Category: forex

Diversification is crucial to building a long-lasting portfolio. Just like in most team-based sports, we must build a solid defense against potential attacks. In this case, diversification can help us stay invested in the market when we otherwise would have cashed out. Diversification also helps us remain disciplined during times when the market seems to be going up every single day.

Maybe you own some bonds, real estate, stocks, cash, or even some crypto currencies as part of your investment mix. There are many ways to diversify within each of these asset classes as well as across them. There are almost endless combinations that can provide for a well-structured diversification strategy. I will not go into all of them because I would bore you to tears. Frankly, there are many books on this subject alone. You can spend months trying to learn all the different diversification strategies out there. I found this article from Fidelity to be a great starting point, https://www.fidelity.com/viewpoints/guide-to-diversification if you like to learn more. Here, we are going to focus on stocks only. I will assume you will work with a financial advisor to set up your asset class diversification.

The most common way to diversify in stocks is by spreading your holdings among different industries and sectors. Fidelity classifies each sector as follows:

Others may use only ten sectors, but I prefer to use twelve instead. It gives us a better view of how the market is categorized. The more you spread your holdings across these sectors and industries, in theory, the greater diversification you will have. Simple right? Not so fast. Some of these sectors trade together. Thus, minimizing your diversification and increasing risk.

The way I prefer to diversify is to look for different industries and sectors that are not correlated to one another. You may visit one of the websites I recommended on my previous post titled “Where can I research stocks?” Yahoo Finance or any other similar service can provide you with historical data to figure out past sector correlations. In there, you can see that certain sectors trade together depending on which part of the economic cycle we find ourselves in. If things are not so good, consumer staples, utilities, and health care stocks may do well during this time. If the economy is doing well, we will see technology, industrials, and consumer discretionary trade up.

If there is no systemic risk, like the latest downturn in 2008, stocks will go through these rotations, adjusting themselves to what works during each season. If you have a portfolio full of tech stocks during a boom period, you will take a huge hit when the market rotates out of technology into utilities and consumer staples. Therefore, it is important that you choose stocks from each sector and rebalance every quarter or a couple of times a year.

Now that we have gone through the way I like to diversify my stock portfolio, we can meet next time to speak about how I go about choosing stocks in each one of these sectors and industries. I want you to do the work for yourself, use this as a simple guide to help you find the right diversification style that fits your risk tolerance.

Finally, this remarkable woman has some interesting stories. Those that keep you glued to your screen, you can’t catch a break. Kathy Lien in her book Millionaire Traders, How Everyday People are Beating Wall Street at its own Game will give you valuable lessons you can employ in your trading journey. This is a very good read for new traders. It emphasizes that there’s no one rule of thumb when it comes to trading. You are the Holy Grail, stop hunting for one. Kathy Lien was featured in a trading documentary, Million Dollar Traders a while back, I suggest you go look out for that. She and her trading partner Borris Schlossberg manage an asset fund management company for several years now. So when she tells you of successful stories of traders she has interacted with over her trading career, listen up. She covers the basics, the art of trading, getting started in trading before she cites real life examples. This book is definitely worth your time. In conclusion, she outlines six real truths in trading that you should be aware of when starting out; be well capitalized, expect to lose for at least six months, test before you try, always use stops, trade to your personality and have the right tools to trade i.e. an analytical mind and the correct platforms.

Another book I can literally read over and over again is Trading For a Living by Alexander Elder. He takes us through what it takes to trade successfully, why psychology is key and why you seriously need to evaluate your broker. Elder says, “The trading industry kills traders with commissions and slippage. Most amateurs cannot believe this, just as medieval peasants could not believe that tiny invisible germs could kill them. If you ignore slippage and deal with a broker who charges high commissions, you are acting like a peasant who drinks from a communal pool during a cholera epidemic. You pay commissions for entering and exiting trades. Slippage is the difference between the price at which you place your order and the price at which it gets filled. When you place a limit order, it is filled at your price or not at all. When you feel eager to enter or exit the market and give a market order, it is often filled at a worse price than prevailed when you placed it. The trading industry keeps draining huge amounts of money from the markets. Exchanges, regulators, brokers, and advisors live off the markets while generations of traders keep washing out. Markets need a fresh supply of losers just as builders of the ancient pyramids of Egypt needed a fresh supply of slaves. Losers bring money into the markets, which is necessary for the prosperity of the trading industry”. I will have a webinar up before the end of the year on brokers. Be on the lookout.

