Posts by trader7757

Some Random Thoughts for Week Starting August 9, 2010

By , 8 August, 2010, No Comment

We ought to have an interesting week as the market continues to worry about the economy, despite robust earnings from a number of major corporations. Walt Disney, Cisco, and J. C. Penney will all be reporting earnings this week.

Of course, the real center of attention will be on the Fed meeting this week. Investors will be paying close attention to what the Fed has to say, which is amusing to me because they have been saying the exact same thing for quite some time now and are not expected to change the tenor of their ongoing advice. Just the same, countless investors will be glued to their television sets as the usual suspects spew nearly identical blather of Fed Speak for the masses to decipher for some hidden meaning.

In short, you can count on the interest rates remaining the same, with the chairman explaining he expects rates to stay the same until the end of the year. The Fed will be also engaging in quantitative easing, which has become the Fed Speak term for the past year. Translated, it means they want more money in the economy so people will buy stuff and banks will make loans. Unfortunately, banks have been reluctant to participate in the quantitative easing program as they are more concerned with profit margins than ever.

The futures markets have been interesting of late, and there has been interesting moves nearly every day of the past week. I have to admit that predicting the market moves as become a nearly impossible task as traders seem skittish and prone to react to the smallest of reports or rumors. All in all, it makes for some very interesting trading, though you need to be careful not to over commit to any position.

Hewlett-Packard ought to dominate the news tomorrow as their recently departed CEO resigned over several allegations, including a little hanky-panky he is one should not have been involved in. There have been a number of articles on the business pages outlining which direction Hewlett-Packard will take in the coming years regarding its business model. Most of this blather is just that, blather.

Of course, there has been plenty of talk about the employment reports, or more aptly, the unemployment reports. Corporations have been unwilling to add personnel as they fret over the future of the US economy and consumer spending. Most economists don’t expect the employment picture to improve in the near term. This leaves the Fed in a bit of quandary, as it is necessary for employment to improve in the economy move out of near recession levels.

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Day Trading the ES E-mini and Defining the Trend

By , 15 July, 2010, No Comment

The term “trend” is bandied about with fierce regularity among traders of all types. Long-term traders look at trends in a far different perspective than short-term e-mini day trading. Which leaves most traders, especially novice day traders, in a quandary. In general, a market trend is the tendency of the market to move in one direction for a period of time. I think that’s where most e-mini day trading become confused, as the “period of time” is a variable of many dimensions.

ltra-long term market trends can be measured in periods of 5 to 20 years. On the other hand, a day trader may look at a trend in terms of hours. With all this diversity in the period of time it takes to establish a trend it is often difficult to specifically define what qualifies as a trend.

Before we go much further, I think it is important to understand that in the academic world there is no trend. The current theory being taught, Efficient Market Theory, claims that equity pricing always discounts all known factors into the current price of the equity in question. That being said, there is no room for the term trend in efficient market theory because each price properly equates the value of an equity any given time. To take this to the point of ridiculousness, Efficient Market Theory would have to accept the notion that a given equity increases in price and value, at least intrinsic value, from minute to minute. Of course, recent financial calamities in the markets have led to no small amount of skepticism among traders and Efficient Market Theory. I would also note that traders, as a whole, have never embraced Efficient Market Theory.

For intraday trading, which is really no more than trading during a daily trading session, we need to devise a workable definition to define the term trend. Depending on which book you care to read, most economists and financial authors claim that the market trends between 30 and 40% of the time. The remainder of the time the market is involved in normal backing and filling operations. I define these backing and filling operations as market noise and tend to avoid trading during these periods. Another more workable definition for non-trending markets, at least in the system I trade, is time the market spends wandering between the +100 and -100 lines on the Commodity Channel Index. While this definition may seem a little technical, it is fairly accurate. Hence, I seldom initiate trades when the market price action is in the area between +100 and -100.

