Not many indicators get less respect than the diminutive simple moving average (SMA). Though there are a multitude of useful applications for the SMA, most traders opt for more complex indicators in their trading methodology. To my way of thinking, this is a mistake. There are very few charts I use that don’t have some variation of the SMA included on them.
In this new (brief) video, I show you how this market is setting itself up for a large move to the upside. I’ll also point out that I don’t think this is going to happen tomorrow. The video is about two minutes long and I think it will give you a great insight into the past and future of the gold market.
Click here to see where I think gold is headed. Up? Down?
As always, our videos are free to watch and there are no registration requirements.
With the advent of online trading it was inevitable that the home trader would be introduced to both automated trading and trading software programs. Automated trading is the reasonably recent development and in an earlier article I wrote about my experience with trading automation, and stated I wasn’t favorably disposed to turning over my trading operation to my computer. On the other hand, trading software programs are a different issue; they generally generate buy and sell signals which the trader may or may not use to initiate a trade.
From the onset, I have to admit it is difficult to evaluate trading software programs because of the range of programs on the market. I have use several trading software programs myself and found that some works quite well and others did not perform as they were advertised. In other words, there were some very good ones and some really bad ones.
The obvious problem with trading software is the variety of market conditions under which they must perform. Most trading software works well in trending markets, but I would argue that most traders perform well in a trending market. Of course, consolidating and range bound markets are a different matter, and most of the programs I’ve used underachieve in these conditions. By the same token, most traders underachieve in choppy sideways markets. In my trading methodology, I use a strict definition for market noise and avoid trading in market noise. Granted, there are some traders who do well trading noise, but I am not one of them and the programs I use don’t do well either.
As a trader, do you really need a trading software program?
It’s my opinion that your money would be better spent on a trading course or a mentoring program than trading software. I think learning to trade is a far more valuable asset than any computer program. I understand some people like a confirmation of their buy/sell signals, but I think this is more of a confidence issue than a trading issue. Which is not to say that traders who use trading software don’t have the skills to trade, most do. What I mean to say is that some traders like the reassurance of a buy/sell signal generated to confirm their trade. I don’t suppose there’s anything wrong with that.
To be sure, several programs I used were very accurate and then asset to my trading arsenal. I don’t use them every day, but from time to time I use a trading program. The real problem with trading programs is finding a program that is of high quality and performs well. For example, a week or so ago I received an e-mail from a trading software vendor that claimed a 90% record of accuracy in trading. This is a fairly bold claim and since trading is a function of probability, I suspect that perhaps this is an inflated claim. I don’t know of any trade setups that have a 90% success rate. I would shy away from a program with exaggerated claims of success.
Even the best programs require some judgment calls on the part of the trader. And I suppose that is the beauty of trading software over automated trading; the trader can decide whether or not the buy/sell signal is a good one and trade accordingly. In other words, a trader isn’t locked into a trade through automation.
In summary, I don’t think high quality trading software is a bad thing, and in some situations it could be a asset to any traders methodology. In considering a software program I certainly would recommend researching the history and effectiveness of the program in depth before I made the sizable investment most trading software requires. Once you decide on a program, I would trade with it with the idea that changing market conditions will expose some inherent weakness in every program and trade accordingly. Even with trading software, a trader must make some judgment calls as to the validity of the buy sell indication.
Many new traders, or novice traders, may have little choice in what computer to use for trading purposes. Quite simply, they are forced to trade on whatever computer is available to them. But once you establish yourself as a successful trader, you begin to have the ability to choose the equipment that best suits your needs as a trader. I am a stickler for quality computer equipment because my computer is the catalyst that facilitates the way I make my living. I depend on my computer.
It has been a while since we looked at the dollar index, so today we decided to dissect this market and look at it step-by-step.
Is there is one area that is ignored more than placing orders I don’t know what it would be. The average trader spots a trade and innocently places a marker order. I have placed very few market orders in my entire career.
Why?
When I see a set up that I feel will result in a profitable trade I set a buy or sell order several ticks above or below ( depending on whether I am going long or short) above or below my target entry price and let the market come to me. Granted, I may miss a trader to using this strategy. But I generally add several ticks to my profit by not diving into the market and buying wherever the broker to get me in. I want to buy at a certain price to ensure that my trade is profitable. If you think about this carefully, over the course of five or six trades this will lead three or four points to your bottom line. That fact alone makes this strategy important to implement. On the other hand, many traders are not aware of the range of orders that can be utilized. Here are some of the common orders:
Market Order
This is the most common type of the commodity futures orders used on the exchanges. When you place a marker order you instruct your broker to enter a trade at the best price he can get. One advantage of a market order is that it has priority over some of the orders we will discuss below. In any event, a marker order is always filled at the bid or ask price. Of course, I feel there are some disadvantages to market orders which make them less than advantageous to use. For example, in a fast-moving market you have little control over the price at which you will be filled. I do not like to guess at the price at which I am going to be buying. Just the same, market orders are far and away the most popular order use on the futures exchanges.
Limit Order
If you’re planning to buy or sell a commodity futures contract at a better price than is available in the market at the time you would use a limit order. There is always the possibility that the price may not reach your limit order and you will not be filled, which is a risk you run with limit orders.
Let’s say for example, you want to go long the ES contract and the price is 1000, you may place a limit order at 990 and wait for the price to be filled at your limit order price. As a matter of course, a limit order can be either a day order or an open order.
