EDUCATION MATTERS

TRADING CANVAS: THE STORY OF YIELD, RISK & LIQUIDITY

 DISCLAIMER
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ZULKIFLI ABDUL RAZAK

FULL TIME INVESTOR

MORE THAN 20 YEARS

EXPERIENCE IN RETAIL
TRADING

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MARKET OUTLOOK

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5
FLOW OF INVESTMENT FUND

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 HISTORY
• EUROBANKS
AFTER WWII • EUROCURRENCIES

COLLAPSE OF • INTERBANK FOREIGN EXCHANGE MARKET

BRETTON WOODS • SPECULATIVE & COMMERCIAL

LIBID, LIBOR & • INTEREST RATE FOR BID (DEPOSITS),

OFFER (BORROW) & MEAN RATE FOR
LIMEAN EUROCURRENCY

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 PRESENT
• GLOBAL MARKET: MOVEMENT OF INVESTMENT FUND ACROSS
BORDER

• LIBOR RATE: GLOBAL REFERENCE RATES FOR SHORT TERM

INTEREST RATES
- INTEREST RATE SWAPS, FLOATING RATE LOAN RESETS &
INTERBANK RATE
- PUBLISH DAILY AT 10:45 GMT (6:45PM MALAYSIA TIME)

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 POSITIVE NEGATIVE
SENTIMENT SENTIMENT

LOW HIGHER
LIBOR LIBOR

LOW HIGHER
FUNDING FUNDING
COST COST
 SIGNIFICANCE

• MOVEMENT OF FUNDS
- COST OF FUNDING

• POLICY DECISION BY CENTRAL BANKS

- SUPPLY OF CREDIT
- EASING & TIGHTENING POLICY TOOLS

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 CALL
MONEY
MONEY
MARKET
INTERBANK
MARKET

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FORM YOUR COMPELLING
MARKET MODEL

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DEMAND

SUPPLY
 SUPPLY DEMAND

SIZE &
BALANCE OF PAYMENTS COMPETITIVENESS OF
ECONOMY

POLITICAL
DEVELOPMENTS, FISCAL BUSINESS CYCLES
POLICIES

INFLATIONARY FINANCIAL MARKET

EXPECTATIONS NEWS

INTEREST RATE MONETARY

DIFFERENTIALS POLICIES

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 TRUE EXCHANGE RATE

FUNDAMENTAL BEHAVIOURAL
PURCHASING POWER
EQUILIBRIUM EQUILIBRIUM
PARITY
EXCHANGE RATE (FEER) EXCHANGE RATE
• AMOUNT OF • CURRENT ACCOUNT • INVARIANCE OF CAUSE
CURRENCY NEEDED BALANCE SURPLUS OR & EFFECT
TO PURCHASE A DEFICIT / INTERNAL • INFLUENCE OF
SPECIFIED BASKET OF BALANCE ECONOMIC VARIABLES
GOODS SHOULD BE • NEED TO FACTOR IN IN THE PAST
EQUAL INTEREST RATE & • NEED TO SEE IMPACT
• BIG MAC INDEX INTERVENTION OF OTHER VARIABLES

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COMPELLING MARKET MODEL

• HAVING A MODEL OF THE MARKET IS

ESSENTIAL IN SPECULATION

• UNDERSTAND THE NATURE OF THE

MARKET

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 SENTIMENT TECHNICAL
• INTRINSIC VALUE ANALYSIS • SECURITY’S ANALYSIS
• WHAT TO TRADE CORRELATION
• FEELING/MOOD • FROM PART OF • PRICE & VOLUME
• CATALYST FOR SENTIMENT • PRICE
SECURITY STRUCTURE &
MOVEMENT PARTICIPANTS’
BEHAVIOR
FUNDAMENTAL INTERMARKET
ANALYSIS ANALYSIS

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YIELD & RISK

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 CARRY TRADE

• YIELD DIFFERENTIALS

• APPRECIATION/DEPRECIATION OF
DIFFERENTIALS

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 CURRENCY

FUND USING INVEST IN

LOW YIELD HIGH YIELD EQUITY
FUNDING ASSET

DIVIDEND
YIELDING
SECURITIES

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 RISK RISK
APPETITE AVERSION