Technical Analysis-The Complete Resource for Financial Market Technicians by Charles Kirkpatrick & Julie is one of the bibles of Technical Analysis actually recommended by a CMT pal of mine. The book has everything you need to know on price, chart patterns, indicators and why you don’t need a million of them to trade right, risk management and taking profits, market cycles, statistics, what investors look for just to name but a few. Especially when you need to recover from a bad trading week or month, treat yourself to this book. It’s a treasure hunt, for real. I like how he elaborates the need to test out a trading system with regard to money management. He says, “There has never been a system that was 100% profitable, that never took a loss on any trade or investment. Although such a system is the ideal, it has never been achieved despite the brilliant minds, sophisticated mathematics and theories, and superfast computer abilities that have addressed methods of investment. It likely never will be achieved. The search for such a perfect strategy can become an obsession but is genuinely futile, and losses are, therefore, inevitable in investing and trading. Ruin is also very likely. Every day some traders and investors are wiped out, largely because they did not utilize a portfolio method that included an assessment and control of risk. The area between perfection and ruin is a compromise between the gains and losses, known more commonly as “rewards and risks,” of a system or portfolio strategy. As can be imagined, the possibilities between perfection and ruin are limitless and have much to do with personal preference for risk. The reward side of a strategy we can fairly well quantify, as was shown in the previous chapter on systems, but the risk side is not so easily understood. The trade-off between the two will affect the ultimate success or failure of a portfolio strategy. That is the essence of money management—to maximize return at minimum risk. No home runs, no Holy Grails, no perpetual money machines—just plain and simple, consistent profits with minimum chance of losing all of one’s capital”.

Going back to the basics because it’s necessary especially with the advent of Bitcoin as a digital currency, you need to read Manias, Panics & Crashes- A History of Financial Crisis by Robert Aliber. Some have called it a bubble, some are calling it mania, there is all sorts of news and entertainment, trading “gurus” commentating on Bitcoin, you’d think they had a sat down with Satoshi Nakamoto. Wherever your stand is, you need to know what leads to crashes before you open your mouth or type something for the world to read. Even though the financial crisis was majorly started in the real estate industry, the derivative is just an asset. The concepts are the same. Some have argued that Bitcoin is not a value producing asset and is thus only a speculative tool digital currency, while some have advocated for its use and foreseeable future even with minimal regulation. Quoting Robert Aliber, “The financial crises that are analyzed in this book are major both in size and in effect and most are international because they involve several different countries either at the same time or in a causal sequential way. The term ‘bubble’ is a generic term for the increases in asset prices in the mania phase of the cycle. Recently, real estate bubbles and stock price bubbles have occurred at more or less the same time in Japan and in some of the Asian countries. The sharp increases in the prices of gold and silver in the late 1970s have been tagged as a bubble, but the increases in the price of crude petroleum in the same years were not; the distinction is that many of the buyers of gold and silver in that tumultuous and inflationary decade anticipated that the prices of both precious metals would continue to increase and that profits could be made from buying and holding these commodities for relatively short periods. Grab a book and enjoy the ride!

Fooled by Randomness by Nassim Taleb one of the guys who made a killing during the 2008 global financial crisis completely takes my mind to a new planet. I like to think of Taleb as a contrarian. What that means is that he has no problem buying while all the talking heads are screaming sell. He is confident about the positions he takes and doesn’t bother to take very key interest on what financial journalists say. Do not believe everything you see on T.V. In fact, if you can avoid taking action on the markets depending on what news and media houses tell you, that’s a sign of maturity. More so if you are a chartist, if you follow price action to the core. Price is king. However, if you’re into macro, a fundamental trader, by all means follow the news closely but do your own research and analysis prior to taking your positions. Taleb taught me how to filter through noise and what to focus on focus. Quoting him he says, “I believe there is a difference between noise and a signal, noise should be ignored, and a signal should be taken seriously”. Taleb usually has CNBC television station on all the time at his office but the volume on mute, simply because it’s one thing to read what’s going on in the markets, it’s another to let a presenter disrupt your thought process with his own opinion while you’re trading. He goes on to explain the place for randomness and probability in trading. That no one is immuned to randomness and you should be prepared mentally for any outcome. My take home crucial lessons from this book would be anything can happen, you don’t need to know what’s going to happen next in order to make money. That every moment in the market is unique. There’s a random distribution between wins and losses for any given variables that define an edge. An edge is an indication that gives you a positive expectation. It gives a higher probability of one thing happening over another.

I mentioned earlier on that price is king. In that regard, John Murphy’s Intermarket Analysis represents another step in the evolution of technical theory. According to Murphy, “With growing recognition that all markets are linked, financial and non-financial, domestic and international, traders will be taking these linkages into consideration more and more in their analysis. Of great emphasis is that no market trades in isolation, that all markets are interrelated and the four key sectors are currencies (Forex), commodities (Futures), bonds and stocks. The bond market is heavily influenced by the commodities, bonds normally trend in the same direction as the stock market, the United States Bond and Stocks markets are linked to global markets and some stock groups such as oil, gold mining, copper, interest-sensitive stocks are influenced by related futures markets”. Technical analysis remains the same no matter the derivative. It’s sort of like the lifeblood of trading, without which, your trading capital is dead. You cannot isolate price action in whatever form it comes whether it’s through trend following, momentum scalping, the use of signals and indicators, chart pattern recognition or whatever means you use to trade. It’s therefore paramount for new traders to have the basics into technical prior to them narrowing down to their trading style and fully recognizing their trading personality.

