Here are 5 takeaways from the the Market Depth Trading Strategies seminar conducted by Wong Kon How on 4 June 2018.
1. How is the current US market?
Although Singapore investors might not trade the US market, we need to be aware of what is happening in the US as it is still the largest market. In 2018, there is more volatility in the market. It is not unusual for the Dow Jones to go up or down 1 % in a day. This is not surprising because of the current political climate and economic policies.
Kon How cautioned investors about US equities because Dow Jones has dropped from the high of 26,684 points on 29 Jan 18 to 23,088 on 6 Feb 18, a 13.5% drop.
Is the end of the bull run near? We will never be 100% sure when this will come but Kon How gave three reasons for being cautious about US equities.
- More interest rate hikes in 2018
- US dollar depreciating
- The sharp drop of Dow Jones in late Jan to early Feb
Read more at Kon How’s blog about market volatility.
2. How is the current Singapore market?
When the audience was asked if they think that the current Singapore Market is in a bull market, bear market or in a range, there were the most number of hands raised for the range market. So Kon How asked, “In a range market, would you go heavy or light?”
3. How to use market depth to decode price and transactional volume for better entry?
Kon How asked, “Does price move first before an announcement or announcement made first follow by price?”
Many in the audience were aware that often price moves first. When there are more good news, the price will then move up more. Sometimes this might not be insider trades but due to real demand.
Kon How advised investors to read into significant moves because it cost a lot of financial burden. He always assumes that there is a reason for such moves. These are the steps Kon How will take when he is interested to buy a stock:
- Do some research
- Check if the price is fair
- Read the company’s past developments. Check the CEO’s statement for many years, hopefully the CEO is the same person, to see if the message is consistent.
- Fine-tune the entry for the day using market depth
Kon How shared that usually serious seller will try to hide their selling. He explained the concept he termed ‘fake price’. ‘Fake price’ are prices that are transacted. However, these are prices with transactions where sellers are trying to trick real buyers into buying, by having many buy orders in small quantities to make it seemed that there are a lot of buyers at a particular price. Especially retail buyers, seeing such a situation, might quickly buy in because of their fear of losing out. Market depth allows us to see these small quantities of buying, and real buyers can use this information to better understand the demand and supply and then decide if they want to buy in.
4. Understanding impact of rising interest rates in US
Rising interest rates is not good for property and stocks because companies usually need to borrow money to expand. Rising interest rates means companies have to pay more for their loans.
Fed is preparing us for the rise in interest rates and there is an urgency to raise interest rates because USD is depreciating.
If the interest rate is raised gradually, the market can absorb. But an accelerated raise in interest rates is not good for the stock market.
5. Investment strategies for current volatile market
Kon How mentioned that selling off stocks is not a bad thing. It will release cash back and Singapore dollar is very strong. Cash is also a position. If market condition is not conducive, it is ok to keep cash.
In volatile market, we need to identify the current trend and when it is reversing. Instead of being a long-term investor, it would be beneficial to learn to be proficient in short-term investing (3 to 24 months), short-term trading (2 days to 3 months) and intra-day trading. Know when to take profits and how to manage risk and volatility and grow our investment funds. We need to understand that when one market is down, other markets will go up.
