Author: Investa

So you’ve been trading in the Philippine market for a while now, and feel like it’s time to start diversifying your trade portfolio.

You think to start trading in international markets — it’s a good opportunity, and it doesn’t seem too difficult!

However, the more you think about it, the more you realize how little you know about how it works — what exchanges should you be looking at? What are the most stable? How do I start trading? With all these questions swirling in your mind, it’s easy to get daunted and never really begin your venture into international markets. You realize that you may need a little guidance when it comes to entering those markets — well, look no further! This article takes you into the world of international trading, and watch out for more from the Going Global series to fully understand these foreign markets.

Get ready to kickstart your journey and start taking your stocks globally.

International Stock Exchanges

Almost every developed country has its own stock exchange: the Philippines has the PSE, China the Shanghai Stock Exchange, and many more. Each stock exchange is composed of companies that are locally listed and traded on the exchange. Among the most prominent stock exchanges in the world are the New York Stock Exchange, the NASDAQ, Tokyo Stock Exchange, and London Stock Exchange. Let’s take a closer look at each below:

1. New York Stock Exchange

The NYSE is the largest exchange in terms of total market capitalization. It dates back to 1972, and most of the largest American companies are listed here. It used the NYSE Composite Index to monitor stock activity. Additionally, foreign-owned companies may also list their shares on the NYSE, as long as they adhere to some specified listing standards.

2. NASDAQ

Short for National Association of Securities Dealers Automated Quotations, NASDAQ is the exchange for many electronic companies such as Apple, Microsoft, and Amazon. It is headquartered in New York City and was the first stock market in the United States to trade online in 1971.

3. Tokyo Stock Exchange

The Tokyo Stock Exchange is the most prominent of Japan’s five stock exchanges. It uses the Nikkei 225 Stock Average, a price-weighted index composed of Japan’s top 225 blue-chip companies. These companies are selected by the Nihon Keizai Shimbun, Japan’s leading business newspaper.

4. London Stock Exchange

The London Stock Exchange was founded in 1801. It utilizes the Financial Times Stock Exchange 100 Index, nicknamed the “Footsie”, which lists the top 100 companies in the London Stock Exchange with the highest market capitalization.

Why should I invest internationally?

Individuals usually invest internationally for two main reasons — to diversify their investment portfolio and take advantage of the growth of other countries. It is often wise to spread the risk of one’s investments across many companies and markets, as to not be overly reliant on the market conditions of just one area. As such, by diversifying one’s portfolio, one will be able to mitigate risks posed by economic, political, and social events of a country. Additionally, buying stocks in another country is a great way to take advantage of the growth they are experiencing. If a specific country is seeing great growth, investing in companies listed there will allow one to partake in their advancements.

However, there are also some risks that come with investing in foreign markets. Firstly, in order to invest internationally, you must work with a registered broker, as compared to being able to do so on your own in Philippine markets. This incurs additional costs, as you will have to pay commission fees. The fluctuating currency rates may also affect your investment positively or negatively, depending on whether the rate is going up or down. The currency rate will directly affect how much profit you are able to gain from your investment, which can go both ways. Lastly, there is the risk of having an inadequate understanding of political, economic, and social conditions in the country you are investing in, which will affect stock prices. Being hundreds or thousands of miles away from where you are investing your money makes it difficult to have a firm understanding of its market conditions, possibly leading to less informed decisions regarding your investments.

US Stocks vs Philippines Stocks since the market crashed

Just to show the difference between the US stock market and the Philippine stock market after the market crash we’ll be showing you guys the vast difference of opportunities on both markets. After the initial recovery, there were a few weeks where some stocks in the Philippines showed strong reversals like $MAXS, $IDC, $MAH, $JFC, $URC, $AC, $MRSGI, $PGOLD, and the like. However, only a few names went on to go up 30% or more. The stocks that made a strong move after the low at 4,000 levels are probably only a handful, and very rarely does everyone have the opportunity to capitalize on them.

However, while all the Philippine market had been reversals, the US stock market had hundreds of stocks close to making a new 52wk high and all-time high. A new breed of market leaders were already showing up in the global markets, while only a few stocks remained resilient and did not make news lows during the crash here in the Philippines; specifically, $GLO and $TEL.

