Stock Trading Guru Shows AUCians the Fundamentals of Success, both for a Trader and the EGX, Post-Revolution

Although the EGX has been under severe pressure since the revolution, keynote speaker Mike Baghdady ’72, believes it and the Egyptian economy as a whole have tremendous room for growth as a developing market. He certainly has the credentials to speculate; he’s the award-winning former head technical trader for the New York Board Of Trade; the originator of ‘price behaviour trading’; was one of the few who advised clients to short-sell their stocks before the financial crisis of November 2007; and he now trains traders for major blue-chips through his successful company www.trainingtraders.com.

The workshop started a little later than planned, it seems even revolutions cannot change some things, but Baghdady had a packed lecture hall eager to learn.  He started by saying that as he hadn’t been back to his alma mater since 1985, with one of his brothers in the audience, and sharing the joy of the Egyptian revolution, this truly was a “cherished moment” for him.

He went on to give an overview of how to be a successful trader.  Starting with the basics i.e. how to decide what to buy or sell and when.  He emphasised that AUCians had a unique opportunity in Egypt as their education is on a par with the ivy league schools of the US, but that they should be wary of falling into the trap common in Egypt, the “reality gap”.  This is when the price of a stock behaves differently to expectation.  In fact bridging this reality gap was the key ingredient of being a successful trader, one has to be humble, change their way of thinking, know for a fact that they don’t know the answer, and accept the “reality of the moment”.

After a brief explanation of how fixed stock exchanges work, places of “organised madness” where your word is your bond, he described that in general a free stock market’s main benefit is that it allows short-term liquidity.  This is especially important for small investors, and these investors are needed as when in large enough numbers they can provide change in company fortunes that are not possible any other way.  This is much like the revolution, where hordes of individual protestors were able to collectively topple the regime.

Now, in order for a trader to vastly increase their odds of success, they should follow a set of rules, take emotion out of the equation, ensuring that they maximise profits and minimise losses.  Baghdady has developed a set of 21 rules.  All focus on the chart of price versus time.  This chart is the only relevant thing to a successful trader, what type of stock or commodity etc. it charts isn’t important.  Technical analysis of the chart forms the theory behind his trading rules.  The workshop’s scope only allowed us a glimpse of one of his rules, the “momentum high”.

Explaining that prices move in trends, and trends in motion stay in motion until an altering event. This leads the market price to be in one of three states: trend, consolidation or reversal.  To figure out when a price is in a trend one looked for momentum i.e. a near vertical move up in price.  This means that the “smart people” are buying the stock quietly.  One has to identify the “momentum high” i.e. the peak price expected during this momentum.  As higher prices follow on from this momentum, or in trader language, “momentum precedes price”, this is the time to buy.  And if the price falls slightly, in what traders call “the gift”, it’s merely a small breathing space for stock in its momentum, giving the chart its trademark jagged look.  Again, the successful trader knows that if after these “gifts” the price goes over the momentum high it’s again time to buy!

Like all the AUC Business School lectures aiming to rejuvenate the Egyptian economy post-revolution, this workshop was an excellent learning experience, and included too much information to include in this article.  Luckily for AUCians, Baghdady revealed that he is developing a 6 week trading crash-course, under the umbrella of the Business School,  exclusively for AUCians.  He even suggested the AUC start its own fund, and he and his team would be happy to act as technical advisers.  Another thing I learnt today was that unlike analysts, who just want to be proved right, traders are only interested in making money, money talks, so I’d take him up on his offer; or at least join his crash course, it’s bound to fill up quickly.

In closing I got the chance to ask Baghdady what was needed to move the EGX and Egypt into a higher league? Without hesitation he said, “Egypt needs to open up the EGX, create a true free market and allow small investors to participate.  Egypt needs to create millions of jobs, this requires massive capital investment and creativity.  This is the only way to help Egypt.  We can take ideas from abroad and improve on them, but we don’t need to re-invent the wheel.  Dubai did it with free-zones, expatriate investment and the free market.  We just need to emulate success.”

The best ideas are always that clear-cut.  Emulate success.