YIELD SAFETY OF
SEEKING FUND

CARRY CARRY
TRADE TRADE
INTENSIFIES UNWINDING
 S
E
N
T MARKET
THEMES I
M DATA
E
N
T

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PLANNING A TRADE

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 THEMES
MINOR MAJOR

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 THEMES

• AT ANY ONE TIME, MARKET FOCUSES ON

ONE OR TWO THEMES

• END OF LAST SESSION REPORT &

ECONOMIC CALENDAR

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BACKGROUND POSSIBLE
UPDATE
RESEARCH OUTCOMES

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MARKET DATA

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 CORRELATED CENTRAL
SURVEYS POLICY DATA
DATA BANK POLICY

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 SOFT DATA HARD DATA PRICE

• SURVEYS • ECONOMY, • SIGNIFICANT

• PMIs, ISM EARNINGS, LEVELS
POLICY • BRN, MULTI
• GDP, HIGH, MULTI
INFLATION, LOW, NEW
FINANCIAL HIGH, NEW
STATEMENT LOW

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 LEADING INDICATORS
• CONFIDENCE-BASED SURVEY
- CONSUMER, BUSINESS, PURCHASING
MANAGERS SURVEY

• ECONOMIC DECISIONS ARE LARGELY BASED ON

EMOTION
- INDIVIDUAL LEVEL
- COLLECTIVE LEVEL

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 SPENDING DECISIONS
• CONFIDENCE OR LACK OF CONFIDENCE
IN THE FUTURE OF ECONOMY

• THIS IN TURN IS REFLECTED IN THE

COINCIDENT INDICATOR: GROSS
DOMESTIC PRODUCT (GDP)

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 REPORT
IHS MARKIT PMI
https://www.markiteconomics.com/Public/
Release/PressReleases?language=en
ISM REPORT ON BUSINESS
https://www.instituteforsupplymanagemen
t.org/certification/content.cfm?ItemNumbe
r=28965&navItemNumber=30165
DESCRIPTION
PROVIDES AN ADVANCE SIGNAL OF
WHAT IS REALLY HAPPENING IN PRIVATE
SECTOR ECONOMIES
ISM MANUFACTURING AND NON-
MANUFACTURING ARE 2 OF THE MOST
RELIABLE ECONOMIC INDICATORS
AVAILABLE, PROVIDING GUIDANCE TO
SUPPLY MANAGEMENT
PROFESSIONALS, ECONOMISTS,
ANALYSTS, & GOVERNMENT &
BUSINESS LEADERS
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 REPORT DESCRIPTION

IVEY PURCHASING MANAGERS INDEX AN ECONOMIC INDEX WHICH MEASURES

THE MONTH TO MONTH VARIATION IN
ECONOMIC ACTIVITY AS INDICATED BY A
PANEL OF PURCHASING MANAGERS
http://iveypmi.uwo.ca/ FROM ACROSS CANADA, AND IS
PREPARED BY THE IVEY BUSINESS
SCHOOL.

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BUSINESS CYCLE

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 CONSUMER DISCRETIONARY

ENERGY

FINANCIALS

CYCLICAL INDUSTRIALS

INFORMATION TECHNOLOGY

MATERIALS

BUSINESS CYCLE
TELECOMMUNICATION SERVICES

CONSUMER STAPLES

NON- UTILITIES
CYCLICAL
HEALTHCARE

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 Lower gasoline
price reduces
transportation &
production cost

Japan import
almost 100% Lower cost
of its oil. As reduces the price
crude price of Japanese
falls, gasoline exports
price also
falls.

