Saturday, 12 January 2019

TRADE OFTHE WEEK #4 : DAMANSARA REALTY BHD


Five seconds of observation, plus 10 seconds to decide : do we want to go into this trade? We did, and the reward was some fat profits.

This case is an example of using pure intuition, an important skill for any aspiring trader. It's a skill that has to be honed and fine-tuned. Not only would you be operating with imperfect information, you may also end up making hugely consequential decisions with no supporting information.

That consequential decision is to trade, and committing significant amounts of money into it. This is not a random throw of the dice; acquiring this skill comes from mundane observation work, incessant note taking, and of course, our personal favorite - trades that have lost money in the past.

So how to develop intuition? Simply put, our view is that you have to be able to draw historical parallels. You have to notice the following in the stock, for starters:

1) price and volume activity
2) velocity (how fast it moves)
3) volatility (the rate of fluctuation in the price)
4) the broader market conditions (especially important for momentum-type trades)

Got that? Now do it about 100 times, in 100 different trades. It will likely take you years. We didn't say it was easy, but it can be done.

While many may think we can coast and live large for the rest of our lives trading, the reality is totally different. We still have our respective day jobs, and there are as many tough days as good ones. But every loss endured, and every profit gained, must be seen as a learning process.

There are no two ways about it. Lose money, take notes, repeat, and get better at it. And you will start getting gains.

And when you become good enough, you start thinking intuitively. You see similar situations where a stock can deliver massive profits from a large move - because you've seen it in the past and learnt from it - so you decided to go in.

In a nutshell, this is the explanation behind our successful trade in Damansara Realty (DBHD). We didn't need to do fundamental analysis (there was no time). A cursory Google search revealed no new bit of news; not that we expected any. The stock simply popped up on our screen in the 'top gainers' section (huge price movement on low trading volume) and we intuitively decided to go in.

As you probably know, many stocks that go up massively on low liquidity can fall back  to Earth hard. We assure you, with enough learning and intuition, you can tell apart the good opportunities from the bad ones. But you have to recognise the signs quickly, because in this case, time was literally money (to be won or lost).


THE TRADE

A five-minute chart in DBHD on 4 January 2018. As you can see, we sold near the peak for that day.

The key movement here is the move from 24 sen to 30 sen on very low volume. Our initial thinking was to risk a small amount at the 30-32 sen range and see if the stock continues to rise. If it stops, we would be exiting with a small acceptable loss.

Again, when it comes to thinking about loss limits, remember the golden rule; you must be willing to accept a 5% loss for the opportunity to make 10% in profits. (Editor's Note: you can change the numbers, but stick to a risk-to-reward ratio of 2:1 or more).

By doing this, you'll have a clear idea of what's at stake. It will prevent you from being lazy, or not properly observing your loss limits.

So we bought into the stock at 32 sen at first. We know there will be fluctuations, and perhaps some real selling pressure at 30 sen. The 'breakout' was not assured yet.

The key for us to go all in was the price activity between 9:10 and 9:15, represented in the 't' you see here.




The five minute chart, zoomed in. 9:00-9:20AM

We hope you have a basic understanding of these charts. the 't' basically means that the stock ended the five minute period where it started - at 31.5 sen. The bottom end represents a low of 30 sen and the upper part represents a high of 32 sen.
During this five-minute period, there was substantial buying activity in the stock. This recognition, for us, mostly came from our intuition. Remember that this all happened in five minutes.

Then in the next five minute phase, the stock comfortably broke a new high for the day. We thought it can realistically hover in the mid-30s range or further. Having received the confirmation of our thinking in the movement of the stock, we went in and bought more shares.

And it went up as we expected. We have seen this before. Our intuition guided us in this whole trade.

And less than 30 minutes later, by 9:38AM, we exited. The monetary reward of developing this intuition? In this case, it's a 16% gain in 27 minutes. Gains of RM6,000 plus. (Editor's Note : we try not to compute such gains on a per-minute basis as the figures can be truly crazy sometimes, but we do hope to demonstrate the very real and tangible rewards of being a trader who can recognise opportunities like this one). 

Those first fifteen seconds truly mattered in the end.





OUTCOME
Gross profit : RM6,295
Average Return on Investment (ROI) : 16%
Duration :Intraday (27 minutes), first hour of trading








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