Another handy definition can be found using the NYSE tick indicator. I use a similar methodology with the NYSE tick indicator, and consider any market movement between +400 and -400 market noise. Just like that Commodity Channel Index, I see to avoid making any trades during these periods of market noise, or normal backing and filling operation of the market.

There is some misconception about what a trend looks like on a chart. Many new traders expect a trend to be a straight line up for down (depending on whether he you are considering long or short trades). But any trend will go through periods of retracement in the course of a normal trend. Often times, Fibonacci analysis is used to calculate the strength of the retracement, though it is not necessarily imperative. My point here is a simple one; the market will advance for a period of time, and then retrace its advancement for while, sometimes up to 50% or more of the initial advance, then resume trading in the direction of the original trend. The resulting price action line on the chart resembles a serpentine pattern in definite direction. Trends seldom move in an absolute straight line, though euphoric buying and panic selling can create a spike that moves straight up or down. In my opinion, spikes in the market cannot be defined as trends as they are usually the result of some unusual market activity, world catastrophe or political unrest.

So we have come up with some finite definitions to define market noise and trend. A trend will move in one direction in a serpentine pattern, while backing and filling operations usually indicate a consolidating pattern in the market where the price action tends to stay in a narrowly defined channel. We also have noted that trends can mean a variety of things to different traders or investors, and the term “time period” is essential to understand as it relates to trends. Trends can be as long as 25 years and as short as an hour. The term trend is closely related in definition to the style of trading each trader employs.

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More on the Financial Crisis: If you want to Understand what is going on, read this.

By , 12 July, 2010, 3 Comments

In effect, it’s a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

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The Current Debt Crisis: How Did It Happen

By , 9 July, 2010, No Comment

I usually don’t write articles about current events, but this particular article is about a current event that has its origins nearly 30 years ago. The tremendous debt load that most countries are currently burdened with are not something that has its origins in the last decade. This fact may surprise people, as national debt has only been coming to the forefront since the most recent credit crisis. But a careful analysis, and an honest analysis, will show that this unprecedented borrowing spree has been going on for more than 30 years and we are now only beginning to reap the consequences of a poorly managed economy.

I think it’s important to understand that I have no blame to place on any individual, as most borrowing has been approved by Congress and whatever President was currently in charge. To be frank, there is enough blame to go around and both parties have been equally complacent in failing to halt our runaway debt problem. So there will be no politics in this discussion, just simple facts that are well documented and may help readers understand the cause and current effects of our credit situation.

From the onset, I would not predict we are doomed to failure. We are, and always have been, a resilient country with vast human and natural resources. The United States has also shown a remarkable ability to adapt to a variety of conditions which have on several occasions threatened the bedrock of our democracy. So I think it’s important to understand that there are remedies to our current situation and I believe we will implement the proper laws and regulation to bring our country into a more manageable debt situation.

Many individuals believe that our recent budget deficits are a product of the last two or three administrations, but the fact of the matter is surprising; our major budget deficits began under Pres. Reagan and at the time, it created a massive stir. In England, Margaret Thatcher was in the process of drastically reducing public spending, and in the United States the Congress and Pres. Reagan were amassing massive debt, primarily spending money in the defense sector. Economists at the time were sharply divided in this approach, as the freshwater economic sector favored increased borrowing and spending, and the salt water economic sector felt strongly that an increasing debt load would be detrimental to our country. In the end, Reagan’s budget director, David Stockman, resigned in protest when the Republican Party would not bring deficits under control.

Of course, Congress and a variety of presidential administrations have continued to exacerbate our burgeoning debt load. The problems we are experiencing, are simple; we have too much debt, and lack the resources (at the present time) to service our debt levels. This phenomena is occurring at both the national and state levels. Many states are currently underfunding or borrowing from vested civil service pension funds to cover the shortfalls in our current system. The unfortunate fact is that you can’t make debt go away. On the other hand, many citizens are loathe to sacrifice the government provided services on which they depend. So our debt has continued to grow at an alarming rate.

In the last two years, our country has attempted to remediate the effect of a very deep depression by infusing economy with 8 trillion, or more, depending on which numbers you care to quote and hastened the level increase in our debt.