Let’s shift our focus to the emotions that come to play when real money is on the line. Hersh Shefrin has done a tremendous job in explaining fear and greed. His book, Beyond Greed and Fear gives you insights on the mass psychology of the markets which is primarily what drives the financial markets, one of the cues you should be looking into. He takes us through behavioral finance, some of the lessons you’re not taught in school. In his own words, Shefrin says “behavioral finance is everywhere that people make financial decisions. Psychology is hard to escape; it touches every corner of the financial landscape and it’s important. Financial practitioners need to understand the impact that psychology has on them and those around them”. Greed breeds overconfidence. “Overconfident investors who know a little of behavioral finance can do themselves great harm trying to exploit market inefficiencies. They are not smart investors and do NOT do the following; distinguish luck from skill, know that only some risks are worth taking and recognize that mistakes of other traders produce an extra source of market risk as well as a potential profit potential”. Fear breeds loss aversion. Quoting Shefrin, “Most people exhibit loss aversion. They have great difficulty coming to terms with losses. Consequently, people are predisposed to hold on to their losses too long and selling their winners too early”. Hope springs eternal. “Hope and fear affect the way that investors evaluate alternatives. Fear causes investors to look at possibilities with an emphasis on their desire for security and a potential for the upside”. Do not throw away good money chasing the bad because you can’t keep your emotions in check. When doubt creeps in, it’s time to exit, as simple as that. When you have hit your profit target, it’s time to exit. Take it from me, learned that the hard way.

Finally, this remarkable woman has some interesting stories. Those that keep you glued to your screen, you can’t catch a break. Kathy Lien in her book Millionaire Traders, How Everyday People are Beating Wall Street at its own Game will give you valuable lessons you can employ in your trading journey. To be continued…….

Disclaimer, this article is in no way a marketing tool for the authors mentioned, rather my take home lessons from the knowledge I have gathered from reading their book material cover to cover. I hope you grab one of these books and read it for yourself. After all, ignorance is pretty damn ugly. I’m going to start with my current read, Trend Commandments by Michael Covel. One of the nuggets I like from this guy is his phrase, “Eat dinner or be the dinner”. In his entire book, he goes to portray that trading the financial markets is just a game of survival. More like Capitalism right? Whether or not you agree with it, it does exist and those who take advantage of it, make a great killing in the markets. Trade Hard, Slay Hard. That you really don’t have to be college educated, all you need to know is how to ride the markets. Digest how Michael puts it,

“Consider those who pursue academic PhDs. A PhD is a specialist, not a generalist. In the real world, not the academic one, the generalist is today’s winner. Not all PhDs are motivated entrepreneurial competitors capable of “killing it” (of course there are exceptions). A PhD, or any degree, does not protect you from failure. A degree says more than anything that we passed the test. My comments are no knock against degree winners, but they are a reminder that it is you against the world. If you have a degree, any degree, that’s awesome. I have three letters behind my name, but so what? Don’t use the degree on the wall billboard, circa 1950s leave it to Beaver America, to imply you are special? Those days are long gone…or maybe not!” In short, papers are good but they are not everything. Which is why at Sylvia’s Traders Lounge, we accept all types of students in different career paths, we also love high school drop outs.

The second book I really enjoyed is The Master Swing Trader by Alan Farley. This is a book I’d recommend to mature traders, those who’ve already identified their trading style falling under the classification of a Swing Trader. Meaning that you hold onto positions for a longer time frame. Alan emphasizes the need to identify the type of errors you can make and how to preserve your trading capital. Quoting him “Trend relativity errors steal more profits than any other trading mistake. An excellent position for one holding period often fails in the next larger or smaller time frame. Natural price waves that generate through multiple trends must align with reward targets and the chosen time frame. Make sure that strategies always focus on the right elements for that setup.

Investors make frequent relativity errors, but their broad position timing often forgives mistakes. Swing traders that miss their time frame will wash out of the markets quickly. Shorter holding periods spawn more critical time errors than longer ones. Short-term trends generate very noisy signals that trigger early positions. High transaction costs and lost opportunity also take their toll on these misinformed entries. Control this tendency through longer-term charts that capture broader price movement and filter errors”.

