Having always been in the stock market where I have a trading seat in the broker's office, I am in a privileged position to observe traders and punters who flock to the trading room daily. There was a lady, somewhere in her sixties who would be sitting in the same position daily in the trading room, always oblivious to the surroundings and people around her, lost in observing and studying the stock market price movements and charts on the trading screen.
Over the years, while many traders and punters would come and go, many after losing their fortunes, Madam Foong as I would learnt was her name, would always be around. Grandma Foong, as she was later affectionately called, was obviously a very profitable trader.
One day, I plucked enough courage to ask her how what was the secret of her success.
"Sonny," she said, " I only trade with the trend and I punt on the counter-trends!".
What a revelation!
The secret of her success, she explained further, was to poise herself for the best trades whenever there was a confirmed trend. By observing the price movements daily, she would be able to determine the extent of the prospective trend- a skill that she has picked up from experience, similar to studying the "tape".
"Trading the trends isn't a daily thing," Grandma Foong explained. " I only trade the trends 30% of the time, because that's what the market do- the stocks trend only 30% of the time".
What about those "anti-trend" stocks?
" Since most of the stocks trend 30-% of the time, the rest of the time the stocks oscillate between a high and a low, and you can trade these smaller anti-trends. "
"You mean, you trade those smaller periods of times when a stock is moving within a range?", I asked.
" Yes, these are the times when if you observe carefully, the main trend of the stock is up, so when the price falls, you will want to buy on the low against the main trend, and when it moves up, you will want to sell at the high of that minor trend up, against the main trend", Grandma Foong replied.
" But go, watch the prices like a hawk, these anti-trends are minor, you are basically there for a very short while, even day trading them, most of the time."
With those words, Grandma Foong gave a hurried excuse, and went out the door.
Here was the secret of a profitable trader. Trade with the major trends 30% of the time and trade the anti-trends ( or range trade ) the rest of the time, but be very fast with these minor oscillations.
In Part #2 of this article, I will report how Grandma Foong actually picked these main trends and anti-trends.
