TRADING TOOL COMPATIBILITY Part II by Daryl Guppy

This article is in two parts. Click here for Part 1

The next most important issue is indicator compatibility. Determining this starts with a visual chart inspection and is based on the first step in analysis shown above. The chart example shows a rising trend from March through July. In this sense it meets the trending criteria we look for in the first question. However, this stock does not meet the indicator compatibility criteria.
Our reader suggested three methods of managing the trend. They were the count back line, the straight edge trend line and the 2xATR indicator. In assessing the trend we would apply only the first two of these. Our preference is to use the 2xATR as a trailing protect profit stop loss only if the trend develops unexpected momentum. The diagram shows the application.



In a steadily developing trend, shown as A, where volatility, or price changes, remain much the same, we apply the count back line and straight edge trend line. These techniques are used to protect capital in the early stages of the developing trade. They are then quite satisfactorily applied to protect profits as the trade develops.

Some trends, shown as B, the price behaviour changes dramatically. The underlying trend remains intact, as shown by the straight edge trend line. However prices bubble upwards in an explosion of unsustainable momentum. The bubble signals significant changes in volatility. Prices behave differently. The collapse from this bubble is often dramatic, and can also cause a collapse of the underlying trend. For traders who own the stock and who have been managing this as a trend trade, this bubble presents an opportunity to take extra profits. The problem to resolve is how to best protect profits. In some circumstances the 2xATR does this most effectively. This is when we apply this indicator. We do not generally use it to manage trades during a stable trend. In a bubble situation we use a combination of CBL and 2xATR to develop the best solution for protecting profits.

The 2xATR approach is used by Chris Tate for general tend management. This is covered in detail in The Art Of Trading.



Indicator compatibility simply means that our preferred indicator has provided an effective solution to managing the trend in this stock in recent past. The chart shows an example of indicator incompatibility. Our preferred trend management tools are a straight edge trend line and a count back line. On the chart extract shown we show the count back line failure points because we want to highlight how indicator compatibility is assessed.

A close below the count back line, shown as the thick black line, signals an end of the trend and a trade exit. Each time a new high is made, the count back line is recalculated. A close below the CBL line triggers an exit from this trade on the grounds that the trend has an increased chance of failure. The balance of probability favouring a continuation of the trend has shifted.

The problem is that subsequent price action showed the trend did continue upwards. The exit signals defined by the count back line were false. We could not know this at the time. Traders have no choice but to exit the trade because the indicator suggests the up trend has ended.

If we were interested in trading this stock using our preferred combination of the count back line and a straight edge trend line then this chart tells us that this stock is incompatible with these techniques. Here is a most important point and it is relevant to any indicator combination we use. The price behaviour of this stock is not compatible with or responsive to our indicator. This does not mean the indicator fails. It simply means it is the wrong tool for this particular job.

Indicator compatibility is about finding the right tool for the job at hand. Home mechanics who use an SAE spanner on a Metric bolt understand the problem clearly. The tool – the spanner – is an excellent tool, but it doesn’t quite fit the job at hand – tightening a metric bolt. In this chart, the price behaviour does not fit the tools we prefer to use – the count back line. If this tool has been incompatible in the past it is unlikely to be compatible in the future.

There is a trend trade with this stock, but it cannot be effectively managed with our chosen tools.



The chart shows how indicator and trade compatibility are bought together in an effective trading solution. The tools we want to use are a straight edge trend line and a count back line. The objective is to join an established trend so this means that we must be able to plot a straight edge trend line with a good level of confidence. We look for a minimum of three rebound points.

Once this condition is established we then apply the count back line to establish if this has been compatible with trend management to date. The answer is yes and this suggests that this technique will continue to be useful in the coming weeks or months. A selection of previous CBL calculation points is shown by the red lines with red * at the calculation starting point.

Once a stock has been selected based on these compatibility factors the traders attention then turns to other factors such as price leverage, volume and the best entry point. Most times traders have to choose between a number of almost identical trading opportunities. The trader’s objective is to maximise the profits for any trade and this is helped by selecting stocks which offer better price leverage. Stocks trading at lower price levels have the capacity to boost profits more easily than stocks trading at $20 or higher.

Although it is human nature to hunt for a bargain, this is not always a good idea in the market. We have selected this stock because we believe it is in a strong trend. We bet against ourselves if we then wait for a price pullback – for weakness in the trend - before buying the stock. If the opportunity arises our preference is to buy the stock as close to the trend line, or the count back line as possible. We certainly do not want to pay the high price of a short term up trend, but nor do we want to miss out on this stock by waiting for a price collapse. The objective is to buy the stock at a reasonable price that is consistent with its recent trading range.


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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

TRADING TOOL COMPATIBILITY by Daryl Guppy

This article is in two parts. Watch out for Part 2
Although we try to explain the processes of trading clearly there is no escape for the fact that trading is a complex activity. A successful trade brings together many different features. It includes the right selection of indicator tools appropriate for the type of trade. It includes selecting a type of trade that is compatible with our trading style, our emotional reactions and to the way the market is performing at the time. There are always a wide variety of trading opportunities in the market. There are far too many for any individual trader to trade, so we are forced to make choices. The mistake the novice often makes is to search for those trades which offer the most spectacular returns rather than find trades which offer high probability trading situations.

We prefer trade opportunities which offer higher than average returns, but these are in addition to the high probability trading situation. We like chart patterns because they point the way to high probability trades. Stocks that pass this filter are then selected on the basis of higher potential profits. We do not start with potential profits and hope for high probability.

