Stock Market Seminar

Benny Lee
 Learning Objective
At the end of this seminar, participants will be able to:
• Describe the role of technical analysis in making an informed
investment decision
• Apply simple methods in technical analysis to identify price
lows and highs
• Define stock-picking techniques using technical indicators
• Understand the pitfalls in trading and the importance of
managing emotions
• Develop a simple yet effective trading portfolio
 The Securities Commission established under the Securities
Commission Act 1993 (“Commission”) reserve all proprietary rights
to the contents of this Presentation. No part of this Presentation
may be used or reproduced in any form without the
Commission’s prior written permission.

This Presentation is provided for information purposes only.

Neither the Commission nor the Presenter make any warranty,
express or implied, nor assume any legal liability or responsibility
for the accuracy, completeness or currency of the contents of
this Presentation.

It is your responsibility to verify any information before using or

relying on it.
The Speaker
Benny Lee has established himself as a private
trader, trainer, highly sought-after speaker and
practitioner of technical analysis for the past 12
years.
He has conducted investment analysis workshops,
seminars and coaching for private and institutional
investors in Malaysia, Singapore, Hong Kong,
Thailand, Vietnam and Pakistan.
He is also a CPE (Continuous Professional
Education) recognized trainer for the Securities
Commission of Malaysia.
Additionally, Mr. Lee is the Chief Market Strategist
for a local stock broking company providing
trading strategy and advice to a group of elite
traders.
Understand About Trading And
The Role Of Technical Analysis In
Trading
Trading simply means buying and selling

The Traders’ Decree:

BUY LOW, SELL HIGH

BUY HIGH, SELL HIGHER
 Why do prices go up and down?

Buy Quantity Buy Price Sell Price Sell Quantity

100 1,305 1,306 210

80 1,304 1,307 76

20 1,303 1,308 22

What happens when these orders are made:

1. Sell 3 contracts at 1,307
2. Buy 10 contracts at 1,305
3. Buy 5 contracts at 1,306
4. Remove Sell order of 2 contracts at 1,308
5. Buy stop 5 contracts at 1,308
CHARTING DEMAND AND SUPPLY
What happens when demand overcomes supply ?

Price goes up

What happens when supply overcomes demand ?

Price falls down

How do you analyze demand and supply ?

Price Charts

If you are a speculator or a fundamental trader, you only look at one

of the factors affecting price movements. The only way to reflect all
the factors that move the prices, is by looking at the charts.
 All market participants in
Bursa Malaysia are traders…

INTRADAY TRADERS CONTRA TRADERS SHORT TERM TRADERS

buy and sell within the buy and sell within the buy and sell within
same day contra period of 3 days weeks

MEDIUM TERM
TRADERS LONG TERM TRADERS LOST TRADERS

buy and sell within Bought and never sold in

buy and sell within years
months their lifetime
 How do we know when to
buy and sell?
Using various strategies

BLACK BOX
FUNDAMENTALS
SOFTWARE

NEWS ASTROLOGY

TECHNICAL
ANALYSIS GURUS
(PRICE)
The problem with these information is
that they all come in TOO LATE!

By the time the news

comes out to the public,
the price has already
discounted the news
 News

Property developer HUA YANG BERHAD has set an ex-date for the final
dividend of 7 sen apiece on Sept 29, 2014. The single-tier dividend is
payable on Oct 15, subject to shareholders’ approval at the coming
annual general meeting, which will be held on Aug 27.
Research Reports
Research Reports
Trading Risks
Emotional Risks
 The objective in
trading is to find an
opportunity with the
lowest possible risk
possible and highest
possible returns
 THE GAME OF
PROBABILITY IN TRADING

TIGER LEOPARD DEER LION COW

The Answer: ____________________

Understand About Trading And
The Role Of Technical Analysis In
Trading (Cont.)
 Trading vs Gambling
GAMBLING TRADING

• No plan/ strategy • Have plan/ strategy

• Based on luck • Based on risks and

opportunities

• No money management • Sound money management

• No emotional management • Good emotional management

How chart analysis help me
make forecasts?

April 2007 Analysis by Benny

Lee, published in Smart Investor,
Malaysia
 How chart analysis help me
make forecasts?

October 2007 Analysis by

Benny Lee, published in
Smart Investor, Malaysia
 How chart analysis help me
make forecasts?

January 2008 Analysis by Benny Lee, published in

Smart Investor, Malaysia
 How chart analysis help me
make forecasts?

August 2008 Analysis by Benny Lee,

published in Smart Investor, Malaysia
How chart analysis help me
make forecasts?

