4 Step Formula Ebook Kathlyn Toh v4

The
4 Step Formula to Consistent & Accelerated

Returns in Stock Market
Copyright © 2012 by Beyond Insights Sdn. Bhd.
4th Edition created February 2014.

Disclaimer: All information, commentary and statements
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Content

The real secret to success …………3
Taking the first step to investment success…………6
Timing for buy and sell opportunities …………9
Protecting your investment ………..12
Multiplying your profits ………..13
Recommendations ………..20
The path to millions ………..21
Final words ………..24
About the author ………..25


The “Real” Secret to Success -‐ is Not the Strategy
90% of people who invest or

trade in the stock market did
not make it successful. So
how do you become the 10%
who makes the money?
Statistics have shown that for every success story of people who have
amassed great wealth by investing and trading in the stock market, there
are a lot more people who failed to make money consistently or have
given up on the market after a several attempts.

Having trained and coached more than a thousand people through their
investment and trading journey, I can safely conclude that there is a
common trait or pattern – that is; most people fail due to very
fundamental reasons.

Reason #1 – Starting off with the Wrong Frame of Mind.
The saddest common trait or pattern I observed was that – most traders
lose simply due to their psychology.
I have came across many people who buy and sell stocks based simply on
hunches, news, or “ hot tips” from friends. In fact their act should be called
“speculation” instead of “investing” or “trading”.

Most people started out this way due to the promise of making a lot of
money in a short period of time, all because they heard that “someone has
made the money!”.

The simple truth is that success in investing and trading requires
discipline and the ability to manage our basic human nature of greed,
hope, fear, excitement, denial as well as our big ego. To be amongst the
top 10% of successful investors and traders, one must start with the
building blocks of having the right beliefs and embracing the psychology
of top traders in the world.

Reason #2 – Trading without Money Management Principle
Many investors or traders are looking for the Holy Grail – a “Sure Win”
strategy.

They want to learn everything from a guru and follow exactly the steps
defined to enter a trade, and expect the trade to be right. So when the
trade goes against them, they find it difficult to handle the feelings of
failure, they will begin to doubt the strategy and may either give up or
start modifying the strategy or try another strategy.
The fact is that you can make money
with just 50% success rate, and you can
also lose money with a 90% success rate
strategy!

“Never risk more than 2% of your
capital in any single trade.”
When I first started out trading more
than 10 years ago – my results was

inconsistent, I could gain a lot and then lose it all back within a few trades,
until I learnt of this Golden Rule in investing, and this is one rule that I
cannot stress enough in my teachings.

Many people, when told of this rule, would say “ I don’t have that much
capital to start with, the “2% rule” will not allow me to trade any stocks!”

Before you get too worried about this, you need to understand that:
• If you have $10,000 to start with, it DOES NOT mean that you can
only put in $200 for every stock you trade.
• The 2% rule calculated based on your “stop loss point” (i.e. the
point where you say “I am going to get rid of this investment since
at this price, when it is not going to way I thought it should go.”)
and not the amount of capital you have.
• The 2% rule is meant to be a reference for active traders. In fact
this is a rule practiced by many professional hedge fund managers.
If you are a long-‐term investor – then you need to define a different
percentage. The main point here is – you must to define your “cut
loss point”.
If you don’t understand the 2% rule at this point, it is OK. We’ll talk about
it in later part of this book.

You can certainly also check with a professional on how this is done, and I
do also cover it in much detail during my classes.

Please remember -‐ making money consistently is all about risk
management being your first priority, profits secondary. If a trader thinks
about “how not to lose money” first, he will then focus on managing risk of
his trades.

Reason #3 – Trading without a Plan

Trading without a plan is planning to fail at trading. Question is – how
should one “plan” for their trading?

Anatomy of a Trading Plan:

1. A Trading Plan should be designed
to meet one’s financial objectives,
and hence the objectives must be
clearly defined. For example – if one
desires a 30% return per annum
based on a $10,000 capital – then the
plan has to be based on the 30%
returns per annum objective.