Compatibility of technique and indicator selection is very important for success. A reader wrote to us during the week. He noted that he had learnt that when he buys a stock he has to manage its trend. This is correct and at the core of almost all trading opportunities. The trend may be very short term, as in an intra day trade. It may persist for several days or weeks, as with position trading. Or it may prevail for weeks and months as was common with many stocks between 2004 and 2007. Each of these opportunities is a trend trade, but each calls for different types of management and tools.

The reader continued, noting that he can manage the trend using the count back line, straight edge trend line, the 2xATR indicator and Darvas boxes. Although this is correct, there is an important division in this list. The Darvas approach is a stand alone approach that does not incorporate any additional indicator tools such as trend lines.

The reader asked which of these tools is good to use and which tool is most commonly used to manage the trend? If there was a simple universal answer then trading would be a much easier profession to master. The answer relies on easy to use indicators, but complex combinations that are custom designed to suit each individual. Many people will use the same collection of indicators, but each will apply and interpret them in slightly different ways. Each trader will manage the trade in different ways, reacting to growing profits, or small losses in ways different from other traders. The result is a completely different, and perhaps successful trade, based on the same stock. The current series of notes on finding the trader’s edge is a practical demonstration of these differences.

This combination complexity should not deter new traders, but it is important to be aware of it. The selection of type of trading techniques which are compatible with your personality and preference is an individual issue. The solution also changes as you gain more experience in the market. In these notes we skip this aspect of trade selection and assume you have found the type of trending situation that you are comfortable in trading. Once this first step has been taken the next most important issue is behavioural compatibility.



The MBL chart from more bullish times is a good example of the initial decisions made about stock and indicator compatibility with a trading approach. Many stocks are in the breakout stage of this trend development. When traders look at this chart they have two choices. One choice is to decide what type of trading opportunity exists with MBL based on the past 2 to 3 months of price activity. There are a variety of solutions, including short term rally trading, counter trend trading, or perhaps taking a put warrant or short side trade. These answer the question: What type of trading opportunity exists on this chart? These are all valid solutions, but they are not our solution.

The question we have to answer is about compatibility with trend trading. The question we have to answer is this: Is this chart a trend trade? This is the second choice we have as traders and that is to decide if the stock is compatible with our preferred trading technique. Our focus in these notes is on trend trading approaches so the answer is a clear “No.” For much of 2003 MBL was compatible with trend trading techniques. Since October 2003 this had not been the case with MBL. We do not need to decide what is the best trading method for this period. We simply need to note that this period is not suitable for trend trading. The nature of the trend changed, and the nature of the price action changes after October. It is pointless attempting to make any of the trend trading techniques fit this chart.

The foundation of a successful trade rests upon selecting a chart or stock with a behaviour pattern that suits our trading approach. A trend trade is built around stocks that are moving steadily upwards. The point at which we identify this compatibility will change. Initially MBL was a breakout trade as the previous downtrend ended. Sometime in this period other traders noted the potential for a trend trade. This is indicated by the way the trend trade line starts at a midpoint in the breakout trade segment of the chart display. There is no clean cut off point or date that says this is a breakout trade and this is a trend trade. Aggressive traders recognise trend trades early. Conservative traders wait for much longer before accepting a new trend is in place. This effects their entry point, and the level of profit achieved from the developing trade.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

CLASSIC AND CONTINUATION CHARTS by DARYL GUPPY

In the newsletter we use several varieties of chart displays. This includes two colour candle stick charts produced with GTE charting. The standard candle display with Metastock and many other US derived programs is to give a four colour candle chart. This, along with our recent articles on candle stick trading methods, has prompted many questions from readers so we look at the differences again.

We also use two colour bar charts. These are different from the two colour bar charts in Metastock and some other US based charting programs and this has left some readers confused. What they see on their screen is not the same as they see on our chart extracts.
The reason is the same as the reason for the difference in the candle charts. Some bar chart displays show Gann continuation charts. This is not quite as important with bar charts because traders do not use a collection of specific bar relationship patterns for trading. However it does impact on the way you see the chart.

INDICATOR – CLASSIC AND CONTINUATION PRICE DISPLAYS

The price bar and the candlestick are the basic ways of displaying price action. They show the open, high, low and close prices. The classic, or original, display examines the relationships between the open and the close on a single price bar or candle stick.

A Gann continuation chart examines the relationships between the prices of today and the prices of yesterday. This type of chart display is also called a swing chart display. The difference in display is very important because it has significant impact on the way we use charts for analysis.

APPLICATION
The classic bar chart display uses today’s open and close to determine the colour of the bar. When today’s close is higher than today’s open, the bar is shown as an up day – usually blue. When today’s close is lower than today’s open, the bar is shown as a down day – usually red. A classic candlestick display only has two colours, usually green and red, or blue and red.



The continuation bar chart display is an adaptation of Gann analysis techniques. In this display the definition of an up or down day depends on the relationship between today and yesterday. An up day is when the close of today is higher than the close of yesterday – usually shown as a blue bar. A down day is when the close of today is lower than the close of yesterday. Other price relationship combinations are shown as filled or unfilled candle sticks.



This means that a day where price opens today at $1.00 and closes today at $1.50 can still be shown as a DOWN day using a Gann continuation chart display. It is very important to know what type of bar chart display you are using so you can decide if it is appropriate for your analysis.

The two chart displays shown above use exactly the same price information for each display. The classic charts are shown on the left. The continuation charts are shown on the right. The analysis messages delivered by the different displays are quite different, even though the price information is exactly the same.

