The limitation of human decision processing model and the failure of the schooling system

The human brain is structured to have essentially a single focus of conscious attention at a time, and to move rapidly from one focus to another. This ability to focus attention on perceived important things is one of the defining characteristics of human intelligence, but it is also one of the biggest limitation human have.

The big problem happens when the perceived important thing, the reality which people think is the truth turns out to be a lie in the world. They thought that they understand the truth, but the actual truth is not what they understand. Their internal map is simply differing tremendously from the actual territory, the actual terrain of the world.

However, the so called perception error is not only the sole limitation of the human decision processing system. As contrary to the failed schooling system proposed, a big mistake is not happen at the moment a person does a mistake. A big mistake happen at the very first moment a person is not focusing his attention to the proper things. Failure to focus attention to the required and important things in life is the starting point of any disaster, not the act of doing mistakes (which are punishable in our naïve schooling system).

Not able to perform the task correctly, or doing mistakes in any event is just a fact of life, as it is with the tendency to focus on the wrong thing. However, our beloved schooling system punishes mistakes; training all the students to focus on avoiding mistakes. This is seriously a context-limiting act. It is then no surprise that when a person being trained to focus not to make mistakes in the early part of their life, they began make disastrous big mistakes in the later part of their life, as they fail to focus their attention on the proper thing. They are trained all the while to focus only in avoiding mistakes and they stay focus on it, as in the most fundamental level, human brain is structured to have essentially a single focus of conscious attention at a time.

The problem never stop here, besides directing our focus to avoiding mistakes in life, our schooling system is also a very effective agent in shaping our attention to those context that are irrelevant to be successful. The entire syllabus, the program structure in schools and university, is aimed to train skillful employees to work for corporation and government. Instead of context exposure, the system emphasizes strongly on content expanding. The end result is a herd of rat running in a rat race (There is nothing wrong to be a rat, but the issue is, even you win in the race, you are still a rat).

As human is good in finding excuses to cover up their mistakes, they are extremely good in finding reasons to justify, and to rationalize their direction of focus. Many people stupidly defend their direction of focus by claiming that: “Well, there are just many different people with differ perspectives”, “there is no right or wrong answer”, and etc. As naïve as a person can go when they focus mainly on hard work and techniques when their basic, and the most fundamental strategy is totally wrong and fallible in the first place.

This problem is then further compounded when one would have responded instantly and changed one’s actions had someone repeatedly demanded attention and pointed out certain key facts (be it truth or not, as long as the reason touches a person emotionally and psychologically). Again, the limitation, single attention (focus) at a time, coupled with the nature where human cannot explain changes in their attention, often lead to disastrous outcome. Thus, in understanding errors that you have made in the past, it is a must to always consider what it was that you were not paying attention to. A person who focuses on what he had done wrong in his technique never truly learns from mistakes.

Nevertheless, these human limitations don’t really limit us. As a trader, we need to understand this nature of human being and would be able to profit from it. There are recently gradual shifts for social basis for attention, operating by word-of-mouth and facilitate by media transmission of ideas and tips, that generate attention focuses in the market across the country.

The herd could be start moving, should the attention is not shifted by any unforeseen circumstances, life would never be the same again.

FTEC, SMRTECH & SCICOM

From an analysis of the MESDAQ market, a list of undervalued stocks are found. Many of the fundamental stocks are a result of investors speculation which lead to panic selling during the bear run in the mid of this year. Some of them could take long time to adjust back to the fair value while some of them could be adjusting to fair value in the near term, as many of the stock being analyzed will soon be coming with with Quarterly Reports which could serve as momentum in creating another round of natural Ponzi scheme in the market. From a rough analysis on the expected EPS, the undervalued stock with positive trend from pircing reaction, are indicated. Three of the stocks which are meeting resistance from shrinking volume are found, namely, FTEC, SMRTECH and SCICOM. With a proper cut loss system and expected target speculation price, traders, lets go to the party!