Let’s get a bit more technical, if you haven’t read Trading in the Zone by Mark Douglas, drop everything and find your way to the library right now. This is a great read especially for new traders because it covers trading psychology. We all know that the markets do not really care about your status, your prowess in communication, your background, I can go on and on. If your psychological make up isn’t right, you’re bound to fail. Your energy capital, brain capacity matters just as much in fact more than your skill to trade and analysis of data or news. In his own words, the legendary Mark Douglas says “I’ve worked at a personal level, one on one, with virtually every type of trader in the business, including some of the biggest floor traders, hedgers, option specialists, and CTAs, as well as neophytes as of this writing, I have spent the last seventeen years dissecting the psychological dynamics behind trading so that I could develop effective methods for teaching the proper principles of success”.

He goes on to add that “What I’ve discovered is that, at the most fundamental level, there is a problem with the way we think. There is something inherent in the way our minds work that doesn’t fit very well with the characteristics shown by the markets. Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful. They no longer fear the erratic behavior of the market. They learn to focus on the information that helps them spot opportunities to make a profit, rather than focusing on the information that reinforces their fears”.

Fooled by Randomness by Nassim Taleb one of the guys who made a killing during the 2008 global financial crisis completely takes my mind to a new planet. Look out for the lesson in part 2 of this blog post.

Every financial advisor you consult with will always have one thing in mind. What is my client’s risk tolerance? I am sure you have heard this term thrown around, without possessing any specific definition to it. Business Dictionary defines risk as, “The probability that an actual return on an investment will be lower than the expected return.” What does that mean really? It means that risk, as defined in the finance community, is the likelihood that you will not make the returns they promised you. Does that not sound counter-intuitive? On one hand they tell you that you can expect an 8% to 12% annual return on your investment, while on the other hand, they tell you that you may not actually be guaranteed anything they promised you. The market is out of their control after all, right? And if you lose money, it is not their fault. You knew what you signed up for.

In a sense, this is correct. There is a certain level of risk to everything you do in life. That also translates into money matters. You need to find out how much are you willing to lose to figure out how much you can make. Just like in matters of the heart. I am sure you know what you would sacrifice to see your children live healthy successful lives. Or the pleasures you are willing to forgo to help your parents get a house, or what you would do to make your significant other smile at you. We weigh the scale in all decisions we make to figure out if the risk is worth the potential reward.

The finance community looks at risk the same way we look at life. Therefore, you must figure out your risk tolerance when it comes to money before you buy a single stock. Stocks, as an asset class, are risky. Still, some stocks are riskier than others. If you are willing to venture down the speculation path, you may receive exponentially higher returns, but you will have to be willing to risk your investment capital to do so. If you are risk averse, you may only be willing to risk losing very little, therefore your returns will be what everyone else gets by default. You may also fall somewhere in the middle, which is fine too. Our goal is to figure out where you belong.

I like to take a few things into consideration when figuring out someone’s risk tolerance. Some of the items on my checklist are as follows:

Age: The closer you are to retirement, the less risk one should take, the younger you are, the more risk you can handle.

Financial stability: I do not recommend anyone with less than $10,000 after all expenses and retirement accounts are funded to invest in the stock market. Capital only helps with options, not when determining risk.

Personality: I know that not a lot of people take this into consideration, but every client I ever had in my hedge fund, I sat down with and got to know them a little. If I saw that the person is out-going and has a positive outlook, I may recommend a riskier strategy. If the person is more conservative, I generally tried to match their approach. Most important part here is to be able to listen to yourself and give an objective opinion of your personality. You can also ask a friend or family member to help evaluate you if you are having a hard time being objective.

Time frame: One of the most important aspects of risk profiling is to figure out your time. Do you plan to invest in stocks for a few years or for the rest of your life? It is okay if you change your mind later. Just beware that the time you must invest drastically changes the outcome.

Goals: It is good to have investment goals as well as life goals. I use goals as a way of tracking my investment journey. Since I plan to stay invested all my life, I set milestones to remind myself to be disciplined. Investment goals do not have to be about money. You can set goals correlated to specific personality traits. For example, you may set a goal that when the market dips 15% you will start accumulating positions in stocks you like. This sounds simple enough now. But when you see the market drop 15% in one day and people are panicking to sell everything, it takes courage and discipline to press the buy button. Sort of like how soldiers are trained to run toward the gun fire instead of away from it. You must fight all impulse to flee and stay put.

In conclusion, you may use some of the items I shared with you today to help you figure out your risk tolerance. There is no one size fits all method that I could find. After speaking to my colleagues about how they view risk, they agreed that everyone has a different way to measure risk. I choose to look at both sides and ask myself a few questions. How much risk am I willing to take for the potential rewards? Considering my state in life now, am I willing to risk more or less? This helps me to figure out my risk profile. A person who is the same age as me, income level, and economic status may have a completely different risk profile than mine. Therefore, I do not subscribe to the modern methods financial advisors use when determining risk tolerance and portfolio allocation. Find your own risk tolerance and look for the stocks that fit within those parameters. The market is big, there are stocks for all types of risk levels available. Next time we will match your risk level with some stocks.