Many default candle stick displays are also Gann continuation displays. This is very dangerous for analysis. Candlestick chart pattern analysis is based on the classic candle stick display that uses intraday-day price relationships. GTE Charting allows users to select Classic or continuation chart displays.



TACTICS
• Use classic bar chart display for pattern analysis and understanding trend behaviour
• Use classic candle stick display charts for the effective application of candlestick analysis.
• Use Gann continuation chart displays for swing trading analysis.

RULES
• Use the correct chart display for the trading analysis technique you are applying
• Select one style of display and stick with it. Do not frequently change display styles. This will create analysis confusion.
• Use classic candle stick charts for candle stick pattern analysis.
• Do not use candle stick continuation charts for candlestick pattern analysis
• Swing trading analysis uses continuation charts
• Classic candlestick display only uses two colours, traditionally black and white candles.
• Continuation candlestick display uses a mixture of two colours and filled and unfilled candles.

ADVANTAGES
• Using the correct display for the selected analysis method enhances success
• Treat with suspicion candle stick ‘experts’ who use candle stick continuation charts
• Treat with suspicion swing trading ‘experts’ who use classic chart displays
• Some people find it easier to understand price activity using a bar chart. Others prefer a candlestick chart. This is a matter of personal preference and has no indicant trading advantage

DISADVANTAGES
• Using Gann continuation candlestick display will lead to incorrect candlestick pattern analysis.
If you want to use 2 colour candle displays in Metastock please refer to our June 6 article in the newsletter that explains how to do this.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

CNBC – FOLLOW THE DRAGON TRAIL by DARYL GUPPY

Who follows and who leads in markets? The answer is surprisingly different to the answer most people assume is correct. Intermarket technical analysis is a useful strategy tool for asset allocation. It’s also a useful tool for working out what may happen in the future. It’s too easy to look at markets in isolation, or to use outdated assumptions about market relationships. This is lazy thinking and in a changing market environment it can cost a fortune.

We publish hundreds of charts each year in our financial newsletter publications and in columns for international and Chinese financial media. The chart below is the probably the single most important chart you will see in 2009. You will need to put aside lazy thinking and assumptions to fully understand it.

This is not a technical chart. It’s a combination of 3 indexes, each displayed as a single line. Unlike many comparative charts the indexes have not been rescaled to a single starting point so we can see relative performance in percentage terms. This is not significant.

The charts have been time adjusted so it is easier to compare the behavioural characteristics of the three markets. We use the Dow Index and the Australian ASX S&P 200 XJO index as representative of markets outside the US. The DOW and XJO charts have been time shifted to the left so the absolute market lows of March 2009, match the time of the absolute market low in the Shanghai Index in October 2008. This type of time shifted display clearly shows which market is a leader and which markets are followers.

This chart display confirms that 2009 has seen the most profound change in market dynamics in more than half a century. Put simply, China leads and the DOW follows.

The blue line shows the performance of the DOW index.
The black line shows the performance of the Australian ASX S&P 200 XJO index.
The red line show the performance of the Shanghai Index.

The DOW is now at 10,000 but how important is this in terms of global market behaviour? The DOW is following the behavioural leadership of the China market. The 10,000 equivalent for the Shanghai Index is 3,000. The Shanghai market reached this level and briefly powered above it before developing a trend correction. The Shanghai Index remains in trend correction mode and is using price and time corrections. The price trend correction is the sudden index fall of between 15% to 20% from 3480 to 2750. The time correction for the trend is the extended sideways movement over the past 10 weeks. The important relationship is not the comparative percentage returns, but the comparative behaviour.

We need to watch carefully because there is a high probability our markets and the US market will follow this China market leadership behaviour with a lag of several months. This suggests a trend price correction in the order of 10% to 15% followed by a period of sideways trading as the market applies a further trend correction using time.

Analysing and understanding China market behaviour is absolutely critical to any market strategy. China leads, the DOW follows the behaviour and other markets tag along further behind. Watching China gives investors a glimpse of the potential future. It is absolutely essential to developing any long term portfolio investment or planning.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

The Crisis: Keynesians vs. Monetarists by Jeremy Siegel, Ph.D.

When I was studying in graduate school in the 1960s there was a big debate among economists: Which version of macroeconomics best described the world, Keynesian or Monetarist? The Keynesians claimed that fluctuations in aggregate demand determined output, monetary policy was not very important, and fiscal policy is what is needed to pull the economy out of a slump.

Monetarists, on the other hand, believed that erratic monetary policy was the most important source of fluctuations and that, by stabilizing the money supply, the central bank could limit the severity of recessions and prevent a depression such as the U.S. experienced in the 1930s.

Economists, unlike scientists, cannot run a series of controlled experiments to pick a winner. We had to wait 70 years for another financial panic of the magnitude that hit our economy in the 1930s to shed light on the question.



Keynesians Start Well

Keynesians assert that business cycles are caused by changes in aggregate spending behavior. When businesses and consumers are optimistic, they increase their spending and the economy flourishes. When they are pessimistic, spending falls and the economy slips into recession.

This latest crisis was indeed preceded by a period of optimism, particularly in the housing sector. When housing prices soared, many homeowners felt wealthier and increased their consumption. Some believed that they were destined to be able to use their houses like ATM machines, cashing out their home equity as real estate prices rose.

But when the increased supply of housing overwhelmed demand, the euphoria broke and home prices fell. This led to the largest decline in consumption since the end of the Second World War. The cause of the recession was quite Keynesian in nature.