October 2008 Analysis by Benny Lee, published in Smart

Investor, Malaysia
How chart analysis help me
make forecasts?
How chart analysis help me
make forecasts?
 How does price trend form?

Understanding Support and Resistance

 How does price trend form?

What happens if there is not much news (catalyst) about this company
How does price trend form?

What happens when there is bad news/catalyst

How does price trend form?

Where is the next support/resistance level?

 Understanding the Application
of Technical Analysis

TECHNICAL ANALYSIS is a security analysis methodology

for forecasting the direction of prices through the study
of past market data, primarily price and volume.
Identify trading opportunities
using charts
 There are only TWO trading
strategies you can develop:

Buy Low, Sell High Buy High, Sell Higher

Buy High, Sell Higher
The BOLLINGER BANDS

• Price volatility can be

measured by trading range or
dispersion of prices from a
normal distribution.

• Statisticians uses various kind

of calculations to determine
volatility but the most common
used volatility indicator is the
standard deviation (SD).
In technical analysis, the SD is used by a
prominent technical analyst and fund
manager, Mr. John Bollinger.

He created an indicator called the

Bollinger Bands.
 The BOLLINGER BANDS

STANDARD DEVIATION is a measure of the variability or

dispersion of a population, a data set, or a probability distribution

Normal
distribution
 Finding Lows and Highs with the
Bollinger Bands

Normal distribution
+ 2 SD

A 20-day moving
average as the
normal
distribution

Normal distribution
- 2 SD The Bollinger Bands
standard deviation model
 Finding Lows and Highs with
the Bollinger Bands
• The middle band is the 20-day simple moving average.
• The upper band is the 20-day simple moving average plus 2 standard deviations.
• The lower band is the 20-day simple moving average less 2 standard deviations.

Daily

1. Upper band

2. Middle Band/
Simple Moving Average

3. Lower band
 Finding Lows and Highs with
the Bollinger Bands

1. Identify Support and resistance

• Using 2 SD above and below the moving average, Price is expected to
stay within the bands 96% of the time.
• Therefore, when price moves near the bottom band (the SD bottom
limit), the price is expected to rebound to the normal distribution.
• When price moves near the upper band (the SD upper limit), the price is
expected to pullback to the normal distribution (moving average)
• The bottom band acts as support and top band acts as resistance
1.Identify Support and resistance
1.Identify Support and resistance

Works well on a sideway market,

but NOT in a trending market
 Finding Lows and Highs with
the Bollinger Bands

2. Identify price volatility breakout

• When price is within the Bollinger bands, the price is considered
normal and if it continues to trade near the moving average, the
Bollinger bands tightens.
• When price breaks above the upper band, price is expected to climb
higher as it comes out from the correction with buying strength.
• When price breaks below the upper bands, price is expected to decline
further as it comes out from the correction with selling pressure.
2. Identify price volatility breakout

Bollinger bands tightening, price is

trading near the moving average
(correction )

breakout
 2. Identify price volatility breakout

The Bollinger bands works better in identifying

price breakouts rather than support and resistance.
• The TIGHTER the band (small top and bottom band width),
indicating a strong correction, price is expected to breakout
with BIGGER moves.
• A breakout from a relatively BIGGER and width is expected
to be followed with a WEAKER move.
2. Identify price volatility breakout
Breakout from bigger band width

Breakout from a
tight band width
 Finding Lows and Highs with the
Bollinger Bands
The challenge is to find the appropriate Bollinger
Bands width to find trading opportunities.

Which breakout has a good rally?

 Identifying Trading
Opportunities
2. Identify price
It may be quite difficult to calculate the band
volatility breakout width from the Bollinger Bands, so a new indicator
is created to calculate the width.

The Bollinger Bands Width indicator:

Top Band – Bottom Band

Middle Band
2. Identify price volatility breakout

Is there a trading
opportunity on
this breakout?

NO
Stock Picking Case Study
Stock Picking Case Study 1:
Would you be getting ready to buy this stock?
Stock Picking Case Study 1:
Stock Picking Case Study 2:
Would you be getting ready to buy this stock?
Stock Picking Case Study 2:
Stock Picking Case Study 3:
Would you be getting ready to buy this stock?
Stock Picking Case Study 3:
Would you be getting ready to buy this stock?
Stock Picking Case Study 4:
Would you be getting ready to buy this stock?
Stock Picking Case Study 4:
Would you be getting ready to buy this stock?
 AIM of chart analysis is
to find stocks/futures and
etc. that have high
winning chance of
moving into a determined
target price and provide
a ideas for traders on how
to trade.
Trade Like a Professional
Trading Pitfalls
They depend heavily a stock they chose,
no diversification
Trading Pitfalls
Right Analysis, wrong trading decision

Target price

Buy price

Stop Loss price

Trading Pitfalls
No discipline to trade the plan
Trading Pitfalls
No Money Management
We get the winning probability of a trading
plan/strategy from historical data.