Lower price
attracts more
imports &
increases demand
for Japanese Yen
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 LOWER
DOMESTIC
PRICE

HIGHER LOWER
EXCHANGE INFLATION

LOWER HIGHER
STOCK EXPORT
VALUE PRICE

LOWER
REVENUE

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CENTRAL BANKS

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 GOVERNMENT CENTRAL BANK CITIZENS

• FISCAL POLICY • MONETARY • EMOTIONAL

• DISTRIBUTION POLICY IMMATURITY
OF WEALTH • SUPPLY OF • PRODUCTIVITY
• CONFIDENCE CREDIT • CREATOR OF
• STABILITY WEALTH

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 POLICY MAKERS

FISCAL & MONETARY POLICY ECONOMIC PROJECTION

MARKET PARTICIPATION

QUANTITATIVE STUDY QUALITATIVE STUDY

TRADING OPPORTUNITY
ANTICIPATION REACTION

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MARKET TYPE ANALYSIS

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DIRECTION

MARKET
TYPE
PRICE
VOLATILITY

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 WHICH SECURITY IS MOVING?

WHICH DIRECTION IS THE SECURITY BEING MOVED?

THE REASONS THAT THE SECURITY IS MOVING THAT WAY?

WHAT EXPECTATIONS OTHER ANALYSTS HAVE REGARDING THE MOVE?

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LIQUIDITY

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 RISK LIQUIDITY

YIELD

1045-1115
8.00 AM 1.30-2.15 PM 3.00 PM 8.20-8.40 PM 900-930 PM 9.30 PM 2.00 AM
PM

• TOKYO • NEW
• NEW • DAILY
MONEY • PRE • LONDON • PRE NEW YORK • MONEY
SESSION YORK SPOT
LONDON OPEN YORK MONEY EXITS
OPEN TRADE
FLOW

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 ASIAN EUROPEAN AMERICAN
NZD, AUD, JPY CHF, EURO, GBP USD, CAD

COMMERCIAL SPECULATIVE MONEY MARKET &

ACTIVITIES ACTIVITIES COMMODITY MARKET

8AM, 915AM, 10AM &

2PM, 3PM, 11PM
8PM, 930PM, 10PM,
1PM 4AM

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 ASIA SESSION
• SYDNEY, TOKYO, HONG KONG & SINGAPORE

• FRAGMENTED MARKET, JUMPY PRICE ACTION

- UNSUSTAINABLE MOVE, RANGE TRADING
- COMMERCIAL ACTIVITIES & REGIONAL
CENTRAL BANK DAMPEN VOLATILITY

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 ASIA SESSION
• DEALERS PROCESS OUTSTANDING ORDER
BACKLOG
• TEST OF PREVIOUS RANGE
• CONTRARIAN MOVE ESPECIALLY BIG
MOVES WERE SEEN EARLIER IN AMERICAN
SESSION
- EXPORTERS & CENTRAL BANKS ACTION

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 EUROPEAN SESSION

• GENEVA, FRANKFURT, PARIS & LONDON

• DEEP MARKET WITH REAL MONEY

INSPIRED MOVES

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 EUROPEAN SESSION
• MARKET TREND SETTER

• MOVES INITIATED OR EXTENDED

DURING EUROPEAN SESSION SHOULD
BE RESPECTED

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 AMERICAN SESSION
• NEW YORK, TORONTO

• OVERLAP WITH EUROPEAN SESSION

PRESENTS HIGH MARKET DEPTH &
LIQUIDITY

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 AMERICAN SESSION

• PRIME REVERSAL SESSION

- NEW YORK CUT: OPTION EXPIRY
- MAJOR NEWS RELEASE
- LONDON FIX: LIQUIDITY HUNTING

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 TOKYO
USD - JPY
- AUD
YIELD EURO - NZD

JPY

LIQUIDITY
LONDON
GBP - EURO
- GBP
AUD - CHF

CAD
RISK CHF NEW YORK
- USD
NZD - CAD

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TAKE HOME EXERCISE

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SELF PREPARATION

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 SELF PREPARATION

SHORT TERM, LONG TERM OR

COMBINATION

WHAT SUITS YOUR PERSONALITY?

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 SELF PREPARATION

HOW MUCH CAPITAL YOU WILL SET ASIDE

FOR TRADING?

HOW MUCH TIME COMMITMENT CAN YOU

GIVE FOR TRADING?

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 SELF PREPARATION
• SELF PREPARATION
HOW MUCH IS YOUR TOTAL ANNUAL
INCOME?

AT WHAT TIME OF THE DAY YOU ARE FREE

TO TRADE?