Monetarists, on the other hand, came up short on the cause. The supply of money and credit continued to advance before the financial crisis. In fact, in the year leading up to the start of the recession in December 2007, the money supply increased at a faster pace than in either of the two preceding years. Although some claimed that the cause of the housing bubble was the Fed keeping interest rates too low too long, it is the money supply, not interest rates, that Monetarists watch.

Monetarism finishes Strong

But on the subject of the policies to get us out of the crisis, the Monetarists shine much brighter. Milton Friedman's monumental work, "A Monetary History of the United States", argued that whatever caused the Great Depression of the 1930s, the downturn was made much worse by the Fed's failure to aid the credit markets. In the early 1930s, as the economy worsened, millions of depositors tried to withdraw their funds from the banks (there was no deposit insurance at that time). Although Congress created the Federal Reserve so that it could provide emergency reserves, the Fed did nothing, and billions of dollars of deposits were lost. The money supply fell sharply, and virtually all financial activity ground to a halt.

The fall in the money supply instigated a huge deflation that hit not only in the stock market and real estate but also commodities. The consumer price index dropped 24 percent between December 1929 and December 1932. The collapse in the price level worsened the burden of debtors and added to the already sharply rising level of defaults. Friedman claimed that if the Fed had prevented the collapse of the banking system and stabilized the money supply, deflation would have been avoided and the Great Depression would never have happened.

But Keynesians objected. Keynes claimed that the forces of deflation would have overwhelmed the central bank, leaving it powerless. Once interest rates hit zero, monetary policy no longer could stimulate the economy since negative interest rates are impossible. Keynes called this situation "The Liquidity Trap" and claimed that, under these circumstances, only fiscal policy -- tax cuts and massive increases in government spending -- could prevent a recession.

A Test of the Theories

Although the Keynesians got it right on the cause of the crisis, it increasingly looks like Milton Friedman and the Monetarists got the solution right. Ben Bernanke, who studied Friedman's "Monetary History", made sure that the Federal Reserve did not repeat the fatal mistakes of the 1930s. He not only reaffirmed the Fed's support for bank deposits but expanded its coverage to money market mutual funds and all business accounts, no matter what the size. Virtually no depositor or money fund investor lost money in this crisis.

The Fed was indeed hampered by the Keynesian Liquidity Trap when the central bank set the Fed Funds near zero at the end of last year. But Bernanke initiated policies to mitigate this constraint. First the Fed lent banks far more reserves than they required, an action called Quantitative Easing. This assured the banks would have sufficient funds to meet any withdrawals. Secondly, the Fed established lending facilities to reduce the soaring interest rate on privately issued debt instruments.

During the Great Depression interest rates on private debt increased sharply because dramatically higher risk premiums were demanded by lenders. Indeed, last year, the libor rate, which is the rate at which banks lend to each other and upon which trillions of dollars of private loans are based, soared after the Lehman bankruptcy. But when then Fed sharply increased lending to security dealers, banks, and non-bank financial institutions, these premiums shrank dramatically.

When the public saw that their deposits and money funds secured, the panic eased, the stock market rose, and consumer confidence improved. The latest data indicate that it is almost certain that the recession ended sometime this summer.

It is true that the Keynesians will claim that the Obama fiscal package of tax cuts and spending is also responsible for the economic recovery. I will concede these policies did stimulate spending somewhat. The Obama package totaled $775 billion spread over two years, but the Fed has lent over $1 trillion in the first six months of the crisis, and stood ready to lend even more if necessary. Fortunately, the Fed is now scaling back its lending as many financial institutions are paying back their loans and reducing their excess reserves.

The Winner?

Both the Keynesians and the monetarists are right. The Keynesian emphasis on unexpected fluctuations in spending did the best at explaining how we got into the crisis. But the Monetarists' claim that preserving the banking system is critical to prevent a recession from becoming a depression is also right.

I am in no way absolving policymakers, particularly the Fed, who failed to see the crisis coming and protect the financial system. But we should be thankful that economic theory provided us a framework that prevented the last recession from turning into something much worse. The biggest winners are not the Keynesians nor the monetarists, but all of us counting on an economic recovery.

by Jeremy Siegel, Ph.D.


N.I.N.E finds this article interesting. The article is extracted from Yahoo! Finance.

WHY DOLLAR FALLS AND GOLD INCREASES IN A SUDDEN

The demise of the dollar
By Robert Fisk, The Independent

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China's former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. "Bilateral quarrels and clashes are unavoidable," he told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China's growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China's reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

OVERNIGHT GAP TRADE MANAGEMENT II by Daryl Guppy

Continued from Part 1...

DAY 2 EXIT

This is a two day trading strategy. Day two is about profits. There is no intention to extend this trade into a third day. Prior to the open our focus is on the order lines. We look for evidence that buying pressure is continuing. There are two ways to determine this.



The first uses the estimated match price. This is set at $0.61 and represents a gap above the previous day’s close. It is not a real gap above yesterday’s high, but it does suggest that the upwards move is likely to continue.

The second considers the balance between buyers and sellers. These figures take into account all the orders in the order line. This includes some very old buy orders which have little chance of execution at $0.42 and lower. However, the balance is tilted very heavily towards buyers with 1,581,150 of buying volume. This includes an undisclosed buyer sitting at $0.57. It is unlikely that prices will fall to this level, but the presence of this large buy order provides additional support for continued momentum during the day. If this buyer is really that interested in PEM then he may well decide to chase prices higher.