Stocks in the US like $ZM, $SE, $WIX, $DOCU, $SHOP, $SGEN, $PYPL, $OKTA, $NFLX, $MASI, and so much more went on to make new highs. Here’s a look at a few of their charts as of May 26, 2020.

   

Conclusion

With all this being said, investing in foreign markets is still a good and profitable way to diversify your portfolio. It is recommended that 5-10% of your portfolio be foreign investments, with the majority still being from locally-listed companies. Before venturing into the international markets, it is best to be well-informed of the benefits and risks of doing so and to start investing confidently in your knowledge of foreign markets and its implications to your investment portfolio.

Watch out for more from the #GoingGlobal series of articles to further enhance your understanding of investing in foreign markets!

The Going Global series aims to introduce traders, whether beginners or advanced, to the international stock markets. Throughout this series, we will explore the pros and cons of international investing, how to kickstart your international portfolio, and many more tips to navigate this more complex trading world.

Trading both the Global Markets and the PSE is not an easy task. It will be difficult at first, but you will get a hang of it. As traders, it is our mission to look for strength and uptrends outside our local market, once the opportunities, based on your grade A setup, run out in the PSE.

Referring to the figures above, while the SPX was trending from 2019 to early 2020, PSEi was in a sideways movement. Certainly, I advocate the Bottom-Up Approach which I first learned from Mark Minervini in his book “Trade Like a Stock Market Wizard”, which simply means that a trader would focus on individual stocks first. Although, the opportunities in the US Market were far superior to that of the opportunities that sprung out of the $PSEi in the same period.

Did you have a hard time trading the PSE during 2019? I will be honest with you all, I started trading the PSEi in early 2019, and I found it difficult to trade. Fakeouts and shakeouts happened quite often. Although, there were a few names that were still making new highs while the PSEI was moving sideways such as $WLCON, $CPM, $SLI, and $HOUSE. Although, given that the US Markets contain approximately 7000 stocks (in the case of NYSE and NASDAQ), hundreds of stocks were making new highs, in comparison with the PSE.

That is why it is important to follow the opportunity present across markets. If you were to succumb to the PSE, chances are that you found it difficult to trade. Back in 2019, I was not prepared to venture out of the local market because I thought of it as my comfort zone. I found it daunting to explore other markets. I thought that being in the PSE is enough to suffice my goals as a trader.

In my personal experience, trading the global markets while trading the PSE was not easy at first. There will be several factors that you need to assess before you commit to trade across markets.

Are you eager to put in more work to achieve your trading goals?

Can you trade from 9:30am to 1:00pm (adjusted market hours until further notice) in the PSE, and trade from 9:30pm to 4:00am (due to time zone difference) in the US Stock Market? Other than that, can you also trade in between those times (given that Forex and Commodities are 24/5, and Cryptocurrency is 24/7)?

• This doesn’t mean that your eyes will be glued to your monitor 24/7. Before the market opens, one must PLAN THEIR TRADES so that you could set all your MARKET ORDERS.
• I put orders in advance so that I do not get left behind when the potential trade goes in my favor. I do this especially on 24-hour markets such as the Forex, Commodities, and Cryptocurrencies.

Are you willing to come out of your comfort zone (the Local Market)?

Willingness to learn:

• A New Platform.
• How trading with leverage works.
• How shorting works.

Accepting the risk involved in trading the Global Markets

• The US Market is prone to gap ups or gap downs during earnings season.
• Each asset class has a different DNA, wherein one may be more volatile than the other and driven by different fundamental factors.

The Global Markets will be a new environment that will require more effort in comparison to trading just the PSE. As Michael Jordan said, “You miss all the shots you don’t take.” It is such an overwhelming and eye-opening experience to trade across several markets. Indeed, continuous learning and building new experience is the key to navigate through our trading journey.

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Contributor:

Full Name: Miguel Lorenzo L. Cagampan
Investagrams Username: @Gagambatrader

Channels:
www.investagrams.com/Profile/gagambatrader
www.facebook.com/gagambatraderph/

About the Contributor:

Gagambatrader is a personal brand that aims to provide value and content with regards to trading in the financial markets using Technical Analysis. Gagambatrader aims to influence and provide to the growing community of traders in the country.

