Discipline is saying ‘I’m wrong. I’m getting out of the stock and actually doing it. Sometimes you’ll be long a stock and all of a sudden it’s falling. Undisciplined people get stubborn and say, ‘It’s going to go up’ or ‘It’s going down, I’ll buy more and eventually it will go back up.’ The discipline to admit when you are wrong, get out, and not take a big loss is what makes a great trader.”

Winning traders are flexible. They look at a trade from different angles and they are not afraid to explore every possibility. They know they may be wrong, but being wrong doesn’t bother them.

Indeed, they often expect to be wrong. The willingness to admit you are wrong gives you power and freedom. When you are willing to admit you are wrong, you won’t be defensive.

You’ll feel relaxed and will effortlessly close out a position when you need to. You won’t fruitlessly hold on to a losing position and hope that it will turn around. You won’t let your emotions of fear and greed take you on a roller coaster ride of emotions as your accounts balance dramatically rises and falls. When you are flexible, you’ll trade more effortlessly.

You’ll stay objective and be able to astutely read the stock markets more accurately.

And in the long run, you will trade more profitably.

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In the midst of all the hoo haa over the minibonds saga, it would be useful to know what it is all about rather than hearing from certain quarters who are getting all emotional and venting their venom on the government.

The name “Minibonds” itself is a misleading word for investors. Whatever money you have invested in this “Minibonds” are not invested in bonds of the six reference banks or bonds issued by Lehman Brothers. This is how it works. Lehman Brothers may or may not buy any bonds from the six reference banks but it is just using these banks as “reference entities”, some sort as a “bet” with Minibonds holders. There are basically 5 entities involved in the Minibonds arrangement.

1) First of all, its Lehman Brothers as the credit risk swap partner.

2) Secondly, Lehman Brothers has created an empty shell company Minibond Ltd which will issue the Minibonds to investors.

3) Third, the investors.

4) Forth, the money taken from investors will be invested in a basket of AA financial products from 150 companies which includes CDOs which is basically collateral debts obligations, some of them are related to SubPrime debts.

5) The reference banks which has nothing to do with investors’ investment other than being a betting reference: i.e. if any one of them failed, it would be a credit event that make investors lose money to Lehman Brothers.

For simplicity to understand the whole arrangement, just take it that Lehman Brothers has bought some bonds from these six reference entities (banks) and it needs somebody to insure its risk of exposure to these banks. It did not insure its risks from insurance companies like AIG but instead, via this Minibonds arrangement, bought insurance from investors like you.

Through the Credit Risk Swap, you as an investor has agreed to sell insurance to Lehman Brothers with regards to the reference entities. In order to become an insurance agents of Lehman Brothers, you will need to come up with money as collateral. This money is collected from you via the financial institutions that you bought the Minibonds and given to Minibond Ltd to invest in a basket of CDOs issued by 150 companies.

Whatever returns from these CDOs issued by these 150 companies (variable returns) are given to Lehman Brothers. In return, Lehman Brothers will give Minibonds Ltd a FIXED premium (most probably higher than 5.1%) and Minibonds Ltd will give investors 5.1% returns for their investment. Now, the variable returns from the Collateral Assets may be higher or lower than 5.1% but investors will only get back 5.1%. It means that Lehman Brothers will take the risk of variable returns from these Collateral Assets in return for your risk taking on the reference entities. This complete the Credit Risks Swap, swapping your risks of variable returns for a fixed returns, while you in return, insured Lehman Brothers for their risk exposure to the Six reference entities.

The problem is that Minibonds Ltd, under the control of Lehman Brothers, may choose to invest in a higher risk instruments or CDOs because it would be very profitable if the returns from these investment is higher than 5.1% that Lehman Brothers promised you. Especially so, when they do not need to bear the risks of defaults these CDOs or any of the assets in the basket of Collateral Assets. The returns from these Collateral Assets, they take but you bear the risks of defaults from these assets. Under the contract, once a CREDIT EVENT happens, the whole arrangement will be liquidated. The Credit Event involves:

1) If any one of the reference banks failed, it is considered as a Credit Event and the investors will have to pay Lehman Brothers for the insurance it bought via the Credit Risks Swap. Meaning, investors will lose all money invested.

2) If more than 11 companies of the 150 companies listed in the Collateral Assets failed, or a certain percentage of the CDOs or credit-linked derivatives held as Collateral Assets go into default, the whole Minibonds will be liquidated and any loss from these defaults will be born by investors (not Lehman Brothers).

But the definition of Credit Event does not includes the failing of Lehman Brothers as the Credit Risks Swap partner. Thus, at this moment, investors do no face immediate liquidation of the Minibonds and suffer immediate losses. However, investors RISK losing a lot of money due to the fact that the value of the basket of CDOs and other credit-linked derivatives held as Collateral Assets has devalued tremendously due to the present financial crisis. The likelihood of a credit event triggered by the failing of a substantial number of companies within the list of 150 is very high at this moment.

Furthermore, as Lehman Brothers has gone into bankruptcy, it will no longer give you the 5.1% as it promised and in this financial crisis, the variable returns from the basket of CDOs and credit-linked derivatives would be nearly zero as most of them are linked to SubPrime products.

