Question for a TA purist about where to trade?

[rotsevni]

A slightly hypothetical question here from a newbie, to help my understanding of TA: I hope it's not a dumb or overly-repeated question)....

One of the funding principles is that "market action discounts everything". I note however that many (most?) traders do rely on all sources of information besides what the charts say.

But assuming there are a few purists out there (or those using mechanical systems based on market action only) then I wonder how they decide where best to focus there attention. What makes one market more worthy of there attention than others? For example, if foreign charts could be converted into local currency so that the currency price action is factored in, then is it a level playing field and are the US, UK, Japanese, ASX all equally worth scanning for the best trading formations/opportunities? Are there times when they move from one market to another (eg NZX has been in stall mode for the last month)

I'd be interested in what those with experience in these markets now think about the relative merits. Is a market as small as the NZX worth spending much time on? Presumably there are some hurdles to overcome with offshore markets (foreign currency accounts etc), is it worth the effort? Any advice welcome. Thanks

[Phaedrus]

"What makes one market more worthy of attention than others?"
Markets have different characteristics. If you know exactly what you want, the idea is to trade in the market that best meets those needs. For example, I require a good dividend income to provide all my living expenses. The NZ market is the obvious choice here, no contest. I am also interested in short-term trend trading. For this I want very liquid, very volatile stocks, and I need to have access to intraday, live, self-updating online charts and indicators. I want to trade both short and long, with very low brokerage charges. The USA is best here, without doubt. I trade medium-term in Australia. Here there are good volumes, and good volatility with compatible time shifts. So, I am in 3 different markets, for 3 different reasons, using 3 different systems, each utilising different tools.

"Is a market as small as the NZX worth spending much time on?"
Absolutely. Quite apart from the very high dividend yields here, the local market has been one of the best performers in the world over the last year or so. There are plenty of adequately sized companies listed in NZ and there are plenty of tiny, tinpot, illiquid stocks listed on the NASDAQ.

I would suggest that you start with the NZ market and then move some money to Aus when you are making steady gains here. Make certain that you are well and truly competent before tackling the US market. They play hard-ball - it is a tough market that eats little boys for breakfast. Do it right, and you will make more money faster there than anywhere else. Do it wrong and you will lose money so fast it will make your head spin.

[duncan macgregor]

I only get involved with the NZ market. Simple reasons for a simple man. I have no requirement to worry about exchange rates, or political situations for starters, which must be taken into account.
It makes it easy for me to get first hand information on a company, and more importantly my money is working in the country that i live in. The last point being that i am dead against our silly gov putting our money in the hands of money managers to squander overseas. my basic buy system is more FA than TA, and my sell system is total TA, so i dont really qualify to answer your question.
Best of luck macdunk

[ruethewhirl]

Phaedrus,

Interesting comments.

I'd like to pick your brain on the topic of full time trading,
specifically, what level of capital does one need to make that a
reality.

I've been focussing on the ASX for about two years, but want to
trade the NZX and the US too, and realise that all three are really
essentially for a full timer.

It's gotten to the point where I've become less concerned about my
career development in my current field, because the only future I
see for myself is being a full time private trader, using my current
situation as a way to stack up the necessary capital.

I've perfected the art of frugal living.

I've read Zen and the Art of Motorcycle Maintenance.

What next?

[Phaedrus]

RTW,
The amount of trading capital you need is directly related to how much income you require and how well your system performs. If, having perfected the art of frugal living, you require only a very small income and are a very disciplined successful trader making, say, 30% pa, then you only need around $40,000. In theory. If you require an annual income of over $200,000 and can only make 10% pa, then you would need $2 million - $3 million. I can't remember where, but I did once read an article on just this topic that calculated the minimum capital requirement needed to provide financial independence to be $400,000. (NZ$???) I don't see how "one size fits all" though.

As with any business, undercapitalisation can cause many other problems. You will have to withstand years where your return is less than usual. You are not in a very good position if a few consecutive lousy years or even a bad run will drive you out of the market and have you begging for your old job back!
Adequate capitalisation gives big economies of scale. At US$11/trade (regardless of size) a $100 trade costs 22% brokerage, a $100,000 trade only 0.022% brokerage. In NZ, an optimum trade may well be about $30,000, depending on the brokerage setup.

So, where to from here? Well, how is your reading programme? Have you read all you can find by Murphy, Elder, van Tharp......? If so, and if you are trading well in Australia, it might just be time to open a US account. I strongly recommend Ameritrade. I have tried many US brokers, and while at $11/trade (short or long, any size) Ameritrade are not quite the cheapest, they do provide the best online monitoring facilities that I have found. Any trade that takes more than 5 seconds is free. You have to pay extra for some of their best features unless your account is over US$100,000.

[zyreon]

capital requirement:

Capital required = required income / % return

e.g. required income is $50,000. reasonably estimated return 17.5%

Cap Req. = $50,000/0.175 = $285,714.3

To test that you got it right - and to illustrate 17.5% of $285,714.3 = (0.175*285,714.3) =$50,000.0025

[Shamrock]

Thanks, Phaedrus, interesting stuff. I'm in the same boat as Ruethewhirl.

Re Ameritrade: "Any trade that takes more than 5 seconds is free." - it would be great if a NZX broker would offer the same sort of guarantee...

[Steve]

quote:Originally posted by Shamrock

Re Ameritrade: "Any trade that takes more than 5 seconds is free." - it would be great if a NZX broker would offer the same sort of guarantee...

It would be great if the NZX did not create an uneven playing field by delaying announcements for 20mins to those who don't pay the comparatively high charges...

[rotsevni]

Thank you all for you comments and advice. I would just like to pick up on one subject which is particularly relevant to me.

Phaedrus, to respond to you point about choosing a market based on needs/wants... What I am interested in is the market which is best behaved in terms of TA (so that I only have to hone my TA skills and not have to know or read about too much else) as well as minimising paperwork and tax issues. I am mostly interested in short-term trading and not at all interested in long term.

So that leads me to some more questions about the US markets:
1. Is it just a simple matter of tranferring funds to Ameritrade and then all systems go? Are there any US tax issues? Does NZ tax become any more complex as a result of US trading? Are there restrictions on how much US trading you can do or (my ex-broker once told me that there is, but I usually do the opposite to what he tells me, quite a productive tactic :-)
2. You said "Make certain that you are well and truly competent before tackling the US market. They play hard-ball - it is a tough market that eats little boys for breakfast. Do it right, and you will make more money faster there than anywhere else. Do it wrong and you will lose money so fast it will make your head spin".
I understand this on a business level but not on a TA level.
Are you saying that the US market is more prone to false signals, undetectable insider activity, manipulation of SP by large traders or is prone to sudden unpredictable price movements... or what exactly? As long as these influences don't stop TA working, then why should I care?
3. I usually like to start things a little bit before I'm really ready but start small. I find it easier to learn and remember from books when I put it into practice immediately. If I make a total mess of it, then at least my exposure was small and the lesson will be well remembered.

I look forward to some more pearls of wisdom. Thanks for your contribution.

[duncan macgregor]

ROTSEVNI, PHEADRUS undoubtabely is the master in this area. May i suggest a method that only costs time. With any new system i paper trade it first which costs nothing. Impatience costs money do it on paper first over a period of time, learn the flaws and potholes in the road first. Rally drivers inspect the road before the race and this is a race to beat mr market. macdunk
PS good luck but america is going down stick to winning markets.