MKLAND sold

The notice is to inform that the previous recommendation on MKLAND, to buy in at 0.50 - 0.51, are sold today afternoon at 0.56. The reason of the sell is not because we want only a 9% return on capital in two days, we, of course, want more than that, if possible (at the same time do not let the greed control us). The dramatic rise volume in MKLAND today to become the top 5 volume in KLSE are indicating a very possible bearish engulfing pattern is formed. As a trader, we should not wait until the pattern completed, we must move one-step faster than any enemy. As such, we sell before the bearish engulfing (in western charting, equivalent to inside out day single reversal pattern) completed. Should the pattern reverse and spike up, we are willing to fore-go these profit because, safety first, make money later.

Note: It is not to say we will sell and never touch MKLAND anymore, instead, i am speculating in mind that now it is possible in the formation of the first wave in the rise.

"Good Buy" Stock

That morning i wake up,

saw a recommendation on a "good buy" stock.

so i take my money and go to buy,

to buy the "good buy" stock.

Three months later i wake up,

in the morning i heard my money whispering to me,

they say "bye bye".

Then only suddenly i realize,

the recommendation was not wrong;

it is me who listen wrongly,

instead of "Good Bye" stock,

I heard "Good buy" stock.

~Booffett~

The story of the bear

The technical aspect of KLCI after breakout from the heard psychological resistance level has indeed draw much attentions from the future unfortunate souls. It is suddenly many people seems to start to get interested in stock, where many traders are marching their capital frantically into the market. While i am still holding a balance view, on how true and genuine this bull run could last, i am already almost 75% invested in the market. I dun anticipate a bull market, and i need to know that as well as to do that; because to be successful, i must not anticipate any market movements, to remain poise and avoid emotional distractions to creep into my mind, be it consciously or subconsciously. When i was asked on the matter, always i would like to say, when you see the sky is gloomy and the wind is strong and you could smell the rain is approaching, most likely, a storm is awaiting you soon. However, be reminded that, not every gloomy sky will be accompanied by rain. Sometimes it does, sometimes not. That is exactly what happen to KLCI, when both the volume and price level rally together, breaking new highs for 9 years. I just saw lighting and i heard the sky roaring, i cant be sure if a storm is approaching, but according to my experience, if there are going to be any storm, the sky will first get gloomy often lighting will follow.

The technical analysis aspect of the chart is not the most important thing i think to be successful in stock trading. For any serious trader, he could easily learn all these technique by having a 1-year full time intensive guidance by successful mentor (Just pay RM20k first, and i can assured you there are many stock trading mentors in the market that are going to help you).

However, ability for a trader to avoid the trap of the bear is not something that could be learnt easily. The bear is cunning, and it cant be detected from any of the most sophisticated charting tools in the marketplace. At the first movement you gain a 5% return upon your entry into any investment, the seed of the failure is planted. From the very first moment of winning even small return from penny stock, hope and many other disastrous emotions spring into life. It is at this moment, your worst enemy, is born within you yourself. In stock market, it is called a bear, a invisible one.

to be continue...

Fortune favors the brave.

Virgil, Aeneid Roman epic poet (70 BC - 19 BC)

One of the reason most speculators lost money is because they speculate on penny stock. It is not surprise that some of them clearly understand that why the stocks are penny is because they earn penny. They understand highly priced stocks is great investment as well. However, psychological factors are stopping them from buying highly priced stock. The human instinct who want cheap, bargain keep preventing them from investing in these market leaders. Perhaps the most distinct trouble with penny stock is not that they are earning penny (or even negative returns) for investors, the biggest trouble, which bring disasters and defeat many of the new traders is because these penny stock often create artificial breakout pattern to entice the uninformed players, to distribute the worthless stock to these unfortunate players. Most often than not, a high volume long candle breakout, which are perceived, taught, assumed, and agreed in those famous stock trading books as bullish, is just a manipulation by the insiders to distribute stocks to the suckers. And this is why most new traders, who learn theoretically on the chart patterns and breakout pivotal points, got defeated, monetarily and emotionally.

In fact, it is not the problem of the breakout rules presented by those famous "technical analysis for dummies" books, it is where and when the traders apply the rules that is the problem. It is too foolish to invest in any breakout, if we able to spot any aberration of accumulation for distribution pattern in the stock in the previous period of that particular stock (Well, that is long story to tell... serious traders should go to learn themselves on how to detect these faked pattern themselves).

