Peter Pham - The Big Trade: Simple Strategies for Maximum Market Returns

Contents

Copyright 2013 by John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd.

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This book is dedicated to all friends and loved ones as well as those who have provided me with support and challenged me to continuously improve, not only as a professional but as a person.

Acknowledgments

I would like to thank everyone who has an interest in the markets and trading, as you were the inspiration for me to codify my methods and share them with those who are interested in seeking an alternative trading strategy.

I would also like to thank the team at AlphaVN.com , who have risen to the challenge of building something of value from very humble beginnings.

Preface

Over four centuries ago, the invention of both the telescope and microscope brought new focus to a data measurement revolution. The ability to bring far away objects closer and make tiny objects bigger opened the world and sky up to new levels of observation. The science of optics fed our curiosity and ignited our imaginations.

Today our world is awash in data; we are swimming in it. We call this the Information Age but we could just as easily call it the Data Age . The art of statistics and the use of Big Data are leading to revolutions in fields as diverse as the physical sciences, sports, and economics. It doesnt matter if youre the general manager of a hockey club or a process engineer working for a solar cell manufacturer, data is your works lifeblood, and without accurate and precise data we would not have been able to make the kinds of strides we have. This use of data is spearheading a decision-making revolution that is changing the very foundations of our society.

Similar to how the use of optic lenses four centuries ago paved the way for the Age of Enlightenment, we are living through a leap forward in the types and quality of observations we can make about our world. No longer are we intuiting our decisions based on a mix of anecdotal evidence and supposition. We can make an observation, test its validity, and make decisions based on it. Data is at the heart of how we conduct business and how prices paid form markets for our goods.

Over the past decade Ive had the pleasure to stumble upon this big and small data phenomenon in my pursuit of understanding capital markets. What I have discovered is that data-driven discovery is fundamentally changing the way our lives work, and those who master its manipulation will have an inherent competitive advantage over their peers. This is especially true in the capital markets, where quantitative analysis mixed with the brute force of vast amounts of capital create a very hostile environment for the individual investor. It is my hope that this book will help level that playing field a little bit for you.

As I said, we live in a world steeped in data. Information comes screaming at us in waves and it is easy to be overwhelmed by it, become lost in it. Big Data can and often does overwhelm the smallest actor. But it doesnt have to.

The bigger they are, the harder they fall. One person with an idea and the will to implement it in this age of unprecedented access to high-quality information can disrupt things, and use it to their advantage. Previously, information itself was the barrier to entry into the markets. Today, the biggest worry for most established players is not innovating by producing new information but keeping information under their control and away from you. Think of the music industry or Apples patent litigation against Samsung and you have an idea of where were headed.

Take heart, because inside of each of us is our Big Idea . I believe that. Everyone has at least one, biding its time and waiting for you to believe in it. With time, attention, and the proper use of Big Data, we all have the means to see our Big Idea become real. Its simple, really, when you stop to think about it. It is a little thing in a big world, but it is the secret to finding and making The Big Trade .

Can you imagine what I would do if I could do all I can?

Sun Tzu

I dont know about you, but the day I decide to try my hand at something new, its all I can think about. Its like the smell of a new car. Were not really sure where it comes from or why it affects us; we only know that it does. Theres an excitement with any new endeavor. The possibilities seem endless. It is the allure of entrepreneurship, the conscious knowledge that we are taking a risk far outside of ourselves; a leap of faith into the world of potentialand that risk is intoxicating.

In our imagination, making money in the markets looks far easier than eking out a living at our boring day jobs. During the last phase of any bull market, that may actually be true for a lot of people, but sooner or later we must leave the world of imagination and enter the world of reality.

The reality is that valuations of the assets in any bull marketbe they stocks, gold, or tulipsbecome fictional with respect to their fundamentals, and the window of opportunity to recognize that the imaginary world can no longer be sustained is very short and requires swift action. shows the spectacular crash of Japans Nikkei 225 Index, which, if Id been paying attention, would have served as a harbinger of things to come.

Nikkei 225 Bubble

Source: Yahoo! Finance