If the undisclosed order was on the sell side it sends a bearish signal. The sell orders total 625,625. The line is shorter than the buy line and confirms continued bullish pressure on prices.
Prior to the open we lift the stop loss to the same level as yesterday’s close. At worst, if triggered, this will lock in a 3.45% return.

Exit management calls for close monitoring of intra-day price activity. Early in the morning prices test $0.63 as a support level. Our stop loss is lifted to $0.63, locking in a potential 8.62% return.

During the day prices hit $0.66 on low volume, and then pull back from this level. In the late afternoon sellers flood the market with orders at $0.65 and $0.64. This suggests that the momentum generated by the gap on the previous day is losing strength. Our objective is to do the best we can on the day, and in the face of this selling pressure we meet the bid at $0.64. This exit locks in a 10.34% return. A few trades later, prices drop to $0.63 which would have triggered our stop loss exit.



Prices do climb back to $0.66, but they close on just a handful of trades. The volume traded is not enough to close our position.

These trades return significant short term gains. They are more effective that day trading strategies which rely on buying near the low of the day and selling near the high of the day.

These gap trades reduce overnight risk because they rely on a continuation of demonstrated momentum. When traded with the advantage of price leverage these trades can return 5% to 15% on a 36 hours trade. The strategy is straightforward but the execution calls for well developed trading discipline.

> Related Articles:
OVERNIGHT GAP TRADE MANAGEMENT I
OVERNIGHT GAP SELECTION Part 1 and Part 2

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

OVERNIGHT GAP TRADE MANAGEMENT by DARYL GUPPY

The gap trade may be executed using ordinary stock, or using a derivative, such as a CFD. The derivative increases the return from the strategy. It also increases the risk in the strategy particularly if the CFD is based on bid-line triggers rather than traded price.

Management of the gap trade covers two days. Broadly they can be described as the entry day and then the exit day. The analysis for this strategy does not start until 20 minutes after the open of the market. By the time the analysis is completed the market may have been trading for an hour. This means that prices may have moved well above their open. If we are particularly lucky, price may have experienced a retreat as often happens after an initial market rally.

The important point is to remember that the success of this strategy rests on entering the stock on day 1 with the objective of exiting the trade on day 2. Rather than attempt to buy the bid it is more effective to hit the ask. The order screen shows a bid at $0.57 and the ask at $0.58. Getting a position is more important than haggling about the entry price. We take the entry at $0.58.

In this trade we miss the low of the day set at $0.56. We miss it because we are still involved in analyzing the potential trading candidates. This is significant if our focus is on trading the extremes of price action. It is less important in this strategy as our objective is to capture a portion of the price movement. We continue to stress this because so many traders feel cheated if they miss the price extremes. This attitudes blinds them to many other successful trading strategies.

Success depends upon running a tight stop loss. Using the low of the day we set a stop loss 1 tick below this level. A tick is the minimum price move permitted in the stock. With PEM, prices move up or down by one cent at a time. There are no half cent bids. Our stop loss is set at $0.55. This is an automatic stop loss. This has several advantages. The first is that the stop is executed automatically so you do not need to sit in front of the live screen all day. This automatic execution overcomes the temptation not to act. It is an artificial boost to discipline.



The second advantage is the speed of execution. Traders who use mental stop loss points have to watch the screen all day. Once the alert is sounded as a trade takes place at the stop loss price they must contact their broker. This means ringing, or logging onto the net, bringing up the screen, locating the stock, creating the order, and then clicking the sell button. The time from the stop loss alert to order execution may be a minute or more. In that time it is possible that prices may have slipped several ticks below the planned exit point, creating an unexpected large loss.
There are several critical features of this strategy. Rapid stop loss execution is one of them which is why I use an automatic electronic stop loss order.

It takes time for news to travel through the market. PEM has gapped upwards on the open, but it drifts sideways for an extended period. In the afternoon a new flood of buyers come into the market. They temporarily lift prices to $0.62. Some traders start to take profits at this level, and their selling drops prices back to a close at $0.60. Our objective is to remain in the trade, so we do not chase this rise as a selling opportunity. However, the rise provides the opportunity to lift the stop loss and shift the trade into a breakeven opportunity.

The initial, or morning, stop loss is placed one tick below the low for the period. The afternoon stop loss is placed after prices start to pull back from the high. The objective is to protect our capital. Lifting the stop loss means that the worst outcome is a break even trade – unless prices gap down past the stop on the next day’s trading. However, with a gap open today and a higher close on increased volume this is an unlikely outcome.

In a position trade – a trade designed to be open for days or weeks – it is sufficient to set a stop loss at the end of each trading day. On an intra day, or short term trade, there are significant advantages in shifting a stop loss several times during the day. The first shift should provide total protection for capital. Later shifts should start to lock in profits, and this is the first step on the second day of the trade. Stop loss points are only lifted upwards. They are never lowered.

Will continue in the next article...

> Related Article: OVERNIGHT GAP SELECTION Part 1 and Part 2

To read more articles and commentaries from Daryl Guppy, click HERE

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

CORPORATE MAS or GOVERNMENT KPI? by Ameer Ali Mohamed

Corporate Malaysia was stunned by the surprise appointment of the 51-year-old (now former) Malaysia Airlines managing director/chief executive officer, Dato’ Seri Iris Jala @ Idris Jala as minister to oversee the implementation of the government’s key performance indicator (KPI) initiatives.

