Sunday, 15 December 2019

TRADE OF THE WEEK #28 : HOW TO TRADE 140,000 SHARES WITHOUT VOMITING (KHEE SAN BHD)



Outcome
Gross Profits :RM15,875
Return on Investment : 37%
Duration : 30 minutes

Nerves. Got to get rid of them if you ever want to trade profitably. And by profitably, we mean really meaningful profits.

Instead of being just another brief description of how fast and profitable our trade was - heck, we wrote the same thing just last week, with RM15,000 in profits too - this time we will share a useful piece of skill. And you will need this if you want to record five-figure profits per trade like we did.

We have developed the capability of holding large sizes. We are small fry retail traders, so for us, a large size is 100,000 shares or more. We can buy this much and handle the swift movement in the share (or warrant) prices, even if we had to carry this position overnight.

Just how big is 100,000 shares as a position? It's quite simple : a half sen movement upwards would net us RM500 in gross profits. A 10 sen movement? RM10,000. We have experienced both ends of this spectrum. Nowadays we are mostly calm, whichever way the position goes.

But of course, if we screw up the trade, or managed to buy the counter at its peak price point (we do this quite often), a move down can quickly kill us. So this is where we needed to learn about what it takes to be totally chill, sans the Netflix.

CALMNESS

You might think this skill is innate. Maybe some pros are born with nerves of steel. (Editor's Note : we reject the gender-specific term titled 'balls')

Maybe some traders are numb to pain or mental trauma, making them perfect for trading without emotion.

But no, it didn't work like that for us. We are human(s).

We'd love to tell you that there's an easy fix. But there isn't.

Do you know how Navy SEAL cadets have to be completely and utterly destroyed when they trained, and then rebuilt, to become real soldiers? It's a bit like that for us.

We have committed some major trading mistakes in the past. With enough mistakes, and enough experience, we became accustomed to our trading ability.

When we started out trading, a 15,000-share position would freak us out. For context, that's RM150 in profits or loss for each 'tick' in the stock. Visions of homelessness ensued : believe us.

We were a bundle of nerves. Fear sets in. We can't help but think of the very worst case scenarios - "if this thing falls 4 sen, I'm dead!".

Our bladder would magically shrink - we'd feel like we have to go all the time. We'd feel like regurgitating from both ends of our orifices; this is normal. 

Best of all, we'd take a position over-the-weekend (held from Friday to Monday) and voila! We'd lose sleep over the weekend.

Bear in mind that this was years ago. As we traded bigger and bigger lots, and somehow developed something resembling competence along the way, we dealt with bigger losses.

And by big, we mean five-figure losses. It sucks; and it always does.

We once lost RM10,000 in 10 minutes. In other situations, our (delusional) refusal to cut losses meant that we turned a RM10,000 into RM20,000. In other, other situations, we just got trapped in an illiquid stock. And we get eviscerated.

We're not saying that you need to experience the same thing we did to be able to trade like us. (Editor's Note : actually, strictly speaking, this is true)

But once you've been through all this, and assuming you still have capital left to trade, your nerves harden. You will no longer get rattled by temporary paper losses exceeding RM1,000 or more.
In this line of work, you should ideally trade with an amount of capital than you can afford to lose. This applies to most non-professional traders. Do not equate the success of your trading activity with your financial health. Detachment is necessary.

When your emotion is detached, you will no longer encounter nerves. You'll sleep well at night, at least. Give us a RM20,000 paper loss to carry overnight - we we'd still sleep like a baby.

Nerves is really a reflection of how worried you are. How worried you are is a natural extension of that basic human instinct: fear.  And to eliminate fear, you need two things : courage and conviction.

To be a great trader, your conviction needs to be absolute. If this is lacking, there may be something wrong with your trading angle. Perhaps that stock you're targeting is just too hot to handle.

Maybe you're worried that while you're trading, Trump will say something frighteningly dumb and brings down the market. If fear dominates your thinking, and your trading, you're really better off not trading at all.

And lastly, here's what courage and conviction brings: calmness. The way we approach a trade is simple : mentally, we'd accept the potential losses already. We know the exact amount, since we would go in with a predetermined stop loss point, or an absolute amount of acceptable loss.

We ALWAYS do this. Read our Twitter thread in its entirety to get an idea of how this process works. 


When we trade, we are no longer worried. The focus must be on the execution, and reaction in the fastest possible time frame to any developments affecting the stock. When we have clarity, we have calmness.

To put it another way, we know exactly the kind of sizing that we are comfortable with. Evidently this would not work if we were trading 500,000 shares in the short term: even we cannot stomach a RM2,500 potential loss per 'downtick'.

The lesson is :

Trade what you're comfortable with. 

Try to trade without fear, because if there is, you're probably not convinced enough about the trade.


THE TRADE

On 5 December 2019, we very quickly deduced that KHEESAN has a nice angle to support whatever was happening in the stock price. The company saw an exit of a troubled shareholder and subsequently the entry of a new one. It is also undertaking several fundraising exercises concurrently,


Here's the tasty (and crispy) part : Mamee Double Decker, the snacks giant, is investing in this company. But to understand the power of this angle, you need to know why Mamee would be a big deal. This article from a few years back helped set the context.

And our wild speculative guess. (Editor's Note : a nice story doesn't make it true. We are admittedly, usually full of crap)




In the morning hours of 5 December 2019, we noticed a sudden large move in KHEESAN from 35.5 sen to a peak of 43 sen. The stock demonstrated a 'stepladder pattern' with no upside limit in sight; this was shown by the fact that the stock broke 40 sen quite easily.

And it never got below 40 sen again; it sort of leisurely stayed there, which is indicative of steady accumulation activity. You can see the price pattern from the five-minute chart below.

 
We smelled an opportunity. The stock stood a chance of moving further in the afternoon session. So we crafted some basic trading parameters with limited downside, and potentially huge profit upside.

But as you can see below, we initially had conservative expectations about the stock's prospects. But we were willing to commit to large sizing.

For a change, let's get to the ending first, because that's the least interesting part.

What happened in this trade, we sheepishly admit, was mostly sheer dumb luck. We got in at the most opportune time, mere minutes before the stock suddenly explodes. We'd have been OK if the stock had reached 45 sen, but instead it shot up to 54. We thank the trading gods.










The last notable thing about this trade is this : we knew to count our blessings.

This swift movement was not going to last forever; we know by experience. KHEESAN's strong breakout past 50 sen was mainly due to people chasing the stock; it became super volatile at the 53-56 sen range, with inconsistent buy-and-sell orders. This rally is exhausting itself, and we saw this from a mile away.
The act of holding large sizes is not just about accumulating them during the buy phase. It's also about having the conviction to sell them.

We had certainty when we essentially dumped the whole 1,400-lot position into the market. We keyed in a sell order at 50 sen when the stock was at 54.5 sen; we wanted the market to absorb our holdings entirely. Notice that we did not sell small lots, or considered holding on to half in a greedy chase for even greater profits. That would be the wrong way to think about this.

The right way is to realise that it was time to exit completely. Our order was keyed in at 50 sen. We managed to sell at 54.



https://twitter.com/pelhambluefundhttps://twitter.com/pelhambluefund/status/1203667009852059648?s=20/status/1203667009852059648?s=20


https://twitter.com/pelhambluefund/status/1203667009852059648?s=20


Be sure to learn this : know when to hold without wanting to vomit - accumulation and holding phase.

But also know when and how to completely regurgitate everything - sell all when target is reached.

In other words, attain that calmness, and then you can control your bowels however you want!

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