2. A Trading Plan will be a reflection of
a person’s personality and time
availability. I have met traders who
tried to use short term strategies or
even day trading strategies, without
realizing that their personality or
time availability are better suited for medium and long term
strategies. From my observations it is very difficult for a trader
who is trading against his personality nature to have any consistent
success.

3. A Trading Plan should also include clear entry and exit criteria that
govern every trade. Which would mean every trade must be
opened and closed according to what has been defined in the plan
and not based on intuition!

4. A Trading Plan must consist of a series of actions that be repeated
on a regular basis. In my own trading plan, I have a 4 step method
which I repeatedly use -‐ I call them the
S-‐T-‐P-‐M formula:
S = Selecting the right stocks
T = Time for the entry and exit
P = Protect my investment
M = Multiply my returns.
Therefore for each and every trade I make, I follow these 4 simple
steps.

4. Lastly, a Trading Plan must include a good journaling of all your
trades. A good journal will help you in:
• Reviewing your actions regularly to make sure you have
followed your strategy, not your emotions.
• Making sure that you learn, especially from your losses. I see
every loss as a tuition fee I pay to the market.

Taking your First Step to Investment
Success – Selecting the Right Stocks

When I first started out on My investing journey it was not an easy one, I
had to go through several cycles of bulls, bears and sideway markets with
major ups and downs in my account before I realized the importance of
having a repeatable system so that I can win consistently. As I
continuously fine-‐tuned my trading it became simpler and simpler whilst
using less and less amount of time.

In the past I used to trade many stocks, every day I had to look through
many stocks to find the one that is going to make a big move – and that
takes so much time out of my life that trading began to feel like a chore
rather than the passion that got me started.

Now, I have a healthy bucket of only 15 stocks that generates income for
me. Having these 15 stocks has saved me a lot of time and effort. The KEY
to trading success is this– we choose the right stocks that can generate
consistent and regular income, no use having a short list of stocks that
generate little income – that defeats the purpose! Hence “Selecting” the
Right Stocks is the first step in my S-‐T-‐P-‐M formula.
I need to stress that it is very important for everyone to know his or her
own investment / trading “style”. There are a thousand and one ways to
make money from the stock markets, we all just have to start with just
ONE way! After training and coaching more than a thousand traders, I
realized that the majority of traders have an “identity crisis”. For example
I have seen many who claimed that they are “value investors”, however
when they see a “big move” in the stock market they will chase after it
without considering the fundamental value of the company. And that is
the major reason why most people cannot get consistent in trading– they
don’t have a style or method/system that they can repeat.

Let us look at one of the most important criteria in any stock selection.
Whenever we buy a company’s stock, we would want to make sure the
company can grow its business – but how much growth are we looking
for? Let us put the numbers into perspective – if we put our money in
fixed deposit with a bank, we will be getting 2-‐3% returns a year. Since
returns from the stock market are not guaranteed – surely we have to
expect much more than 2-‐3%, isn’t it? Now it is a generally accepted rule
of thumb that a company has to generate at least 15% returns per annum
to be considered a viable business, otherwise it will not be worth the
effort and resources.

So I personally choose companies that are making at least 30% per
annum, i.e. for every $1 invested in the company -‐ the company should be
generating at least $0.30 net profit. Technically this criterion is called
Return on Equity (ROE), it is also one of the key criteria that Warren
Buffett applies when selecting his evergreen portfolio.

The reason why this works is very simple – if a company is generating
30% profit or more for every $1 invested, and if all the profit is retained in
the company – then the company’s value will double to around $2 in 3
years time.

Of course, nothing is ever guaranteed in the market; but this means is that
this type of companies will have a higher probability of doubling its stock
price in 3 years. Whenever the market is affected by major crisis, these
are the stocks that will bounce back the fastest, the most resilient!