HISTORICAL
PERFORMANCE DOES NOT
GUARANTEE FUTURE
PERFORMANCE
 The importance of developing a
trading portfolio
What if we have a trading strategy with 80% winning probability but
results in the future is as below?

Jan Feb Mar Apr May June TOTAL

Winning trades 7 5 2 6 8 4 32

Losing Trades 3 5 8 4 2 6 28

Total Wins $7 $5 $2 $6 $8 $4 $32

Total Losses $3 $5 $8 $4 $2 $6 $28

PROFIT $4 - $ (6) $2 $6 $ (2) $4

 The importance of developing a
trading portfolio
1. Make sure every recommendation has a good
potential profit to risk ratio of at least 2.

Recommendation 1 Recommendation 2

Buy price : $1.00 Buy price : $0.50

Target Price: $1.30 Target Price: $0.60
Stop Loss (Risk) : $0.90 Stop Loss (Risk) : $0.40

P/L ratio 3 to 1 P/L ratio 1 to 1

 The importance of developing a
trading portfolio
2. Make sure that you allocate your money to accumulate at
least 10 stocks in your portfolio
CAPITAL
STOCK SHARES BUY PRICE TARGET STOP LOSS P/L RATIO
ALLOCATED:
STOCK A 8,300 1.200 1.400 1.100 2.0 $9,960
STOCK B 4,700 2.100 2.400 1.980 2.5 $9,870
STOCK C 3,100 3.220 3.600 3.080 2.7 $9,982
STOCK D 7,500 1.340 1.500 1.260 2.0 $10,050
STOCK E 4,300 2.310 2.800 2.190 4.1 $9,933
STOCK F 9,900 1.010 1.200 0.920 2.1 $9,999
STOCK G 11,500 0.870 0.980 0.820 2.2 $10,005
STOCK H 17,200 0.580 0.720 0.520 2.3 $9,976
STOCK I 25,300 0.395 0.500 0.350 2.3 $9,994

STOCK J 1,600 6.320 7.000 6.000 2.1 $10,112

$99,881
 The importance of developing a
trading portfolio

Possible Performance with a 2 to 1 potential profit to risk ratio

Jan Feb Mar Apr May June TOTAL

Winning trades 7 5 2 6 8 4 32

Losing Trades 3 5 8 4 2 6 28

Total Wins $14 $10 $4 $12 $16 $8 $64

Total Losses $3 $5 $8 $4 $2 $6 $28

PROFIT $11 $5 $ (4) $6 $14 $2 $36

Trading Principles
(Managing Emotions)
1. Cut Your Losses
• Cut them while the loss is still small and manageable
(already calculated). Once it is big, it is not easy to
manage and can cause emotional stress. It is good to
fear the market but do not be too fearful.
2. Follow your plan (Discipline)
• There are times when we can be too emotional and
try to trade based on instincts rather than the plan.
Things get out of control once a plan is not followed.
Remember, trading is like a business.
3. Don’t overtrade
• Traders tend to trade more once they have made
losses and also once they have made profits. Trade
according to your money management strategy that
you have incorporated in your trading strategy
Trading Principles
(Managing Emotions)
4. Take profits
• While it is better to let profits run for longer term trading
objective, it is better to take profits in short term
trading, especially intraday trading. Again, follow the
plan. It is ok to be greedy but do not be too greedy.
5. Keep positions small
• Putting all your capital in one single trade is disastrous.
Position size should be small and manageable for
intraday trading.
6. Learn from Mistakes
• Keep a trading journal. If we loss or make money,
make sure we learn from it to become a better trader
in the future.
Trading Principles
(Managing Emotions)
7. Do not let your bias/opinions towards the market
override your plan
• Your opinion is just your opinion, it can be wrong. Keep
your opinion to yourself, free your mind. Follow the
market and do what it says. Mr. Market is always right.
8. Never let outside factors affect your plan
• News, rumours, tips can cause traders to deviate from
their trading plan. Try not to use too many information
to determine your trades, especially information that
are not reliable such as news, tips etc.
9. Keep a healthy lifestyle
• Trading, especially intraday trading requires sharp and
alert mind. Make sure you have enough rest and
exercise regularly to stay healthy
Trading Principles (Managing Emotions)
You know you are NOT on the right track to
successful trading :

When you When you

MAKE MONEY LOSE MONEY
Trading Principles (Managing Emotions)
You know you are on the right track to
trading successfully:

when you when you

MAKE MONEY LOSE MONEY