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Trading is risky. There are times when you have almost no evidence to put on a trade but your gut instinct. For some traders, a gut instinct is enough validation to put on a trade. Others, however, need much more evidence and reassurance. It’s useful to know how much reassurance you need before you feel comfortable taking a risk. You’ll trade more calmly if you match your risk tolerance to your trading style.

Traders differ in terms of risk tolerance. Some traders enjoy taking risks and are willing to put on a trade with almost no validation. Other traders, however, seek out as many sources of validation as possible.

There are many ways to trade profitably. What all winning traders have in common, however, is that they match their trading style to their levels of risk tolerance. The closer the match, the more calmly you’ll trade and the higher your chance of maintaining profitability.

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A global recession will have a huge impact on China’s economy while currency volatility is expected to add further pressure on the country’s banks, a top executive at Bank of China (BOC) said on Saturday.

‘Next year, the global economy is very likely to enter recession and the world’s biggest economies, including the United States, Europe and Japan, are very likely to post negative growth and that will have a huge impact on China,’ executive vice president Zhu Min told a financial conference in Shanghai.

‘The impact of the crisis on China has just started to appear as China has already seen a sharp slowdown in industrial profit growth and fiscal income,’ he said.

‘The financial crisis will technically precede economic and political turmoil by eight to 12 months,’ he added.

China’s banks have enjoyed robust profits for years as the country boomed but earnings growth is now slowing as the economy cools from the impact of the global financial crisis.

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When you wish upon a star, what do you wish for? If you’re like most people, financial freedom is one of the first things on your list. If you had a million dollars, think of what you could do. You wouldn’t have to ever work again. You could just sit on the beach and relax. But if you’re like most traders, you couldn’t stay away from the game even if you had infinite wealth. What else could you wish for? A crystal ball, perhaps. Or tomorrow’s newspaper so that you would be able to know what the masses were going to do tomorrow. You could anticipate their every move with unfailing accuracy. Think how easy trading would be? Wouldn’t it be nice to be able to predict the future?

It’s fun to wish that we could trade more profitably, but wishing can often be a sign of desperation. When you are in wishing mode, you passively wait instead of taking decisive action. You hope for miracles and wonder if you’ll ever see huge profits. But if you take proactive steps, you won’t have to wonder. If you set your mind to it and work hard enough, you will be successful. Through hard work and determination, you can make your wish of becoming a winning trader come true.

Can you predict what the masses will do? Not always, but seasoned traders rely on their wealth of trading experience. More times than not, they can accurately anticipate what the masses will do. When a company fails to meet earnings estimates, the price usually goes down. When the sell off is too great, many of the masses feel regret and buy back what they had sold. Do the patterns work like clockwork? No. Do they work a lot of the time under particular conditions? Yes.

What seasoned traders know, and so should you, is how specific stocks move according to world events, media reports, times of day, or whatever unique factors impact the price. Nothing is certain, but the more knowledge you have about a company, the better you’ll be able to anticipate how its stock price will move. And if you can stay ahead of the masses, you can profit. You don’t need to hope for a miracle. All you have to do is study the markets and develop an intuitive feel for how they move. Once you develop these skills, you could anticipate the markets almost as well as having a crystal ball

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As more and more people see American banks and financial institutions as poisoned chalices, the firms in Asia are busy trying to counter all the negativities.JP Morgan took pains to assure that their Asian operations are not affected by the turmoil in the US.

Meanwhile Citi said it is committed to staying invested in Singapore, which is a key market for Citi globally. The US bank has committed $220 million to integrate its back-office operations at Changi Business Park.

In the same vein, Barclays said it will continue to grow its business in Singapore and the wider Asia-Pacific region when opportunities arise.

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Trading can be stressful at times. An unexpected adverse event, or seemingly erratic market action, can throw you off balance. And once you are knocked off balance, it’s hard to regain your composure. You won’t know what to do.

Don’t wait to be caught off guard before taking action. When you are thrown off balance, you may not recover fast enough, but if you trade with a detailed trading plan that you can easily follow even in the midst of a state of panic, and if you have carefully managed risk, you will be able to gain some emotional control, and minimize the damage.

Don’t wait until it is too late. Take action before the markets catch you off guard.

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The most profitable trading strategies are innovative. You cannot merely follow the crowd or think conventionally if you plan to make profits in market after market. You have to sift through information personally, and in the end, you must trust your instincts and go your own way. It takes courage. It’s not for the faint of heart. You have to take risks and go your own way. It isn’t for everyone. Make sure it is right for you.

Market conditions are continually changing. You can’t expect to simply follow the masses, and hope that it will always work. Instead of following the herd and buying when everyone else is buying, and selling when everyone else is selling, you have to anticipate the crowd. You have to be a leader rather than a follower. That often means buying when everyone else is selling, and selling when everyone else is buying. In other words, buy on weakness, and sell on strength.

Some people are natural individualists. Other people have to work at it. But regardless of your natural inclination, it is vital that you find the courage to follow your own convictions. The winning trader is a rugged individualist. If you can find the strength to go your own way, you can join the league of winning traders.

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Singapore’s inflation rate in August dropped to 6.4 per cent compared to July’s 7.5 per cent as food and transport costs eased.

And analysts said that inflation seemingly under controlled, MAS would be able to have more leeway in adjusting its monetary policies to combat the recessionary pressure.

Meanwhile, analysts also said that the country will most probably be in a technical recession in Q3 2008. All the warning signs were there and that the government was already making the right noises to prepare the population for the possibility.

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