Let me give you an example of a stock that I had I my portfolio – YUM!
Brands (NYSE:YUM). Just a note here that I totally agree with Warren
Buffett – invest in companies with simple and resilient business model,
and YUM! Brands is the holding company of well recognized consumer
brands like KFC and Pizza Hut
with a huge global presence and
a business model that we all can
connect with and understand.
Way back in Sep 2008 the ROE
of this company was 127.4%.
The current ROE (as of June
2012) is 73.5%, so this is a
company that has been
generating good returns
consistently year after year.

Now let us look at what the stock price did in from year 2009 to 2012 :
YUM was trading at $33.40 on 11th September 2009, and $66.56 on 14th
September 2012. That is an increase of 95.5% in a period of 3 years; will
you be a happy investor of this company? I was. (Note 1)

I personally use criteria like Return On Equity (ROE) to evaluate
companies, and these days stock screening software makes our job much
easier, so all I had to do is to enter my required parameters into the
software and I instantly get a list of stocks that satisfies my requirements
for a good stock, and then I will just pick the top few. From my experience,
companies that are well managed will maintain its solid fundamentals for
at least a few years. Hence, my “bucket” of good stocks doesn’t change
very often, which makes my life a whole lot easier as an investor and
trader.

To conclude on this part, I would urge everyone to learn this essential skill
of stock selection by understanding how to interpret the key fundamental
data of a companies’ business. Start by reading a book or find experts that
are accessible to you to learn from.

Note 1: During the 4th edition of this book -‐ The ROE of YUM has dropped
to 46.78% (based on 2013 Q3 earnings report) and price has ranged
between 66 and 78 for the past year.

Secondly, I would also encourage investors and traders to also expand
beyond their local horizon. There is an abundance of companies with
strong
financial performance in the international market especially the
United States. Today most of our local brokerages are already providing
facilities to trade stocks in international market – so make good use of
them to expand your profit opportunity and increase your probability of
success.

Timing for Buy and Sell Opportunities

The essence of what I want to share here will give you an idea on how to
spot a good time to buy and sell a stock you have selected – this
knowledge is commonly called “Technical Analysis”. There are a few
important points you must know about “Technical Analysis”:
• The importance of Technical Analysis depends on your approach in
the stock market. In general, Technical Analysis can be used by
both Traders and Investors. “Traders” buy assets they believe they
can sell to others at a better price, so typically they are looking for
returns within a day to a few months. “Investors”, on the other
hand, buy assets they believe will increase in value, and they tend
to take a long-‐term view on their returns.
• The subject of “Technical Analysis” can often get complicated with
hundreds of indicators out there. I can personally testify to the fact
that you only need to know a handful to be successful, and I have
verified that with many successful investors and traders I know. So
the key here is keeping it simple.

Next I would like to share an example of how technical analysis is used
and why it is important to know the fundamentals whether you are an
investor or trader.
I will use a stock listed in U.S. market as example, not only because I
specialize in that market but also because there are many stocks that
almost all reader recognize.
Let’s look at the price chart of Starbucks stocks (I was sure you know this
brand pretty well) between October 2010 and April 2011 below and I will
explain how an investor or a trader would use it.


Let’s say you decide to buy Starbucks stocks back in November 2010 at
the price of $30 per share in anticipation of the year-‐end really and
Starbucks’ aggressive plan to expand in US and Asia.

Come late March 2011, if you know your basics of technical analysis, you
would have seen a clear “sell” signal because of the “double top” chart
pattern, and you will be able to sell it off at $36 at least. Hence you would
have earned 20% return in 6 months. If you check the charts you would
have seen that the stock stayed sideways for another 3 months after that
before it climbed above $36, so in that 3 months would you have preferred
to enjoy the profit and invest your capital in other stocks with more
upside potential in those timeframe?

So that is my message to you -‐ if you understand the fundamentals of
reading chart patterns – you will be able to utilize your capital more
efficiently and make your returns faster, by merely spending a few
minutes a week to monitor your portfolio of stocks if you are an investor
or few minutes a day if you are a trader. Let’s see what a “trader” who is
watching the market more frequently could do.