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The stock market: an entity that began in 16th century Netherlands as industrialization began to take hold.

Over time, the concept of jointly owning a company spread outside of the Netherlands, to every part of the developed world. As the concept grew in complexity, a need arose to differentiate oneself; and over the years, many individuals have stood out with their trading strategies that garnered them millions — even billions — in profit. Below are three standout traders from as early as the 1800s up until the modern-day, and the trading strategies that helped them earn big.

Jesse Livermore (1877 – 1940)

Perhaps one of the most famous names in the trading world, Jesse earned huge amounts of money through trading. He successfully shorted the 1929 market crash, earning him millions. However, throughout his life, he would gain big, lose it all, then gain again — in an endless cycle that eventually caused him to take his own life. However, he had a remarkable run, and Reminiscences of a Stock Operator (1923) — an unofficial biography of his life — is considered a must-read for traders. Jesse was considered a trend trader: he would analyze trends in the stock market and trade depending on whether it was on an upward or downward trend. Rather than basing it all on intuition, he would analyze the market and data before making a trade. Though this seems like common sense today, during his time, trading was based on rumors and speculation — his style of trading was entirely new. He also practiced Top Down Trading: he determined the wide-range market condition, then looked into industry groups following the general direction of the market, and sought out the strongest stock in that industry to invest in. Additionally, he identified a “sister stock” that he would follow along with the stock he invested in, as he believed that the condition of the sister stock would also reflect in the stock he invested in. As he once said, “There is nothing new on Wall Street. There can’t be, because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” Thus, patience, top-down trading, and a careful analysis of the market are important aspects of his immensely successful day-to-day trading.

George Soros (1930 – Present)

Chairman and founder of Soros Fund Management, he earned the title “The Man Who Broke the Bank of England” after he made over $1B on a bet that the British pound would depreciate in value. His ability to pull this off is a great example of his speculator trading strategy, wherein he makes huge bets on the direction of financial markets — essentially making a bet that the value of his stock will either rise or fall. When he predicted that the value of the British pound would crash, he borrowed billions worth in pounds and converted them to German marks. Thus, when the pound crashed, he was able to profit off the difference when he paid back the lenders. To engage in such trading, Soros looks at the economic, political, and social factors that affect industries in the future. He looks at trades from a long-term perspective — what will happen, and the events that are happening, that will shape prices in the far future. An example of this was when he invested in Japanese markets after the 2011 Fukushima disaster. Many investors exited Japan, as they did not think Japan would recover from the disaster. However, Soros saw an opportunity in the distant future: Shinzo Abe taking over as Prime Minister. A few months before Abe took office, Soros invested in Japan’s equity markets, and, just as he predicted, markets picked up rapidly after Abe took over. This shows Soros’s ability to look past the herd mentality of many traders, and analyze markets from a long-term perspective, ultimately allowing for long-term gains. However, a word of caution: as this strategy banks heavily on speculation and requires investing huge amounts of money, one should be able to afford a loss in order to implement it. It is an extremely high-risk high-reward style, requiring a good analysis of the trade and risk management plan beforehand.

John Paulson (1955 – Present)

John Paulson is the founder of Paulson & Co. and made his mark on Wall Street by successfully shorting the real estate market in 2007. At a time when many were losing money, he was one of the only ones to earn big. After his success, he made an impressive trade run from 2007 – 2010 by shorting housing, bank, and gold stocks, effectively increasing his already large fortune. His main trading strategy is position trading: he invests in stocks for the long-run, believing in trading with a high probability of getting returns in the long-run rather than short-term buying and selling. Along with his philosophy of investing for the long-run, Paulson also believes in having an exit strategy in case the stock surprisingly turns south for a longer period of time. He stresses that one should not “fall in love with a company” because by becoming attached to that stock, it becomes harder to identify when it is depreciating for good. Additionally, Paulson uses a contrarian strategy, buying and selling contrary to the popular belief at that time. He believes in going against the current market trends to generate profits, as trends cause frenzies and bubbles that will eventually crash. He looks for share prices that are lower than the value he sees in a company, because if the value is intrinsically higher then the price will eventually go up, allowing him to generate profits in the long-term. Paulson’s strategy, in essence, is all about patience and waiting out on his stocks; because as he once said, “Our goal is not to outperform all the time — that’s not possible. We want to outperform over time.”