The main question on everyone’s mind is, has he been deployed to a position where he can deliver results? This is particularly relevant for someone who has been in the corporate world (with two large companies) since 1982 and whose political influence is unknown.

There are also questions on whether he has, since assuming the MD/CEO position in MAS on 1 Dec 2005 until 28 August 2009, taken the company out of turbulence to a stage where his successor can cruise comfortably.

Another equally important issue is MAS’ succession plan. There is no argument that one is in place: the main question is whether the plan is sufficiently mature at this point in time, given that Jala’s contract was extended just last year for three more years until 2011.

As expected, Jala’s appointment was greeted with positive responses from mainstream political and corporate figures. However, this is not the case for MAS staff and some advisors of institutional investors.

MAS Employees’ Union (MASEU) voiced its disappointment over Jala’s departure as MAS has not even completed half of its five-year Business Transformation Plan 2 (BTP2) that Jala initiated. The plan targets an annual profit of RM2b to RM3b by 2012. MASEU executive secretary Mustafar Maarof also questioned the frequent change of MAS’ CEO. There were three over the last 10 years.

Research houses were divided on the move. Some, such as OSK Research, ECM Libra, MIDF Investment and Credit Suisse, have issued an “underperform” or “sell” call on MAS. Credit Suisse considers Jala’s departure as a reinforcement of its negative view on the company;

MIDF Investment fears that a hastily appointed new CEO could hamper MAS’ return to stability and profitability; ECM Libra questions the ability of the current management team Jala left behind to guide MAS out of the woods, given the massive operating losses incurred in the first half of this year.

Jala was instrumental in turning around MAS from its worst ever loss in FY2005 to a record profit of RM851m two years later. However, economic conditions over the past year pushed MAS into another round of turbulence, evidenced by its performance in the last two quarters.

If not for derivative gains in the second quarter of 2009, the national carrier’s bottom line could have been more than half-a-billion ringgit in the red in 1H09.

MAS – Quarterly Performance

Source: MAS website

MAS – Net Profit before Derivative Gains

The ball is now at the feet of newly appointed MD/CEO Tengku Dato' Azmil Zahruddin bin Raja Abdul Aziz to prove the critics wrong, and that he can take MAS out of the turbulence in a matter of time.

Having joined MAS in August 2005 after running Penerbangan Malaysia Bhd as MD/CEO for more than one year, the 39-year-old chartered accountant partnered in Jala’s restructuring program for MAS. Now, he certainly needs a good caliber second man as Jala had enjoyed before.

As for Jala, will he be able to achieve his own KPI in his new position as a minister without portfolio in the Prime Minister’s Department, and chief executive of Performance Management and Delivery Unit? This is not so much a question of whether he is capable or otherwise. It is more a matter of having to deal with politicians instead of corporate men.

One also wonders why he does not report directly to the Prime Minister or his deputy, but rather, to another minister in the PM’s Department who also has a KPI to deliver.

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Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.

Republished with permission. This article was published in the Just Say It column in Shares Investment (Malaysia edition) September 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.

OVERNIGHT GAP SELECTION Part 2: Trading Article by Daryl Guppy

Continued from Part 1...

Alternatively we use the JustData snapshot service. We take the first available snapshot of market data at 11.30. This downloads all open, high, low and close prices to that point in time. From this data we can assess the difference between the high of yesterday and the open of today. We then run the Metastock gap exploration scan shown at the bottom of these notes. The filtered list is printed and the charts created with GTE. Speed is not important, but nor do we want to take too long to make this initial assessment. Of the 53 stocks in this example, only 8 meet our conditions.

The next filter is volume on the previous day in particularly, and over the previous week in general. We are planning to trade crowd enthusiasm, so we expect to see some evidence of this on the day prior to the gap. The appropriate volume depends on our trading objectives. If we want to trade $5,000 position size then we accept a lower volume than if we want to trade a $20,000 position. We need some evidence that there is sufficient volume to support our planned trading size.



If this is supported by trading volumes during the week then it is an added advantage – a double tick. This is not a critical factor. Many of the best gap trades happen when volume floods the market. The previous week, or weeks of trading activity may be very low. The stampede changes that. This is why volume on the day prior to the gap open is more important than volume in the previous week.

In the next column I include the bar pattern. An excited crowd will close prices near the high on the day prior to the day. This is the most bullish pattern. A close above the open is the next most bullish. A close equal with the open is acceptable, but it must be supported by other bullish factors, including a very strong Guppy MMA relationship. A close lower than the open is the least effective chart pattern. This a crowd that lost enthusiasm and this makes it unsuitable for our strategy based on continued enthusiasms.

The final note in this first selection process is the trend pattern. This combines both Guppy MMA analysis and recent trend direction. The best pattern is a straight edge trend line pointing upwards. The next most bullish is a rising trend that has shown a small retracement. The current gap open signals a resumption of the up trend. This may be extended to include a retracement followed by a sideways move and then a rebound from the consolidation pattern.

The least attractive opportunity is created by a breakout from a downtrend. Instead of a gap trade, this becomes a breakout trade using gap strategies. The danger in this type of trade is that the rally may collapse when it hits a resistance level. There is a higher probability of a rally being overwhelmed by sellers. There is less probability if this is a trade that takes place in an established up trend. The desperate need to sell to cut losses or lock in small profits on the first breakout has usually disappeared.



We want crowd enthusiasm and trend strength.

The eight candidates are reduced to six, although we have included PCE in this example. Normally we would eliminate PCE because it is a rally breakout in a strong trend. It has a low probability of success.