By reading the chart pattern – you could have identified several sell and
buy signals in between the 6 months, and make $13 profit per share in
total. So with a bit more effort, your return on investment would have
been 43% in 6 months. So the difference between making 20% returns in
6 months versus 43% returns in 6 months is spending a few minutes a day
to monitor your portfolio. Whether it is worth spending the extra time for
the additional returns, it’s entirely up to your financial goals and
discretion. The good news is you can also preset these buy entry point,
stop loss and profit taking points in the broker system.

Now let’s stretch the time-‐line longer and look at the stock price today (at
28th September 2012, the time of this writing), at $50.71. If you are a
“long term investor” holding the stocks since November 2010 without
paying much attention to it, your returns would have been 70% in 2 years.
How much more would you have made if you spend more time watching
your portfolio? Perhaps I will leave this as a “case study” for you to look
at. (Note 2)

Note 2: SBUX is trading at $71.12 on 3rd February, 2014, during the 4th
edition of this book.
While it is too much to cover in this short article, rest assured that
Technical Analysis is a subject you can learn in a short time to put into
use. I personally use the basic chart patterns and less than a
good
handful of indicators when I trade and that’s how we teach people who
came for our investing and trading courses as well.

I would like to stress again that selecting fundamentally strong and
growing stocks is essential to increase your success rate. One should not
depend on technical analysis skills as a mean of speculation unless you
really know what you are doing. Having said that – learning and
applying this skill can definitely accelerate your success in investment
and trading; so if you haven’t done so, I strongly encourage you to learn
from online material and find out more about courses that cover this
subject.

Protecting your Investment

This 3rd step is the main differentiator between the successful investors
or traders from those who did not make it or gave up half way. It is
about how you protect your investment or trades, staying in the game
despite of losses to prevail for long-‐ term success.

Losses are Part of the Trade

Yes, no matter how much research, analysis and due diligence we put in
before we invest or enter into a trade – things can still go wrong. There
are factors affecting the stock market that are beyond the company’s
control, natural disaster being one of it!

We are brought up in an education system where failure means we are
not good enough. What would parents usually say when their child
come home from school with a score of 90 out of 100 in an exam? “Why
didn’t you get 100, where did you go wrong?” “How many got 100?” See
what I mean? After training people on trading psychology for the past 4
years, I see that the fear of failure has stopped many people from
progressing, as well as causing many to self sabotage their results and
destroyed what could have been a successful career as a trader.


"It's not whether you're right or wrong that’s important, but how
much money you make when you're right and how little you lose
when you're wrong." said George Soros, investor and philanthropist
with net worth of US$20 billion.

I hope I have stressed enough that the skill and attitude to manage losses
is a “must have” for all investors and traders. Let’s talk about the Risk
Management principals that I personally adhere to.
Capital Preservation
I never risk more than 2% of my capital on a single trade. In other words
– if I am on the losing end of a trade, I’ll make sure my loss is limited to 2%
of the value of my portfolio.
Let’s illustrate how it is done, so that you are clear on how to implement
this rule.
Let’s say you have a total of $100,000 in your investment portfolio. You
have decided to buy a company stock called “XYZ”. What the professionals
will do at this point is to decide price to sell and to take profit and also the
price to sell and cut loss if the stock goes down. We do this by determining
the key “Support” line for the stock. We will cut loss if the price goes down
below this “Support” level plus some buffer. So assuming the determined
Cut Loss point is $9.00, then the amount of risk we are willing to take is
$10.00 – $9.00 = $1.00. Given 2% of $100,000 is $2,000; then the number
of units we can buy here is $2,000 ÷ $1.00 = 2,000.