While there are no specific individuals to pin the blame for this crisis upon, the burgeoning debt load our country has accumulated will be an Achilles’ heel for many years to come. I think it is important to know that our current crisis is not the result of any single action, though Wall Street in recent years did help exacerbate an already tenuous position, but our problems have been accumulating for an extended period of time. Of course, from a political standpoint both parties are happy pointing the fingers at each other for this mess, history will show that both parties showed equal levels of incompetence in dealing with the United States budgetary concerns. The facts show unequivocally that our borrowing has increased exponentially in the last years and shows no sign of abating, despite the rhetoric and politicians and political pundits espouse. The truth is a simple one; this particular budget crisis is the work of Congress and presidents who targeted programs for funding that were beyond their means we had to pay for them.

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Three Core Attributes of a Quality Day Trading System

By , 1 July, 2010, No Comment

There are a staggering number of day trading systems on the market today, and they range from fully automatic systems to exotic systems based upon astrology. The day trading systems which lie between these two extremes are the ones of interest to the average trader. For a novice trader, choosing a system is complex and difficult because it is tenuous to ascertain which system will actually work in which system is nearly hype. Most good systems, though, are comprised of some time-tested core components that differentiate them from the less than effective systems.

Throughout my career as an institutional trader I have learn to day trade several different systems that are effective and profitable. These time-tested systems usually contain three important characteristics which are worth noting. All contain some emphasis on price action or price movement. Nothing is more basic or essential to a system than what the price movement of the traded equity is doing, and the manner in which price is behaving. Price action analysis is among the oldest disciplines in trading systems, and its importance has not lessened over the years. As a matter of fact, there are systems based solely upon price action. Any discussion of price action methodology would require a discussion the size of a small book, as there are many interpretations of the relationship between price movement and the market prediction. Like all things in trading, some price action analysis is quite effective and other analysis is not as effective. It will take some investigation and research for the average trader to determine which price action methodology best suits the trading style he or she intends to employ.

A second characteristic of a good trading system is the utilization some form of indicator or oscillators. In a recent years, indicator and oscillator based systems have gained great popularity. Again, there are trading systems based solely upon oscillator indications. I caution against using systems employing only oscillators, as there are some inherent weaknesses in this methodology. Of utmost importance and evaluating oscillators is the tendency for them to be lagging indicators. Most oscillators receive information from a data feed and apply a specific mathematical formula or analysis to this data. Therefore, by definition, oscillators tend to lag the market and you may find yourself a step behind the action if you rely solely upon oscillator based trade selection. There are a number of oscillators that claim to be leading indicators, but their effectiveness as leading indicators is generally dubious, at best. On the other hand, it is possible to glean a tremendous amount of information from oscillator and indicator analysis and I do not mean to lessen or demean their importance. My point is a simple one, oscillators and indicators are generally lagging indicators and understanding this weakness is essential in employing their use in your trading system.

Finally, I think it is important to have information or a data feed coming directly from whatever underlying security is being traded. For example, I trade primarily the financial index e-mini futures, so I am particularly interested in raw data from the New York Stock Exchange. To accomplish this goal, I generally like to use the NYSE tick. This particular indicator compares advancing and declining issues on the New York Stock Exchange and gets no information or data from the futures exchanges. Using this raw data, I get a bird’s eye view of what is actually occurring on the exchange. I feel this is a distinct advantage in my trading, as the futures traders have not always reacted to the New York Stock Exchange price movement and I am therefore aware of the trends, or lack of trends, that occur in real-time. Oddly enough, when I have introduced this indicator to traders who have relied solely upon oscillators they are often amazed at the added depth of knowledge they acquire when comparing the NYSE tick and their familiar oscillator based indicators. For that reason alone, I believe it is important to employ data that does not come directly from the futures exchanges. Quite simply, data derived directly from the exchange of the underlying security will supply you with information you might not normally be accustomed to using.