A couple of days ago, a friend baptized me “dollar girl”, so I might as well do a piece on this once and for all. They say money won’t buy you happiness, think again because they went shopping at the wrong stores. Money is good. The lack of it is what makes people evil, thugs, murderers, and jerks. Ask yourself, why did they continuously drill into you that education is the key to success? The hypothesis that when you get schooled, then you have options, to be an entrepreneur or get a good job, to be financially independent. Isn’t that a good thing? I mean, which parent wants to raise their kids to be beneficiaries for the rest of their lives? Even so, don’t you have ambitions, dreams, aspirations that do not revolve around your folks or family entitlement if you’re lucky to be born rich? Most people if not all have brains, but only some fraction of it makes use of it.

Which brings me to our spending habits. Take a closer look around your house, don’t go too far. Start with your bedroom or closet. How many things do you have stored in there that you barely use? Ladies, I’m talking handbags, shoes, dresses, make-up. One of my favorite women the author of Girl Boss, Sophia put it very well; money looks better in the bank account than on your feet. I know, we love shoes, I love shoes too, give her the right pair in the right inch and she can conquer the world, right? But how often do you feel the urge to buy stuff that you don’t necessarily need at that particular moment just because it looks good? Are you the type who is guilty of impulse buying and then when you get home, you realize, you needed to do some house shopping? Like seriously, hire a personal finance consultant if you have to, or start by having a monthly budget and sticking to it.

Quit the comparison with your peers. Just because everyone is getting a new car doesn’t mean you have to, take a bus until you can afford to buy one. More importantly, if you can get one in cash rather than on loan, the better. You won’t die if you used public means, you will die earlier if you take on an image and keep up with a reputation you can’t afford. I see people taking loans to have their supposed “dream wedding”, the Kenyan media does a good job, the likes of Samantha Bridal and Wedding shows make every girl crave for her big day with unrealistic financial demands. I’m not married yet, and just in case you’re wondering when that will happen, let me just say that it’s frankly none of your business, neither is it an end goal. HARSH, right? I know….but some people need to hear that. So you put yourself in a quagmire of debt repayment for something which you can avoid by going to the AG and get your paperwork done.

Let’s talk about debt because you have at some point found yourself borrowing money for personal use or business. There is a rule of thumb when it comes to debt and that is, do not borrow unnecessary money for something that can wait or be avoided. Debt is good if put in business to propel growth or increase productivity. It is bad when you borrow for consumption, it is even worse if you borrow from institutions or shylocks who charge you an interest on every penny. The best thing is to live within your means and if you really have to borrow, do it from your inner circle, your family and friends because those will least likely put an interest rate on their lending. However, because I learned time value of money, I will charge you an interest rate if you come knocking on my door. Have the habit of clearing your debts on time and in the shortest time possible because the thought of owing people money cripples you.

I had an interesting conversation with my girlfriends this past weekend. It was about identifying your needs, wants and knowing the difference. Agnes Mutua is actually a consultant in personal finance and I am eternally grateful to have her in my inner circle. For some of her publications, visit her blog on this link (agnesmukulu.blogspot.co.ke). She gave me a tip that I will pass down to my future generations if God blesses me with kids (rolling my eyes)….anyways if you have the urge to buy something, you know the impulse buying kind of thing, give yourself 24hours, ask yourself if you really need it or want it. It’s not a bad thing if you want it, but it only makes sense to make a purchase only when you need it especially if you’re running on a tight budget, which is highly likely. Have the courtesy to go shopping with a list, the discipline to only get what you intended to get in the first place.

On savings, start today with what you have. Nothing is too little if it goes into savings, we all have rainy days, family emergencies or a vacation you’ve been looking forward to. If you’re the person who saves after spending, switch that up. If it’s too difficult for you and you have a regular source of income from your boss, ask your bank to give you a standing order. That means every time your salary checks in, a percentage of it is immediately deducted and put in your savings account, that way, you can comfortably live on the rest without thinking too much about where your money went. If you’re an entrepreneur or self-employed and you’ve had a good day or month from business, save a higher percentage than your previous one because you don’t know how long it will take to have that kind of day. That way, you mature financially, you are in control of your income, not a slave of your earnings. Treat money as a tool to get what you want from life, I hope note this serves you right.

This is usually the part where I lose a few of you. Don’t worry, I feel the same way you do. Reading through columns and rows filled with numbers and abbreviated nonsense is not a good way to pass time. Still, I will share a well-kept industry secret with you. Most Fund Managers today do not bother to read financial statements. Shocking, right? I mean, they manage billions of dollars of other people’s money and do not take the time to read financial reports? Well folks… its true. Fund Managers can not read through hundreds of financial statements every single quarter to buy or sell stocks. It would take a herculean effort to do so. This is another edge retail Investors can exploit. I am of the belief that the stock market is a 2-way pricing mechanism. The first way it prices stocks is on the short-term news cycles that can move a stock. The longer term is the ultimate value of a company.