I’ve seen many investors determine the number of units to buy with their
“intuition”! Imagine if you have a proven working strategy, with a 70%
winning probability – which means you should be winning 7 out of 10
times on average. And you decided to risk 25% of your capital each time
when you trade. What will happen if you have 3 consecutive losing trades?
You would have lost 75% of your capital! What if you have 4 losing trades
consecutively? Your capital would have been wiped out just like that!

Reward over Risk Ratio

So what if you have a strategy with a 50% winning probability – which
means you are right only half the time. Can you still make money?


The answer is YES! If you follow the capital preservation rule we have
discussed earlier, AND you only choose to invest or trade when the
reward over risk ratio is AT LEAST 2 to 1. Which means for every
$1.00 you risk in a stock, you should have enough data to support the
expectation that the stock will go up to $2.00 to make it a good deal.

Figure 1 -‐ is an illustration
of a 2:1 Reward/Risk ratio
strategy/system with 50%
winning probability making
$500 at the end of the 10th
trade. Of course, if the
strategy/system has a
higher winning probability
(more than 50%), then the
ultimate gain will be even
higher!
As you can see from the
example – assuming you
start with a capital of $5000 Figure 1 – a series of 10 trades, assuming a
and enforce the 2% per maximum loss of RM100 each trade.
trade rule, you will still end
up with a 10% profit with 10 trades ($500 over $5000) even if you are
only half right!

To summarize what we have gone through so far – following strict risk
management rule and choosing only trades with good reward over risk
ratio is the key to protect your investment.
Hedge for Additional Safety

As defined in Investopedia, hedging means “making an investment to
reduce the risk of adverse price movements in an asset”.

Let’s say you have carefully selected and invested in a portfolio of
growth stocks few months back, and now you read about some
looming uncertainties in the market that may cause a dip in stock
prices. What would you do? Wait and see while doing nothing? Or act
on fear and sell off everything in your portfolio?


Either of those choices is far less than
ideal, because you could have loss
much less than you should if you took
action earlier, or you could lose out on
the opportunity to make profit if the
dip did not happen. I would hedge my
portfolio in these situations.

One example of hedging would be by
selling the Index (by using Futures, or
in other markets – CFD). Assuming
that we have done our part of selecting
fundamentally strong companies – the
stock price of these companies will usually drop in less magnitude
compared to the market Index. Thus, whatever we have loss in the dip
of stock price will be covered by the gains we make in selling the Index.

I have just given a very brief description of how hedging works, and
there are many ways to do it. The key to effective hedging is to know
when to do it, what to hedge with and how much to hedge against.

Although this technique is commonly used by professionals, I believe
all investors and traders should learn how to do this; otherwise you
will be missing out on a great way to reduce your risk down to the very
minimum. I am also confident that this is a very learnable skill because
we have trained hundreds of new investors and traders on how to do
it.

Multiplying your Profits with CFDs
and Options

This 4th step is about LEVERAGE, i.e. how you can accelerate your
return from stock market investment, and how to make your money
work harder for you.
The two leverage instruments I will talk about next are CFD and
Options.

From the survey conducted during Invest Fair Malaysia in 2012, we
realized that the percentage of investors in Malaysia who know what
CFD is only 7% and even less know about Option (only 3%). This is
naturally so because CFD and Option are not yet developed in the
Malaysian stock market, or rather our market volume has not been
able to support the development of these instruments.

But for those who got to know these instruments and how to use them
correctly – it helps them to venture into international stock market
where much more profit opportunities are available, at a much faster
pace.

What is CFD?

CFD stands for Contract for Difference, it
literally mean a contract between 2 parties to
trade the price difference of a stock, at a
fraction (usually 10%) of the stock price.

For example – person A thinks that Apple stock price will go up to USD
550 within a month time and person B, with a different point of view,
thinks that Apple stock price will go down to USD 500 within a month
time.
Through a broker – this two person can then enter a “contract”. Let’s
say the current price of Apple stock is currently USD 525 – person A
will need to come up with 10% of the stock price, which is USD 52.5
per unit of stock. So let’s say in a month’s time the stock price actually
went up to USD 550, then person A can now close the trade earning a
profit of USD 25 per unit. His return on investment will be USD 25 ÷
USD 52.5 that is about 48% in a month!
You can see the effect of leverage here – because if person A were to
buy the stock itself at USD 525 per unit, then his return will be a mere
4.8% a month (which is still not bad actually).