As you can see, I like using trading systems that are multifaceted and give me a broad view of market movement. It is my opinion that trading systems that rely upon a single indicator often result in a skewed market viewpoint. Above all, when I day trade I want to develop the fullest understanding of the market movement possible, and I accomplish this by looking at the market from several points of view.

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Beginning Traders Can Learn to Day Trade Effectively

By , 28 June, 2010, 3 Comments

There is a general feeling among experienced day traders that beginning traders cannot trade profitably for several years. As a trading educator, however, I have found that properly trained beginning day traders can trade effectively from the start. However, the trader must be motivated and well versed in the material presented, and have the self discipline to adhere to the parameters of the trading system being taught. This is, of course, no small task. Just the same, the financial rewards far outweigh the time and effort expended to develop the skills necessary to trade.

In my program, The E-mini Trading Professor System, we have found that beginning day traders can be a profitable within several months of starting our system. It is important that the trader sticks with the rigid guidelines established for proper trade setups and maintain that discipline throughout the course of an average trading session.

Once a beginning trader learns to day trade only with the trend, which is one of the most important aspects of our trading system, trade selection becomes very far easier process than trying countertrend trading techniques. Learning to trade with the trend is no small feat, either. There are many countertrend trades that, at first glance, appear enticing and a sure bet to earn money. Unfortunately, countertrend trades are generally just retracements in a broader trend and must be avoided in order for the beginning trader to profit.

Much of what we teach in day trading centers around the psychological/emotional approach that is necessary to trade successfully. Many trading educators do not devote much time or effort in stressing the importance of psychological/emotional considerations. We consider these issues to be among the most important and toughest skills to master in the day trading process and devote several modules in the course that consider psychological/emotional considerations at length. If you can control your mind, you can control your day trading and make sound, rational decisions about selecting the proper trade set up.

While every day trader may not be ready at two months to trade profitably, many are. It’s important to understand that every beginning day trader assimilates information at a different rate and in a different manner. That being said, some traders are ready to trade earlier than others. On the other hand, I have not found a correlation between how soon a trader is ready to trade and the ultimate success they achieve. Simply said, some traders are ready to trade earlier than others, but once the trading methodology is assimilated there is no appreciable difference in the actual performance. I encourage beginning day traders to take their time and learn the information at a rate they are comfortable. This approach assures the proper retention of the information.

Bottom line; beginning traders can trade profitably sooner than it was once thought. I say this was one caveat though, the traders who have learned the information and practice the most on a demo account are the ones who enjoy the greatest success. Jumping into trading a live account with real money involved is not encouraged; on the contrary, it is far preferable to hone the beginning trader’s skills on a demo account so that they understand, in a real sense, the material presented in the course and can apply it.

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Day Trading: Are You Giving the Euro and Forex Your Attention

By , 26 June, 2010, No Comment

I am not a huge Forex trader, though I occasionally dabble with day trading Forex. With the problems Europe is having, which have greatly affected the euro and have taken on some added significance and are certainly worthy of keeping an eye on. While many people are loathe to admit it, the fate of the euro is directly related to the performance of the US dollar. So I have day traded some Forex lately, even and even more often day trade the futures currencies of several European countries, along with the euro.

The video today is an excellent overview of the euro and some of the effects it will have in the future on our economy. There is also discussion concerning the future of the European Union and how it will affect us here in the United States. While talking about the global economy is a very unpopular subject in some circles, there is no doubt that the global economy is a reality and we are a distinct part of the global economy. So, I hope you enjoy the video and glean some important information while watching.

Click here to watch the Forex video and the discussion of the euro

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Day Trading: Market Convergence and Divergence

By , 25 June, 2010, No Comment

Most of my day trading involves, either directly or indirectly, the principles of convergence and divergence. For day trading in the futures market, I am concerned primarily with converging indicators and agreement and oscillators. But there is a wide range applications for the principles of convergence and divergence. I thought this video from INO was very informative and will provide you with some valuable insight into the practical application of bearish and bullish convergence and divergence.

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