing streak). Anti-martingale strategies, on the other hand, increase one’s bet size during winning streaks or when one’s equity increases.

If you’ve ever played roulette or craps, the purest form of martingale strategy might have occurred to you. It simply amounts to doubling your bet size when you lose. For example, if you lose $1, you bet $2. If you lose $2 then you bet $4. If you lose $4, you bet $8. When you finally win, which you will eventually do, you will be ahead by your original bet size.

Casinos love people who play such martingale strategies. First, any game of chance will have losing streaks. And when the probability of winning is less than 50 percent, the losing streaks could be quite significant. Let’s assume that you have a streak of 10 consecutive losses. If you had started betting $1, then you will have lost $2,047 over the streak. You will now be betting $2048 to get your original dollar back. Thus, your win-loss ratio at this point - for less than a 50:50 bet - is 1 to 4,095. You will be risking over $4,000 to get $1 in profits. And to make matters worst, since some people might have unlimited bankrolls, the casinos have betting limits. At a table that allows a minimum bet of $1, you probably couldn’t risk more than $100. As a result, martingale betting strategies generally do not work - in the casinos or in the market.

If your risk continues to increase during a losing streak, you will eventually have abig enough streak to cause you to go bankrupt. And even if your bankroll was unlimited, you would be commiting yourself to risk-to-reward strategies that no human being could tolerate psychologically.

Anti-martingale strategies, which call for larger risk during a winning streak, do work - both in gambling arena and in the investment arena. Smart gamblers know to increase their bets, within certain limits, when they are winning. And the same is true for trading or investing. Position-sizing systems that work call for you to increase your position size when you make money. That holds for gambling, for trading, and for investing.

The purpose of postion-sizing is to tell you how many units (shares or contracts) you going to put on, given the size of your account. For example, a position-sizing decision might be that you don’t have enough money to put on any positions because the risk is too big. It allows you to determine your reward and risk characteristics by determining how many units you will risk on a given trade and in each trade in a portfolio. It also helps you equalize you trade exposure in the elements in your portfolio.

Some people believe they are “doing an adequate job of position sizing” by having a “money management stop.” Such a stop would be one in which you get out of your position when you lose a predetermined amount of money - say $1,000. However, this kind of stop does not tell you “how much” or “how many,” so it really as nothing to do with position sizing. Controlling risk by determining the amount of loss if you are stopped out is not the same as controlling risk through a position-sizing model that determines “how many” or if you can even afford to hold one position at all.