Business Times - 17 Oct 2011
STARTING YOUNG
Discipline 'key to success in trading'
SMU graduate Spencer Li, a proprietary trader, tells TEH SHI NING trading is not all risky gambling
TENNIS and trading have a good deal in common, says Spencer Li of his two passions. To the tennis spectator or passive market onlooker, both may seem full of thrills, spills and excitement. But to the tennis player on court or the trader in front of his screen, it's quite another story.
'Consistency and discipline, that's what the two have in common if you want success,' says the 25-year-old recent graduate of Singapore Management University (SMU).
Now a proprietary trader for a private fund specialising in intraday trading of future - 'a dream come true' - Mr Li is quick to dispute the notion that trading is all risky gambling.
As with tennis, where flashier moves are no substitute for well-mastered basic strokes, steady discipline is what wins in trading too.
'It is challenging, because of the discipline to wait and stay out till an opportunity comes, confidence to execute without hesitation, and mental grit to cut losses. But it's also boring because 95 per cent of the time, is just spent waiting and observing,' he says.
It has been five years since Mr Li started dabbling in investments, trading options, stocks, CFDs, forex and futures.
What began as a simple blog to record this trading journey and share market views, has since grown into a full-fledged website (
www.synapsetrading.com) with a Facebook page that has drawn over 12,900 fans.
Having developed his own way of reading charts to understand markets real-time, the Certificate of Technical Analysis holder has also given several talks on the subject over the past few years, with more in the pipeline.
He spends an average of five hours a day on the subject, excluding the hours of experience gained each day on the job.
He tells BT-Citibank Young Investors' Forum more about what he's learnt and is still learning.
Q: What got you interested in investing?
A: My family is quite frugal and my parents advocate saving and investing prudently. Hence, they take a more long-term and passive approach to investing.
After national service, I worked as a financial planner. This got me interested in personal finance and investments. After that, I attended numerous talks and read many books to expand my field of knowledge, aided by several mentors.
I met many other enthusiastic traders in the SMU EyE Investment Club, which spurred me on. Initially, my dad did not take to the idea of short-term trading because he thought it was too risky, but I persevered with my own capital to build up my portfolio.
Among the books I read - I've read over 200 books on trading now - the ones by Jesse Livermore and Richard Wyckoff inspired me most.
Q: That's a lot of reading, what spurs you to 'invest' the time to invest?
A: Besides the allure of financial freedom, I feel that it provides an intellectual challenge that requires great mental discipline, which reminds me of my days as a chess player. Investing also allows me to blend knowledge across different disciplines, and understand what goes on around the world.
Q: What's your risk appetite like?
A: My risk appetite is low so I am willing to let go sub-optimal set-ups and only wait for the best opportunities.
I do not like to hold my positions for very long because the longer you hold an open position, the more uncertainty there is and the more risk is involved.
In addition, I spend more time on risk management (calculating optimal capital allocation and minimising drawdown) than on my actual analysis. This helps me to preserve my capital.
Q: How would you describe your investing philosophy?
A: My style is to consistently seek out high-probability and low-risk opportunities by studying price action and volume. I use these on multiple timeframes, to enter the market when there are certain fluctuations against the main trend. Getting the timing right is the crux, and the three main tools of my system are chart reading, risk management, and psychology.
Q: What's been your best investment?
A: My best investment to date has been in accumulating knowledge because the returns are still compounding.
As for my actual investments, I look at my investment portfolio as a whole rather than at individual investments. My best percentage gains were during the 2009/2010 recovery period, and during the more recent crash. I went into the market with leveraged short positions using CFDs. The latter provided a roughly 25 per cent gain in my portfolio over two months.
Q: And the worst?
A: My largest drawdown was during the 2008 stock-market plunge, where I wasn't nimble and disciplined enough to cut my losses fast. My portfolio declined by roughly 15 per cent. I learnt that the news tends to remain bullish near market tops, hence it is prudent to trade what you see and not what you think.
Q: Any tips to share?
A: It is crucial to start investing or trading only when you have a sound strategy and methodology for analysis, taking into account your personal finances, risk profile and time horizon.
Take time to master the skills and knowledge, and apply it slowly to gain experience, keeping your expectations on returns realistic. I chose 'Mind over Markets' as the tagline of my website because I believe that to master the markets, you first need to master yourself.
This means changing the way you think and approach the markets. Once you understand the psychology and principles behind trading and apply them, the profits will naturally start coming in.
Wish to share your story too? If you're between the ages of 17 and 30, do email a brief description of your investing journey to btyif@sph.com.sg with 'Starting Young' in the subject heading.