Conclusion

As seen from the three traders above, there are many trading strategies that have worked overtime. However, as John Paulson said, “No one strategy is correct all the time.” Every trading strategy has its downfalls, and periods when they just do not align with market conditions. All three of the abovementioned have experienced losses due to their philosophies — George Soros lost a huge amount of money when he bet wrongly on the US markets rising in 1987, and again during the 1999 tech bubble. In conclusion, as much as one can learn from the trading strategies utilized by the best, perhaps the biggest takeaway from their careers and experiences — both good and bad — implementing the strategies, is that one should never expect to win big and experience success at all times. Expect losses, plan for them, and come back with an even better strategy to conquer the complicated, and at times frustrating, the world of stocks.

If you’ve read “Reminiscences of a Stock Operator”, which focuses on the life of Jesse Livermore, you’ll know that he emphatically states that one should focus on stocks that are near The Line of Least Resistance. A stock that is at this area is hovering near its 52-week high or all-time high levels, meaning that only a little demand can send a stock flying. By committing your hard-earned capital on these types of plays, you can expect a high probability of making the most amount of money in the least amount of time.

You may be asking yourself, “How is this possible? How can you make the most amount of money in the least amount of time?” By focusing on stocks near their 52-week or all-time high levels, you take off you watchlist all the laggard stocks and begin focusing on only the leading stocks in the market. This is especially effective during bull markets as stocks that create new highs tend to never pullback, so it’s best to get in when a new high is made.

So how does one find The Line of Least Resistance? One way to find it is too check longer-term timeframes, like a weekly or monthly chart, to plot the significant resistances that, if broken, can lead to an explosive move. Once you’ve plotted these points, you can go back to the daily chart (or whatever timeframe you prefer) and create your trading plan.

Here are some examples:

$ATN (ATN Holdings, Inc. ‘A’) was one of the alpha plays during 2018’s deep market correction. Despite the PSEi continuing to make lower lows and break all sorts of support, $ATN was simply hovering at the highs. Taking a look at its monthly chart, .75 is an area where $ATN had a difficult time breaking while its all-time high price is at .90. This means if $ATN can break and successfully close above .75, there’s a high probability for an explosive breakout.

By identifying the significant area the stock needs to break, you can now create a trading plan on your desired timeframe. On the daily chart, we can see that $ATN created a six-month base from February to late July and tried to break its historical resistance five times before successfully doing so on the sixth attempt. After breaking out, $ATN gave those who missed out an opportunity to buy on the retest. After this, the stock skyrocketed to new highs and made a 126% move in only eight days!

$HOUSE (8990 Holdings, Inc.) is one of the outliers in last year’s market, especially considering the bearish sentiment since the first quarter of 2018. Looking at its weekly chart, we can see that at the beginning of 2019, $HOUSE was right below its significant resistance at 9 pesos. While its all-time high price is at 10.50. After plotting these points, you can now create your trading plan on your preferred timeframe.

By looking at the daily chart, we can see that $HOUSE made a tight continuation pattern just below its historical resistance at 9 pesos. After breaking out of this pattern successfully, $HOUSE went through the roof and never looked back locking in an 80% gain for those who were able to purchase during the first breakout. The stock also gave several buying opportunities during the 80% move.

In conclusion

Just by knowing the importance of identifying The Line of Least Resistance can do wonders for your trading, especially if you focus on stocks hovering below their respective highs. By zeroing in on the market leaders, you effectively take out all the laggards that continue to drop while taking positions on stocks that remain in strong uptrends. The ability to identify and execute on The Line of Least Resistance will be a significant weapon in your trading arsenal, use it to your advantage!

For anyone engaged in the activity of trading or investing, there is going to be very little to no argument on the premise that PRICE is the most important piece of information.

While most technical indicators are mere interpretations on aspects reflected by PRICE, there is one that newbies and amateurs most often overlook, if not taken for granted. But let’s digress for a while and come back to that a little later.

If you are a movie buff like I am you would remember that 2013 film with Brad Pitt entitled World War Z.

One of the most memorable scenes there was what they called “The Wall”. For those who haven’t seen it, this was set against the backdrop of a fictional pandemic, where Pitt’s character as an expert for the UN, flew to Tel Aviv in search for a solution to the ongoing zombie apocalypse.