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 SELF PREPARATION

HOW MANY HOURS IN A DAY DO YOU

PLAN TO SET ASIDE FOR TRADING?
(ANALYSIS & TRADE MANAGEMENT)

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 SELF PREPARATION

WHAT IS YOUR TOLERANCE ON LOSSES?

LOW, MEDIUM OR HIGH

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 SELF PREPARATION

APART FROM SELF TRADING, WHAT ARE

YOUR PLANS FOR INVESTMENT?

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 SELF PREPARATION

• MONEY PERSONALITY

- DO YOU KEEP A BUDGET? (MONTHLY /

ANNUAL)
- DO YOU FOLLOW YOUR BUDGET?
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 SELF PREPARATION
• WHAT TYPE OF PORTFOLIO SUITS YOU?
- RETIREMENT PORTFOLIO
- INCOME PORTFOLIO
- INVESTMENT PORTFOLIO
- SIDE INCOME PORTFOLIO
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TRADING OBJECTIVES

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 TRADING OBJECTIVES
• TRADING OBJECTIVES

WHAT IS YOUR DAILY/WEEKLY/MONTHLY/ANNUAL

GAIN TARGET?

WHAT IS YOUR DAILY/WEEKLY/MONTHLY/ANNUAL

DRAWDOWN LIMIT?

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 TRADING OBJECTIVES

WHAT IS YOUR FINANCIAL FREEDOM

FIGURE (ANNUAL)?

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 TRADING OBJECTIVES

• LOOKING AT THE AMOUNT THAT YOU

CAN SET ASIDE FOR YOUR TRADING
PORTFOLIO, WHAT IS THE RISK OF RUIN
FOR THE PORTFOLIO?

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 TRADING OBJECTIVES
• WHAT IS THE FIRST MILESTONE FOR
YOUR PORTFOLIO GROWTH?

- AT WHAT PERCENTAGE LEVEL DO

YOU SAY THAT YOUR PORTFOLIO IS
GENERATING PROFIT?

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 TRADING OBJECTIVES

• HOW MANY POSITIONS YOUR SYSTEM

EXECUTE IN A TRADING PERIOD?

- INTRADAY = 20 TRADING PERIOD/MONTH

- SWING/POSITION = DEFINE FREQUENCY
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 TRADING OBJECTIVES

• LOOKING AT TARGETS YOU SET FOR

GAINS/DRAWDOWNS:

- WHAT IS THE R-MULTIPLES TO REACH THE FIRST

MILESTONE?

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 TRADING OBJECTIVES
• IF YOU ARE FACING A DRAWDOWN,
WHAT ARE YOUR ACTION (S) WHEN:

- YOU REACH YOUR DRAWDOWN LIMIT?

- IS THERE ANY POINT DURING PERIOD OF
DRAWDOWN WHERE YOU PLAN TO ACT?

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COMPELLING MARKET
MODEL FORMATION

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 COMPELLING MARKET MODEL

DOWNLOAD & READ THE CURRENCY &

ECONOMIC PROFILE FOR EACH
CURRENCY

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 COMPELLING MARKET MODEL
WHAT IS THE MARKET TYPE FOR YOUR
SYSTEM?

- RANGING OR TRENDING?
- QUIET, NORMAL, STRONG, FAST OR
EXTREME?
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 COMPELLING MARKET MODEL

WHAT IS YOUR BEST TRADING SETUP?

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 COMPELLING MARKET MODEL

WHAT ARE YOUR EXIT SETUPS?

- WHEN DO YOU SET BREAKEVEN?

- WHEN DO YOU EXIT YOUR LOSSES?
- WHEN DO YOU EXIT YOUR PROFITS?
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COMPELLING MARKET MODEL
• FORM AN UNDERSTANDING OF THE
MACRO VIEW IMPACT ON THE SECURITY
THAT YOU ARE TRADING:

- FUNDAMENTAL OR TECHNICAL
- ECONOMIC POLICY, LEADING ECONOMIC
INDICATORS AND/OR PRICE STRUCTURE

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INVEST IN A SYSTEM,
TRADE YOUR SYSTEM

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Q&A SESSION

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