Let’s highlight the advantages of trading with CFD:
• You can invest in stocks and build your desired portfolio with
less capital. This advantage is useful for younger investors who
are just starting out.
• With lower investment (about 10% of stock price), it allows you
to diversify with the same amount of capital.
• You can trade on both the upside and the downside of a stock or
index. E.g. if you think that the stock price or market is going
down, you can short the stocks/index (means you sell first at
high price and buy back at lower price when the stock/index
goes down). That means more opportunities to make profit
from the market instead of being constrained to make money
only when the market or the stock is bullish.
• It also gives you the opportunity to invest in good stocks that
are otherwise too expensive. Many great company’s stocks are
expensive. E.g. Google stock price is more than USD700 for 1
unit. In CFD you don’t have to buy in multiple of 100 units (1 lot
concept like Malaysia), you can even buy 1 unit or 10 units.
However you need to take care of the commission impact for
smaller size per trade.
• As a CFD “buyer”, you will earn dividends as well if the stock
declares dividends.
• It is very useful as a protection against unexpected market
movement, because you can have a mix of stocks that you trade
on the upside and downside.

What to take note of when trading with CFD
• When you trade CFDs, the leverage is provided by your broker
(just like how banks provide leverage through loans), so you
will need to pay interest charges to the broker while you are in
the contract. The amount of interest is very reasonable, e.g. it is
just about 3% to 4% per annum for U.S. stocks depending on
the broker.
• It is critical to trade with strict money management rules. Just
because CFD lets you buy a stock at 10% of it’s price, it doesn’t
mean that you can buy the same stock 10 times more, because
that means you are not managing your risk properly.
• There are many CFD brokers in the market and the choice
depends on your startup capital, market you want to trade,
trading style (buy and hold vs. momentum vs. intraday), size of
contract and frequency of trades (as it will affect commission).
It’s also very important to find a dependable broker in terms of
safety of funds and reliability of the trading platform. Some
brokers provide mobile access that may be important to you.

• Not all stocks are available in CFD as there needs to be
significant demand/interest on those stocks to create a market
for it in CFD. Therefore only the popular stocks and indices are
available in CFD. It’s important to only trade CFD for the stocks
or indices that has high volume trading.

What is Option?

By definition, an Option is a contract that gives the Buyer the right, but
not the obligation to buy or sell a stock at a specified price on or before
a specified expiry date. There are 2 types of Option Contract – Call
Option and Put Option.

A Call Option for Stocks gives the Buyer of the contract, the Right but
not the obligation to Buy the Stock at a Specific price on or before an
Expiry Date by paying a small premium now (typically 2-‐10% of the
stock price).

A simple analogy to Buying a Call Option – think about buying a
property. When we buy a property we will normally pay a “booking
fee, which is normally about 10% of the property price. That “booking
agreement” gives us the right to purchase the property at the agreed
price at a future date (usually within 3 months to get the loan
approval). However as a buyer we are not obligated to buy the
property (in which case we will lose the booking fee), but the seller has
the obligation to sell if we decide to buy it. It is also possible for us to
transfer the “right” to another person, at a higher price, should the
value of the property goes up before the agreed date.

A Put Option for Stocks gives the Buyer of the contract, the Right but
not the obligation to Sell the Stock at a Specific price on or before an
Expiry date by paying a small premium now (typically 2-‐10% of the
stock price).

Put Option can be used as an insurance for your Stocks. E.g if you buy
100 units of Starbuck stocks @$60 but worried the market will crash
anytime this month. Then, you can buy 1 contract of Starbucks Put
Option which allow you to Sell 100 units of Starbucks stocks at $60
within 1-‐2 months expiry by paying a small premium now.