In that particular scene, people inside the wall were chanting and singing as part of a religious ritual. And as their voices grew louder, it was unknown to them that the zombies had become agitated and grew to become more aggressive in their resolve to scale to the top of the wall.

Long story short, while some zombies fell off the ant-like mound they mindlessly created, many have found their way over and the city was eventually overwhelmed by the sheer VOLUME of the undead creatures.

And with these images now embedded into your consciousness, let’s get back to the subject at hand and dissect the process as to how PRICE action actually evolves from a seemingly quiet and calm to the point of what Warren Buffet called, IRRATIONAL EXUBERANCE.

In a simplified perspective, this is how it usually goes:

1. From a base level or range, the price of a stock hardly moves. Whatever incremental motion it creates is largely ignored by the general public. (Only a few zombies drifting around a small area.)

2. This goes on over a period of time and buying or ACCUMULATION by certain entities goes unnoticed. (They scrounge for whatever food they see nearby.)

3. At a certain point, some if not several pieces of information (rumor, news, or both) about the stock will start to go around and it begins to create a stir or commotion to the investing community. (Others from a more distant area, begin to spot fellow zombies appear happy and content in the place they currently occupy.)

4. The “noise” is amplified as even whispers add up to start a buzz on the prospects of the stock. (More zombies consolidate and create loud noises while becoming more aggressive.)

5. More people notice and it starts a buying frenzy on the hopes that the value will begin to rise and make for a good trade or investment. Volume significantly rises. (They realize that they have to move quickly and expend more effort and energy.)

6. Stock price begins to move higher, breaking resistances previously identified. The latecomers are struck with FOMO or the fear of missing out. Early buyers also become more confident as the trade moves in their favor as they add more to their positions. (The ant-hill effect takes shape in a race to buy high, sell higher.)

7. Holders who bought from a low base price, now begin to lock in profits and sell their positions to very late buyers, who carry the hopes that prices will still go higher. (Some zombies find the top of their walls and reap the rewards, while others become more mindlessly motivated by greed and obsessed to obtain the success attained by others.)

As some of you who may know me from my FB posts, I am a self-proclaimed advocate of technical analysis specifically in the study of Elliott Wave Principles.

And from my perspective, the above stages from no. 5 to 7 goes on for three (3) distinct cycles or waves, with a corrective phase in between each one. But let’s not get into that for now.

As you may have realized in the imagery presented on the processes involved in the above-described part of the market cycle, the aspect of VOLUME is almost always ignored and undermined. People are understandably distracted and more focused on price action.

But in each of the stages where a stock price moves up, volume plays a big role.

In a nutshell, the amount of people coming inside a trend at particular price points or levels eventually PROVIDE support and become a step to the ladder. And at certain points during corrections where a change of hands obviously happens, the greater the volume accumulated becomes a new base for the ascent to a higher range.

All until such time that volume starts to become DIVERGENT. Again, a topic we can dive into in a future issue of InvestaDaily.

In the meantime, let these be your key takeaways on the subject of VOLUME:

• Volume is an indicator of market strength.
• Rising prices on increasing volume is an indication of a strong price move.
• When prices reach new highs on decreasing volume (volume divergence), a correction or a reversal could be
• imminent.
• And when prices reverse or fall on increasing volume, the trend is likely gathering momentum towards the downside.

I hope after this, you find a renewed perspective on the importance of volume. And being in a country with a renewed interest in Latin phrases, I like to leave you with this:

volumen prius pretium (volume precedes price)

And also as my maiden contribution to your quest for greater charting skills, I share one of my favorite INDICATORS that is simple and visually aesthetic.

Shown here as a chart overlay is what is known as VAP or Volume at Price.

And if you can go back to “The Wall” analogy, you might find it insightful as to the aspects of SUPPORTS and RESISTANCES. I am sure you can easily spot here how price action behaves in relation to the volume congestion zones. Enjoy.

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Contributor:

Name: Jojo Gaston
Investagrams Username: @JojoGaston0

About the Contributor:

Jojo Gaston is a partner/mentor at BoH Society, an online trading support group that provides traders’ education, and data-driven trading format for local stocks, forex, and other foreign markets.

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