To those who are brave, i repeat, only to those who are brave: Green Packet, OSK ventures and mTouche, three of the MESDAQ leaders today, presented a bullish resistance breakout pattern today (for GPACKET, a few days ago). The three companies, who are involving in wireless networking solution (leaded by GPACKET), are presenting a tandem sister stock trading opportunities for the brave investors. For this reason, i recommend a BUY on OSK Ventures and mTouche for those traders who are brave.

MKLAND - SPECULATIVE BUY



MKLAND is a property development company in Malaysia, with its main projects concentrated in Damansara Perdana and Damansara Damai.

It is priced at 0.53, with EPS of 0.39 (taken from Annual Report 2006, have not been adjusted to reflect the true economic position of the earnings), and ending with a PE ratio of 13.

Before the Annual Report is release in November 2006, we could observe a relatively high volume long candle spike which could be indicating probable insiders or savvy investors buying before the release of information (from a technical charting perspective, without strong evidence). After the release of the Annual Report 2006, the volume increase dramatically with price trending up. It is now speculated that the price correction is reaching a strong support level according to Fibonacci retracement ratio. This price and volume action is the main reason which draw me to conclude MKLAND as a speculative buy.

Investors should also be informed that the overall trend for the stock is moving downwards. Fingers could be cut or burn if the reversal force couldn't withstand the fast falling knife momentum. Therefore, a stop loss is necessary.

Extra: The property development is a competitive business in Malaysia. While the Annual Report 2006 of the company argue that the company having competitive advantage because they are developing properties in strategic location (Damansara area, near IKEA, 1-U and etc.), it shouldn't be used as a signal to reflect that the stock is safe. After all, the cash flow for the company in 2006 is a big negative of 13 millions. Besides, i am issuing the BUY comment without truly scanning through all the information in the Annual Report. Thus, investors should never treat this investment opportunities as a risk free or safe and sound.

Thank you and wish you a profitable trade with MKLAND.

LITESPD

LITESPD is a MESDAQ company dealing with E-learning.

Technically speaking, the stock price just break up from a resistance with a long white candle with high volume. Judging from price and volume action alone, the stock now is in the first wave of up trending. The subsequent price fall after the long candles should be viewed as a healthy retracement by profit taking. Buy recommendation is issued because it is speculated that the price is now meeting a strong support line from the breakout.

It is very common for savvy traders to argue that the two suspicious breakout candles could be a whipsaw signal by manipulators to distribute the stock of the company. However, i found that the abnormal price and volume action started after the release of the quarterly report, which the company reported a positive EPS. The company suffered from some consecutive negative earnings since it was listed in MESDAQ in 2005. It is thus speculated again that the price and volume reactions was probably not resulted from signal manipulation, instead from the release of news. News built momentum, particularly unexpected news.

As a well-known facts, neither technical, fundamental or any hybrid strategies can predict the price movement of any single stock. Should the stock suffer from any irrational exuberance or unexpected event, traders who follow the recommendation should cut loss at their planned price level.

Happy investing and wish you a profitable trade with LITESPD.

A new journey ahead...

It has been a long time since my last blog posting in investlah.com forum, and finally i decided to write my trading diary in the this blog instead of recording stock trading activities with a 2B pencil and graph papers.


The purpose of this blog is to share trading insights with friends and anyone who are interested to trade in KLSE. Opinions and critics are welcome, as i found these are the second best teacher besides the market itself.

Perhaps the most important single thing in reading this blog is to remember the rule of trading is cutting loss. It is essential for me to emphasize that any recommendations from this blog are just opinions, and i am not responsible for any losses or liabilities occur from following any of these recommendations. Besides, i am also not responsible to inform any investors/ traders/ gamblers on any of the selling point after i have liquidate my positions in the market. Too often, the critical selling point come in a sudden, and i would be buzy selling stock instead of typing recomendations here.

For all the serious traders who are reading this blog, i would first need to thank you for spending time reading ideas and opinions from me. Besides, i would like to wish you all a profitable and enjoyable trading journey.



Thank you.
Booffett