Option has all the advantages mentioned above for CFD except the
dividend part, which the Option holders are not entitled to any
dividend. Despite that Option is actually a much more powerful
instrument because of the following features and advantages:
• Options is one the most powerful and versatile financial
instrument as it can be constructed to meet many trading
objectives, protection or hedging.
• Ability to make money in any market direction (uptrend,
downtrend and even sideways) means more opportunity to
trade and meet your financial goals faster.
• Higher probability of winning as you can make money in more
than 1 direction concurrently (eg. Win as long as a stock stay
above a certain price or below a certain price).
• As option buyer, your risk is only limited to the premium paid
in worse case scenario (usually 2-‐10% of stock price).
• A trade can cost as low as $20 but it’s better to start with a
capital of about $2000.
• Can be used as insurance.
• Careful combinations of 2 or more Options contract can lead to
many powerful strategies to take advantage of different market
trend and protection requirement.

Key differences between CFD and Option
Here are some key points that an investor or trader should know when
deciding to start using CFDs or Options:
• CFDs are useful for investment and single directional trading
(i.e. stocks on a clear up trend or down trend) and you can get
dividends if you are a buyer.
• Options can also be used for Non-‐Directional trading, where
you can win concurrently in more than 1 direction including
sideway.
• Options whilst more powerful, presents a steeper learning
curve as you have to learn how to choose the right contract
with different exercise prices and expiry date, and how to use
them in correct combinations to achieve your trading
objectives. Hence for those who are new to the stock market,
we would recommend them to start with CFDs as it is easier to
comprehend and then proceed to learn options.
Recommendations
Whether you are a short term trader, mid term trader or a long term
“buy and hold” investor, CFD and Options gives you the leverage to
achieve your profit target faster and the a ability to diversify with your
capital while protecting your investment much more effectively. It is
definitely worth learning if long term success and consistent income
stream from the stock market is your goal. There is much more I can
share about how I have used them to generate average of 300%
returns in since 2010 and I conduct free seminars from time to time,
check out our website www.beyondinsights.net for the next session.

Whatever strategy you choose to take up, please remember what was
mentioned in the first page, 90% of your success is in your psychology
and discipline. And that’s the same as anything else in life, isn’t it? In
the next section, I would like to cover some suggestions on how you
should manage your expectations and strive towards your financial
goals by income from trading and investing.


The Path to Millions

If you intend to take stock market investing and trading seriously and
make it a vehicle to generate a substantial portion of your wealth, then
you have to treat this venture exactly like a business that you manage.

To succeed in this “business”, you must have the following traits:
• Aptitude to learn.
• Discipline and commitment to plan and execute accordingly.
• Ability to master your psychology (as I stressed before).
• Perseverance – to overcome your limitations while you go through
this journey.
On the other hand – be relieved that you don’t have to deal with the
following challenges that a normal business owner have:
• Competition – this is only between you and the market.
• Human resources issue – no need to manage people and their
performance.
• Customer issues – no customers to deal with!
• Geographical limitations – you can do this from anywhere.

Setting Expectations
Now let us look at what is the amount of return you can expect from stock
market trading, using the table below as a guide:

The first column was there as a standard reference – how much return can
you typically expect by saving your money in a fixed deposit at a bank.
With a fixed deposit you can hardly get a 20% return after 5 years, not a
very exciting proposition isn’t it.

Please note that we are making one assumption in this set of calculations –
that you will retain all your earnings in your trading account for continuous
utilization. If you will be making withdrawals from your account – then it is
a different calculation altogether.

If you are a long-‐term buy-‐and-‐hold type of investor, then you would
probably want to use the great Warren Buffet as the benchmark. Buffett
has been able to achieve an average of about 22% per year over the past 20
or more years. 22% a year means about 1.8% a month on average.