Famous hedge fund manager and CNBC personality Jim Cramer has an accurate way to describe this. He says that stocks go through rotations depending on what is hot or not on a day on the Wall Street fashion show. This means that stock prices move depending on the news stream of the day. On the short-term basis, stocks can make big moves based on industry news, political events, macro-economic data, large fund re-balancing, capital inflows and outflows, sector and industry analysis reports from analysts, or just plain rumors. Frankly, therefore most people believe that owning stocks is a gamble. I honestly do not see how a retail investor could ever beat the market by day-trading in and out of it on a minute to minute basis, otherwise known as scalping.

The edge retail investors can find is on the long-term basis. By long-term, I mean one year plus. If you take the time to read through the financial statements of your favorite company, you will be able to get a clear picture of how business truly is doing. Cash flow statements, revenue, keeping an eye on operating expenses, debt, and commentary from Management are some of the items you can use to make a more informed investment decision. I am not going to teach you how to become accountants here. Do not worry. All I want you to understand is that stocks will move randomly on the short-term basis. These random movements are the best opportunities we can take advantage of in the market to better our long-term performance.

If you looked through your favorite company’s balance sheet, income statement, cash flow statement, and stock holder’s equity statement, you will have more information at your hands than most Fund Managers do. So, whenever the price of your favorite stock drops for whatever reason, you will be able to know that the short-term movement may not have anything to do with the value of the company itself. These are the best chances you will get to buy that stock at a discounted price. Sort of like walking into your favorite clothing store and finding that shirt you always wanted at a 25% discount. Most of us would not stop to ask, “Is there something wrong with this shirt?” We would take it to the cash register and buy it instead. Use the same logic when spotting a price movement that catches your eye in the stock you have been tracking. If there is no news related to your stock, and you are aware that the financials look good, you can be sure that you are getting a bargain.

The most important aspect of this post is to let you know that it isn’t necessary to time the market just right. Prices can move wildly on either direction. Best case scenario is that you would have to wait a bit before the price of your stock gets to the level you feel comfortable paying for. I do not like to chase stocks on the upside. If I see a stock I like, and the fundamentals are solid, but the price has gone up substantially, I rather place that stock on a watch-list and wait for it to come back down. This being disciplined is most important. All you need to do is to establish a price that you like, wait for the market to throw a fit. Then buy the stock after it gets booted off the Wall Street fashion show. If you buy stocks this way, your long-term performance will greatly increase.

Therefore, reading financial statements and being familiar with them is such an important thing. Having this knowledge is crucial to determining how much you should pay for a stock, and figuring out whether the daily price move is to your benefit or not. Remember the discounted shirt we bought earlier when you see a stock drop on no news. As boring as this might seem, this is golden, information that you can make use of to see a substantial amount of net positive returns in your portfolio of assets.

Most of you have heard of Warren Buffet, the Stock market guru. I like his mantra, “If I don’t understand it, I won’t buy it”. Investing in the stock markets is simply becoming a shareholder in a company that is registered with the market regulators of that particular country. For example, regulation in the Kenyan market is done by the Capital Markets Authority (CMA) which supervises all companies listed in the Nairobi Stock Exchange (NSE). If a company is listed in the Nairobi stock exchange, it means that it is a publicly held company and that anyone who is of legal age can buy its shares and become an owner of the company depending on the shareholding. If a company wishes to raise capital from the public, it issues an Initial Public Offering (IPO) for a given period of time, this is one way of earning equity capital.
As an investor, you have to do your due diligence to make sure that you invest your money in a profitable company, so that you can earn your annual returns, basically have a return on your investment. Investing in shares or the stock market comes with its own share of challenges. For instance, you really have to be patient to make money off the stock markets, it takes time for you to earn a substantial amount of returns in form of dividends. You’re basically paid to wait. Money is taken from the impatient investor and handed over to the patient investor, that’s just how the stock market works. As you know, dividends are paid once in every year, for most companies.
There cannot be issue of dividends if the company’s performance is not profitable, so decisions made by the managerial team of that particular company that you’ve chosen to invest in have a direct impact on the payout too. The financial statements, books of account have to make sense. Then there is the issue of capital gains tax, give to Caesar what belongs to Caesar, the tax man has to get his share of profitability as well. Once you invest in a company’s stocks, you’re entitled to ownership, you become a shareholder. Takes a lot of patience to make money from stocks, most speculators don’t have time for that. If you really want to invest in the locally available stocks in the Kenyan market, the go to guy is one George Mangs, Founder of Young Nairobi Stock Exchange Investors. However, if you’re interested in investing in stocks in the global frontier, this guy will have you covered, one of my contributors and a Fundamental Analyst, Fred Scott. Reach out to them on Facebook by those names.
Investing in the Forex markets is different from the stocks market. You’ve all heard of Wall Street and big market players such as Goldman Sachs and JP Morgan. Basically, this means that you’re a speculator, you trade the foreign currencies. What you do is to compare the relative price of one currency over another currency, determining which one is stronger in terms of value. The major currency pairs traded are the United States Dollar, The European Euro, The British Sterling Pound, and the Japanese Yen. We also have cross currencies such as the Canadian Dollar which is mostly affected by the oil production in Canada, The Swiss CHF, the Australian Dollar and the New Zealand Kiwi just to name but examples.
The benefit of trading the Forex markets is that one has the liberty of signing up with his broker of choice as long as they are registered with a national regulatory authority, fund his trading account with sufficient amount of trading capital which most of the time is leveraged by the broker, then start to trade immediately as long as you have the know how to trade. All you need is access to internet and the skill to trade. Forex trading is based on three key pillars, Trading Psychology, Fundamental analysis and Technical Analysis otherwise known as Price Action.
Trading psychology deals with the right mental attitude, the winning mindset of a trader. The biggest lose in trading Forex markets is not financial, it’s intellectual. This is so because you can recover your losses and triple your trading account in a few trades, but if your mindset is not okay, you keep second guessing yourself, you operate from a position of fear combined with greed, human emotions come to play, so you trade on gut and rely on hope, and that’s a recipe for disaster in trading, you can be sure to blow up your trading capital if the psychology is not right. Fundamental Analysis is trading based on news and global macro-economic events. We focus on monthly reports such as the Non-Farm Payroll, FOMC discussed later on this series, geopolitical and catastrophic events like the drama going on now between the United States and North Korea, presidential elections in the United states and in the United Kingdom like in the case of BREXIT.