We are left with three final filters. We shift from the chart to the live depth of market order lines. The first uses the current order line to determine the volume of trading activity. The best relationship has three characteristics.

a) More buyers than sellers.

b) good trading volume on the buying side. We want to be able to place our order.

c) A reasonable spread between the bid and the ask. If it is too wide we either have to wait for prices to pull back, or pay more than we should to get hold of stock.

PEM and BRY meet all these conditions. The spread with PCE is too large. The buyer wants to pay $0.24 but the nearest seller is asking for $0.345. This spread eats away at the potential profits in this strategy, so we ignore it.

ABK has very low trading volume. Our order would dominate the market. SSI has more buyers than sellers, but the order line has low volume.

We are looking at this screen up to forty minutes after the open of trade. Our strategy is based on continued crowd enthusiasm so this should show up in two ways. The first is a continued increase in prices, or at least, not a slip back to the level of the previous day’s high. Secondly, there should be lots of activity in the stock. We want a large enthusiastic crowd fighting amongst themselves to get hold of stock.

This is the penultimate filter. Those candidates with active trading go to the top of the list. RBT which met the order line conditions, fails this activity test. Forty minutes after the open, only a few trades have been completed. There is no crowd here.

The final filter is price. Our preference is to select the opportunity with the best price leverage. A $0.10 stock is preferred to a $0.50 stock, or a $1.00 stock, all other factors being equal. Lower prices mean there is more opportunity for a substantial price rise today, and tomorrow. It increases the percentage return from the trade.

From this list we select PEM because we believe it has a stronger chart pattern than BRY.

To read more articles and commentaries from Daryl Guppy, click HERE

***

Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

OVERNIGHT GAP SELECTION I : Trading Article by Daryl Guppy

The strategy for this trade was discussed last week. The objective is to capture the momentum of an excited crowd and trade its continuation overnight and into the next day. The strategy recognizes that it is unlikely that we will identify a gap trade before it happens. It is also unlikely that we will be able to buy stock at the opening gap price. Instead the trader waits for gap confirmation, then buys the stock. The intention is to sell on the next day. We expect other traders to be attracted to this gap trade when they see the gap on the end of day download. This includes traders who already own the stock, and traders who are searching for gap, or price volume breakouts.

The objective is to sell on the next day when we consider that the buying pressure is declining. Enthusiasm may carry prices higher next day but unless this is part of an extreme momentum trade, the most likely result is that prices will peak during the second day and then decline.



The strategy does not call for an exit at the top of the second day, although at times the exit may occur near this level. The strategy recognizes that it is more likely that we will capture prices as they fall back from the peak of the day. The potential returns range between 5% and 20% or more. Returns are lower when trading stocks, but higher when trading warrants and other derivatives. The objective is to take a low risk overnight trade and collect a quick profit.

For success the strategy requires access to live data and live trading screens. It also calls for good stop loss execution. This is best achieved using automatic electronic stop loss conditions and where necessary, contingent orders. The technology is available, and it helps make these strategies more successful.

SELECTION

Opportunity screening starts with the WebIress market heat screen. The scan does not start until 30 minutes after the open of trading. This gives time for every stock to have traded, and allows us to find all those stocks which have gapped on the open. These show up as bright green patches because the opening gap creates a higher percentage gain. The search compares the close of yesterday with the open of today. Not all of these candidates will meet our requirements of a gap between the high of yesterday and the open of today.



The gaps identified in this screen range from 1.53% to 50%. The MOL gap in this example is 35.88%. Our interest is in gaps greater than 3%. The screening process starts by eliminating stocks that do not meet our gap requirements. There is no easy way to do this. We start by making a full list of stocks that have gapped up. We immediately eliminate any below 3%.

Watch out for Part II...

To read more articles and commentaries from Daryl Guppy, click HERE

***

Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

Preparing for the worst - Robert Kiyosaki

Preparing for the Worst


by Robert Kiyosaki

"Is the crisis over?" is a question I am often asked. "Is the economy coming back?"
My reply is, "I don't think so. I would prepare for the worst."

Like most people, I wish for a better future for all of us. Life is better when people are working, happy, and spending money.

The stock market has been going up since March 9, 2009. Talk of "green shoots" fill the air. Yet, in spite of the more positive news, I continue to recommend that people prepare for the worst. The following are some of my reasons:

1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.

Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking... and I don't blame them. A global panic would be ugly and dangerous.

2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.

Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.

In the 1980s, our government's hot money stimulus was measured only in the millions of dollars. By the 1990s, the government had to ramp the stimulus voltage into the billions in order to get the frog to twitch. Today the frog has jumper cables with trillions in high-voltage hot money pouring through the lines.

While most us feel better when we have more high-voltage money in our hands, none of us feel good about higher taxes, increasing national debt, and rising inflation for the long term. Another old saying goes, "Sometimes the cure is worse than the disease." I say the government stimulus cure is killing us frogs.

3. Old frogs don't hop. Another reason I am cautious about the future is that the Western world has a growing number of old frogs. Between 1970 and 2000, the economy responded to bailouts and stimulus packages because the baby boomers of the world were entering their greatest earning years -- their purchasing power increased, and demand for homes, cars, refrigerators, computers, and TVs boosted the economy.

The stimulus plans seemed to work. But when a person turns 60, their spending habits change dramatically. They stop consuming and start conserving like a bear preparing for winter. The economy of the Western world is heading into winter. Hot wires and hot money will not get old frogs to hop. Old frogs will simply join the bears and stick that money in the bank as they prepare for the long, hard winter known as old age. The businesses that will do well in a winter economy are drug companies, hospitals, wheelchair manufacturers, and mortuaries.