If you can master the S-‐T-‐P-‐M formula I described earlier and put in the
effort required, then you will have a chance of doing better than 1.8% a
month. Remember that with proper use of leverage instruments like CFDs,
you can multiply your return per trade by 10 times – and that’s the main
reason you can aim for an average 3% to 5% return a month if you are also
using leverage instruments (again, I have to stress the word “properly”).
The amount of effort required would be something between 5 to 10 hours
per week, maintaining and executing your trading plans, an effort that most
people can manage as a part time venture. So if you are able to achieve 5%
a month consistently, then you would be able to multiply your capital by
18.7 times in 5 years. However, it is important to note that you have to give
yourself an allowance of minimum 1 to 2 years, going through the
necessary period of paper trading to test and stabilize your trading plans,
before you can achieve the consistency required.

And to also give you a reference on the high side – a top performing
individual trader who is doing this full time can target an average of 10%
return per month. If this can be consistently achieved then you can
multiply your return by about 300 times in 5 years, i.e. if you start with
$10,000 you will accumulate about $3 million at the end of 5th year.
Needless to say this type of performance will take several of persistent
practice and staying through the different cycles of the stock market.

The reason I have this chapter in the book is so you can use it as a reference
to set your goals. All you need now is a computer and a spreadsheet

software to tabulate the data according to the following criteria:
• How much capital would you start with. Please make sure this is
amount that you are prepared to lose, because the stock market has
inherently higher risks compared to options like putting it in the
bank. Also, allow yourself some time to learn by doing paper trading
– do it until you are able to achieve a consistent result before you
trade with actual money.
• Based on an average 3% a month, what would be your expected
return every year.
• Factor in any periodical withdrawals you need to make from your
trading account. Unless you are starting with a significantly large
amount of capital, I would suggest you retain all your earnings in
your trading account and utilize it for trading -‐ for at least the first 3
to 5 years – so that you can grow your account faster to a significant
size.

How to Grow My Account Even Faster?

There is no secret here. Investing and trading is an exercise where over
aggression can be harmful, so you have to give yourself the time and space
to trade with peace of mind.

The recommended way to grow your account faster – is to make consistent
addition to your trading account. Have a look at the table below:


The calculation shows that if you started with only $2,000 (5 times lesser
than the earlier example) and you managed to take out $1,000 from your
savings to add your account every year – then you would be able to
accumulate more than $3m in 10 years, assuming a consistent return of
60% a year (or average 5% a month). So what if you can start with $10,000
and add another $2,000 to your account every year? You can work out the
scenarios accordingly.

Planning and goal setting is absolutely critical as the first step to success in
investment and trading, so I urge that you take this important step if you
have not done so.

Final Words
When you educate yourself properly in the area of investing (long term
holding) or shorter term trading, this can become a unique business
venture with promising returns. Risk is always present but it is manageable
by limiting exposure per investment/trade, as what Warren Buffet says
“risk comes from not knowing what you are doing”. We encourage you to
educate yourself properly for this valuable lifetime skill that can bring you
financial, time and location freedom.

About the Author
Kathlyn Toh is a professional
investor and trader who earns her
wealth trading the Global Indices,
US Stocks, Options, CFD and
Commodity Futures. While we
have been hearing news about
uncertain and volatile economy
conditions, Kathlyn has been
making 300% returns in the past
since 2011.

Kathlyn is also the Director and
Chief Trainer & Coach for Beyond Insights – a company dedicated to
empower people in creating a consistent income stream from the
financial market. Kathlyn and her company is well recognized in the
investment and trading arena. Before transitioning herself into a full
time trader -‐ Kathlyn was an accomplished leader in the corporate
world, managing a global team for Intel Corporation in the APAC
region. She is an NLP Certified Master Practitioner and Certified Master
Coach with American Board of NLP – which makes her training and
coaching methods highly effective.

To learn more about Kathlyn and Beyond Insights, visit
http://www.beyondinsights.net or get connected via
http://www.facebook.com/beyondinsights


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