Technical Analysis is the interpretation of charts, an analysis of prices based on graphical representation of market behavior and patterns predicted over time. It is believed that the mass psychology and the feel of the market is already captured on the charts, so once you know how to analyze charts, market indicators, entry and exit points, then you’re good to trade on price action. Finally, the beauty about trading in the Forex market is that only YOU determine your level of income, how much you put in the markets, and how much you take off the markets, there’s no intermediary, the only costs you may incur are commissions or spreads paid to your brokerage firm.

Don’t get me wrong, I did not say easy, I said effortless. Trading is not easy as those who try to sell you systems portray. However, profitable trading has to be effortless. It is backed up by years of experience in a market niche that you are well conversant with and a trading style that suits your personality. You’ve got to have the know-how first and then practice, practice and practice. No two ways about it. It’s more about execution and timing. Knowing when to wait and when to place a trade. Once you know when to make an entry, make pips, take profits or cut your losses while adjusting your stop loss and making an exit, that’s more like it. You don’t have to use a million indicators, with time, you will realize your charts will be more clear and clean. Patience is critical. Then once grasp that, do it consistently.

Axel Capital Rod in the television series Billions asks his intern (who was actually doing better than his long serving employees) what an edge is. He told him his ability to see things differently than others do was his edge, and that is true. You can go short when guys are long, you can go long when guys are short, you don’t always have to follow the crowd. Yes, the trend is your friend, but in some bullish or bearish markets, you execute your trades depending on the positions you took earlier. You do what’s best for you. Quit with the comparison, it doesn’t make sense to copy someone’s strategy while you have different trading personalities. It’s the same as signing your death warrant. Remember the markets do not respect anyone, they don’t know you exist and frankly, they don’t care. Master your craft, make it your edge.

Unless you’re a Newbie, spending most if not all your time on the screen is not productive at all. That’s over trading. It doesn’t necessarily make you money, in fact, more often than not, you will end up losing because you’re too aggressive. I know a fundamentalist who tells me 90% of his trading is analysis and studying and only 10% execution. That’s more like it. There’s another one who only trades the market open because then, there is less competition from institutions like High Frequency Traders and more volatility meaning that that’s where he finds the best opportunity to cash in, and he is done for the day. There’s also another who is good with swing trading, he sits and watches the charts, he might make a trade or two once in a week then wait. It all depends with your style. But by all means, do not over trade.

Once you’re confident with your strategy, it’s time to grow your business to the next level. You have already put money on the line meaning that you’re a risk taker, you have tried and tested and back tested your style so you already know what works and what doesn’t work for you. You can go ahead and add on to your positions, growing your capital, making pips smiling all the way to the bank. It’s the maturity of a professional trader. Again, good things take time, invest in knowledge, invest your time, it will definitely pay off in the end. It doesn’t have to be difficult, love the game and make it effortless. Cheers!