4. The dying frog economy will lead us to the biggest Ponzi schemes of all: Social Security and Medicare. If we think this subprime financial crisis is big, it's my opinion that this crisis will be dwarfed by the crisis brewing in Social Security and Medicare...Medicare being the biggest crisis of all. As old frogs head for the big lily pad in the sky, they will demand young frogs spend even more in tax dollars just to keep old frogs from croaking.

5. The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.

The reason the 401(k) has this law related to mandatory withdrawals is because the Federal government wants to collect the taxes that they deferred when the worker's money went into the plan. In other words, the taxman wants their pound of flesh. Since they allowed the worker to invest without paying taxes, the government wants their tax dollars when the employee retires. That is why the laws require older workers to sell their shares ¬-- and pay their pound of flesh.

Demographics show that we are entering a battle between young and old. I call it the "Age War." The young want to hang onto their money to grow their families, businesses, and wealth. The old want the tax and investment dollars of the young to sustain their old age.

This war is not coming...it is upon us now. This is one of many reasons why I remain cautious and say, "The worst is yet to come."

HIGH INCOME – HIGH COST – ECONOMY? by Ameer Ali Mohamed

Malaysia aims to become a high income economy within the decade, lest she gets caught in the middle-income country trap. While the objective is noble, the policy makers should ensure that the population at large will not be burdened with the ills of a high-income economy.

Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak made this a key priority under his leadership, in order to make Malaysia a developed nation by 2020, a vision first mooted by the fourth Prime Minister, Tun Dr Mahathir Mohamad.

In his keynote address at the 2009 Invest Malaysia, Najib highlighted efforts to formulate a new economic model that will be based on innovation, creativity and high value. It involves shifting the country’s reliance from a manufacturing base dependent on semi-skilled and low-cost labour to one that centres on high technology and a modern services sector dependent on skilled and highly paid workers.

Certainly when salary scale in Malaysia is raised close to international levels, we will be able to overcome the brain drain issue including attracting Malaysians currently working overseas and contributing to the economic development of other countries.

The main obstacle in such an endeavour would be above-average inflation. Often whenever a salary scale structure is elevated, it is followed by inflationary pressure, like it or not. It did not matter if the upward tweaking was due to rising productivity or worse, adjustments arising from historical inflation.



One may recall in the early 1980s, the starting monthly pay of fresh graduates in the public sector was about RM800 to RM1,000. The price of a new 1.2 litre car then was only about RM10,000. Ten years later, the starting pay for fresh graduates was from RM1,200 to RM1,400 while a new 1.3 litre car would cost RM28,000. Today, fresh graduates get around RM2,200 to RM2,500 per month while a new 1.3 litre car is priced around RM36,000.

Of course, thanks to technological advancements, the cars are far better today, but does that mean we must start comparing them with current 1.0 litre cars or five-year-old 1.3 litre second-hand cars?

Let us now compare the price of a plate of fried rice – RM1.50 in the early 1980s, RM2.50 in the early 1990s and RM4.00 to RM5.00 currently. What about prices or rental rates for basic houses or apartments, or perhaps rental for a room?

Based on official figures on annual inflation from 1980 to 2008 that peaked to 9.7% in 1981 and dipped to the lowest level of 0.3% in 1985, one needs to have RM237 in 2008 to have the same purchasing power of a RM100 note in 1980 on the assumption that his spending pattern is equivalent to the composition of the CPI basket. In other words, a RM100 in 1980 is only equivalent to RM42.13 in 2008 in terms of purchasing power.

Chart 1: Inflation and its impact on the money value


Hence, despite the increase in starting salaries over the last 30 years, the purchasing power has indeed remained at the same levels. Nonetheless, what has happened in the right way is that more jobs and business opportunities were created and more people had the opportunity either to work or do their own businesses.

Two other important issues to consider while we move towards the high-income economy is its impact on the country’s tourism industry, which in turn will also affect its supporting industries, and the trade balance.

Without doubt, one of the attractions of external tourists is the better priced goods and services in Malaysia. A reasonable hotel rate in Singapore may cost SGD250 (or RM600) per night but one will be able to get an equivalent room at half price in Kuala Lumpur. A plate of “lontong” for breakfast in Singapore would cost SGD2.50 (RM6.00) but only RM2.50 in Kuala Lumpur. And the list goes on.

In becoming a high-income economy, these may no longer be the reasons for international tourist arrivals. Our goods and services could become as expensive as in other developed nations due to two major reasons – inflationary pressure that is greater than the already developed countries and strengthening of the local currency. If these factors are not handled, international tourists must be given different reasons to visit Malaysia.

Managing the overall balance may be another issue. From the trade balance perspective, imports of final goods and services for local consumption may increase as (i) they become cheaper in local currency terms and (ii) Malaysians are paid better and therefore can afford them. We must also address productivity growth to at least grow in tandem with the salary increases. Otherwise, our products and services may become less competitive in the global markets.

Secondly, more and more Malaysians could afford to travel overseas for their vacation. While this may affect local tourism, the main issue is the rising outflow of our currencies to finance the rising outflow of Malaysian tourists.

While the efforts to transform Malaysia into a high-income economy should be supported by all citizens at all levels, policy makers and key participants in the economy should ensure that our beloved country will not be subjected to the high-income country trap.

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Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.

Republished with permission. This article was published in the Just Say It column in Shares Investment (Malaysia edition) August 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.