get prepared and make money. I followed the trend as it crossed Asia and traveled to Europe. I saw momentum grow as the selling moved from con- tinent to continent, and I was able to join the sellers and ride my way to some really nice returns. Asia led the way and I simply followed the trend that started in the Land of the Rising Sun.
I live in Mobile, Alabama, near the Gulf of Mexico. Our area is blessed with some of the most beautiful white sandy beaches in the world. (If you doubt it, just come and see for yourself.) Along the coast of Florida near Pensacola, the warm Gulf waters are crystal clear and brilliantly blue; the sand could not be whiter. However, sometimes a dangerous undertow is lurking beneath the idyllic surface. Swimmers who are unaware of the dan- ger are easily taken by surprise and yanked out to sea. Sadly, a number of visitors drown each season because tourists do not take precautions, heed warnings, and exercise good water-safety practices. Those unaware of the danger are at risk. With a little care, preparation, and education, most of those tragedies could be prevented. As a general rule, people who respect the power of the ocean and know how to protect themselves are able to enjoy the beach and return home safely.
That is also true for the financial markets. Traders who prepare them- selves have a better chance of survival. Looking at Asia and gaining as much information as possible from Eastern action helps me get better prepared.
When faced with economic reports and financial data, traders on both sides of the Pacific tend to react in the same way. If news is good there will be jubilation and buying, and if it is terrible there will be dread and selling.
Therefore, Western traders can learn a great deal by paying a little attention to Asian traders who are plying their trade on the other side of the world.
Athletes involved in sporting events try to get a competitive edge. If a shoe material or shoe design is believed to help athletes gain a miniscule amount of speed, everyone who is a serious competitor wants it. In bike racing, if a bike made with a better tire design or a lighter material can add a second or two to your speed, that product is the product of choice for all serious racers. Tiny changes in equipment or execution can make the difference between winning or losing the race.
Trading is no different. It is a highly competitive occupation, and seri- ous traders want every trading edge that they can get. Over the years I have met a number of people who have questioned my use of the 24-hour clock and my obsession with checking closing prices on the Hang Seng and the GET A COMPETITIVE EDGE
Nikkei every morning. The skeptics see little to no connection between trading on the Asian exchanges and prices on the Dow Jones or the S&P 500. Obviously, there are many connections. However, I must agree that just because the Nikkei closed up does not necessarily mean that the Dow will also move up during its session. If that were true, it would be great. We could just look at Asia and buy or sell accordingly.
Nevertheless, having knowledge of Asian activity is important. Price movements on the Hang Seng and the Nikkei reflect the views of millions of traders. Therefore, by looking eastward before you begin your day, you can gain a bit of information about global opinion. If a worldwide trend is afoot, you have a chance to see it early and join the party. Personally, I want every edge and bit of help that I can get. I know that watching Asia—
the Nikkei in Tokyo and the Hang Seng in Hong Kong—gives me a trading advantage.
Trade Secret #4: The trading day begins in Asia.
REVIEW
Because the sun rises in the east and sets in the west, Asia is the first to welcome each new day. For practical purposes, as the world turns, some geographical site on the globe must be the point or demarcation where one day is separated from the next consecutive day. That point is the International Dateline, or the imaginary line that separates the world into the Eastern and Western Hemispheres. That means that Asians are also the first to express their sentiment regarding the world’s global markets.
Asia is vast and diverse. Across the continent there are a number of developed economies and a number of others that are undeveloped or underdeveloped. Parts of Southwest Asia are currently experiencing armed conflict, while in East Asia, North Korea’s focus on atomic weapons is caus- ing a great deal of concern for the world. In the midst of so much unrest, China, Japan, and Singapore are three of the most economically developed and politically stable nations.
A number of nations on the Asian continent are growing economically, and many of them have thriving financial centers and active financial mar- kets. For my trading purposes, I watch the price action in Japan and Hong
Kong. Specifically, I note the buying and selling on the Nikkei, a stock index located in Tokyo, and I check the Hang Seng, an index situated in Hong Kong. I believe that market sentiment in Asia will be reflected on these indexes. When I begin trading, I want to know if these two financial centers agree as to the direction of a market move. Are equity prices mov- ing up or down in unison in both areas? How did these two indexes close?
Were they up or down, and by what percentage? The bigger the Asian mar- ket move, the stronger is the indication that a global trend may be afoot. If a trend appears to be emerging, I look westward to Europe to see if the move continues as markets open for business there.
Trading is a competitive field. Individuals who ply their craft in the financial markets of the world are some of the most intelligent and most well-informed businesspeople around. When you execute a trade, you are going head-to-head with them. You should take advantage of every oppor- tunity to get a trading edge. Because of that, before I buy or sell my first equity or futures contract, I get informed about the market action across the Pacific. Sometimes I see no movement of note and the information I gain is not very valuable. But, there are other days when Asia gives me a heads-up. I have an initial idea of market direction. Then, if that first hunch is confirmed, I am better able to make money and consistently stay on the right side of the action. Being aware of Asian trading patterns helps me be a more consistent trader.
M A R K E T I N S I G H T M A R K E T I N S I G H T
The trading day begins in Asia. If any major economic or financial move- ment is afoot, that movement will be expressed in the financial markets of the East. Specifically, before trading, check the closing prices on the Nikkei and the Hang Seng. If there is a 1 percent or greater change in the index, that movement may hint of a global trend in the making.
C H A P T E R 5