At some point in my life, I found myself in a classroom as the only African Woman. The other lady was from Russia. The rest were all male, including the professors and supervisors. Being a woman in this case did not give me an edge, it just meant I was different. That I have something to bring to the table, that I can pursue an MSc. in Financial Engineering and have good grades like my male counterparts. Needless to say, I am actually doing pretty well, so gender is not an issue. To my fellow ladies, learn to embrace your womanhood, with all your flaws, with all your beauty, with all your intelligence. Prove to yourself that you have a place in the so called male dominated careers, Finance is critical to a nation, an economy, the world. So we need to be at the table during the decision making process. We need more women in board rooms, we need more women in governance. When you put on your dress and walk into a room, do it with confidence, with a smile on your face, the world is gloomy as it is.

The only way we can cultivate the culture of women liberation is by taking on challenges. Have a solid education, harness your skills so that people do not base your credibility on things such as beauty and luck. We’re fortunate to be living in the internet age. In fact, if you’re not internet savvy, you’re depriving yourself and your business a substantial amount of benefits not only in terms of revenues but also in terms of social capital. I got a Masters scholarship from LinkedIn, I have made solid business partnerships from networking on Twitter, I have clients from Facebook, I have watched countless videos relating to trading on YouTube, that’s actually one of the tools I used to teach myself how to trade. You have to be willing to go the extra mile. Self-taught mechanisms are the best ways to learn, not a classroom set up. I am yet to join Instagram. Do not underestimate the power of social media, you can make as much progress networking online more than you can do in person, especially if you can’t afford high profile meetings, seminars and the like. This doesn’t discount the fact that you still need to put yourself out there.

Once you acquire the necessary credentials, then you have a footing in your industry of choice. There’s really nothing to brag about being well educated, it’s just a qualification, it gets you to the door. How you carry yourself, your demeanor, your kindness, your communication skills and humility goes a long way. It’s how you associate with people that determines whether you can kick some ass. Oprah Winfrey once said to a group of graduating college students that “Your Legacy is every life you’ve touched”. That’s essentially what you will be remembered for. That’s what will comprise the major part of your eulogy once you’re gone. So you might as well start thinking of doing something that adds value to others and brings in fulfillment to you rather than keep yourself busy in the hustle and bustle of life of paying bills getting by. Do not mistake true wealth for richness, I believe you know the difference. But you cannot do that without STARTING, you have to bet on yourself. You won’t know how much you can do unless you start. You will realize that once you put all your energies and focus on that which you have purposed to do, then the universe has a way of opening doors for you. Somehow, things start to happen, I call it the magic of betting on yourself.

The quest for woman liberation comes with its own share of challenges. Like every good thing, patience is critical. A clear vision backed up by a strategy, commitment and action sets the path for achieving goals, little by little. It’s a daily hustle. Knowing that daily targets are part of a road-map that only you have the power to make it or break it. You’re the vision carrier, not anyone else. Do not let other people define for you what you can and cannot do, because, then you’d be giving up your own power. Every morning when I wake up, I look at my vision board, it affirms my commitment, then get things done. Have realistic timelines that you can work with. It is estimated that only 1% of those who trade the financial markets are successful. I want to bring Wall Street home. I want to be part of the 1%.

I often look at how the markets favor the bold and really, the only difference between those who are good at this game and those who are barely getting by is founded on the basic principle of your knowledge and experience. It is therefore paramount to get grounded and understand the nature of the markets prior to getting your head all in the game. Look at it this way, given the uncertainty of this profession, you stand a chance of making or losing money every time you place a trade, you’re either buying or selling, nothing in between. Which is why I advise all my Forex students to get themselves a coach and mentor who is honest with them, one who is willing to guide them on how to nurture their own trading personality right from the get go as opposed to teaching them how to trade.

One of the skills I will impact in you is that of minimizing draw downs and maximizing your profits. I will guide you on which brokers are best suited for your niche market and those who are not out there to rip you off. It’s one thing to trade, it’s another to make money. Professionals are out here to make money. This is a business, it’s a profession, not a hobby. Which is why I demand that all those students who look up to me for coaching and or mentorship to really know what they are getting themselves into. That way, you will dedicate your whole self into a life skill that is not only rewarding but also fulfilling, one that gives meaning to you and those around you. Below is our rate card, in partnership with Sylvia’s Trader’s Lounge.

Given my two decades experience with the markets, I can confidently say that those who take their time to educate themselves and practice on demo accounts prior to trading live have a higher chance of success than those who don’t. They shorten their learning curve, they understand themselves better. Do not allow your ignorance to donate your hard earned money, borrowed or earned to the markets. They don’t care, they don’t know you exist, they don’t sleep either. It’s a survival game, you either get slaughtered or make your killing. I’m not here to tell you that you won’t lose money, it is part of the game, but you can learn the art of having more winning trades than your losing trades, subsequently having a good trading week, month, year. Looking forward to having you onboard at the classes. I offer one on one personalized classes via screen share to take care of international clients like yourself.