Day Order
This type of order is a commodity futures contract order and will only be entered if it is filled by the close of business on that specific trading day unless a traders specifically asks for in order to be open, it will be treated as a day order
Open Order
This order will remain active until such time as it is filled or cancel the contract expires. Another term used to describe this contract is ‘good till canceled’ or GTC.
As a trader remember to keep track of your entering open orders, as they can accumulate and then you can receive a shock when suddenly a member of orders have been filled and you have gone beyond your margin position.
Bearing in mind the following points about a limit order; limit orders work well for you as a commodities trader if your strategy sets out what you will trade, where you trade, when you plan to enter and we’re going to exit for a profit.
There is no guarantee that orders can be executed and placed because the price may never touch the selected limited price.
Even if the market touches that price, there may be a large number of orders to be filled before your order.
When your order is eventually fill the price may be different to the point you have chosen as an entry point.
Stop Order
Commodity trading markets can be very volatile and one way to limit potential losses is to place a stop order or a stop loss.
While some commodity traders believe in using a mental stop loss trading strategy, most traders will use a real stop order as part of their trading protection mechanism. My personal belief is to always have stop orders in place when I enter a trade. Mental stop orders are illusory and a very poor trading strategy.
For the sake of clarity I have included several market orders that I do not use in this explanation orders. Stop orders and limit orders are the bread-and-butter of my trading style. I have no use for open orders, good till canceled orders, or day orders. As a scalper and active trader I am interested in entering trades at the best possible prices and protecting myself against adverse moves that are unanticipated. As a trader, it is virtually impossible to anticipate unusual events involving politics or natural disasters which can move the market at an accelerated rate. Stop orders are the only way to protect yourself against these types of unusual events.
As I have said earlier in this chapter, I generally avoid entering the market via a market order. Once I spot a potential trade set up I generally set a buy or sell two or three takes above or below ( depending whether I am considering going long or short) my potential entry point. I repeat, I want the market to move to me when I enter a trade, I do not want to chase the market price in order to get into a trade.
So we’ve had a chance to look at several different market orders and excluded several others as useless for our trading style. We have agreed that stop orders and limit orders are essential for our trading and I have explained I seldom enter a trade without a stop order in place. Further, I have discouraged traders from entering trades via market order and would encourage you to place limit orders and let the market come to you. I know these are small points in trading, but overall long period of time, they can add up to a significant number of points.
I was watching a newscast today and the reporter claimed that 90% of all people who embark on a career of futures trading lose all their money within three months. The story went on to sensationalize these traders plights by claiming that the hapless trader spent the families savings and mortgagedThat the house in pursuit of his dream of being a day trader.
And believe it or not, these stories are true. I wish they weren’t, but I see it on a fairly regular basis. Yet, I don’t understand it.
Many traders purchase a book or two on day trading and establish a demo account and trade for a few weeks and decide they’re ready to trade a live account. The results of this type of trading preparation are fairly predictable. These traders never had a chance because they were poorly prepared to trade and hadn’t spent the time and effort to understand how markets function and how trades are set up.
You would think common sense would be a great asset in trading, but nothing could be farther from the truth. Common sense will serve you very poorly in trading futures contracts. For reasons not fully understood, market sense is far different than common sense. I can’t tell you how many times I’ve seen government issued a report that ought to send the market skyrocketing. Yet, the market reacts very poorly to this good news and ends up tanking. The point is a simple one; there are many variables that go into stock market and futures contract pricing, and to focus on one piece of news is to miss the point.
Even more disappointing is the fact that had this trader taken the time to learn how to trade in a proper fashion he or she would probably still be trading profitably. I have a very good friend who is a very intelligent fellow. He has an MBA from an Ivy League school in business management. Like many people, he decided that he was sick of the corporate rat race and decided to become a full-time futures trader. But his education betrayed him. He’d been trained to look at past trends and historical data and make decisions based upon this information. Unfortunately, the market doesn’t look backwards; it looks forward. And that’s the hardest thing to teach people, that the market is constantly trying to price equities six months to a year in the future.
To make things worse, it’s not unusual for traders to become desperate as they begin to deeply their trading accounts and abandon the limited trading technique they learn; and problems compound and beget more problems until they no longer have a problem, they’re broke and out of the business.
It’s not necessary, and proper training will keep you in the market as long as you maintain proper trading technique and exceptional self-discipline. But the question is this:
Why do rational traders sometimes act irrationally?
One of the toughest facts to accept as a trader is that you are going to lose on some of your trades. Probability makes it infinitely clear that there is no trader who can trade with 100% accuracy. Quite simply, you’re going to lose a certain percent of trades and there is nothing you can do about it. No trading system can assure you of 100% accuracy, I don’t even know of a trading system that consistently trades with 70% accuracy. Now let me qualify that, you will see ads in the trade journals that trumpet the fact that they are trading at an 80% profit rate. Don’t believe it.If a trader that assist them performing at 80% efficiency he most certainly would not be advertising it for sale.
The point is a simple one, and has been my focus for the last couple weeks. I want to trained novice traders in a system that will help them succeed in the early parts of their trading career. I have worked diligently to set up a system that will accomplish just this goal. I will be posting links to the system in the coming weeks and I encourage you to take advantage of the system, as there is no better lifestyle than trading for a living, especially when you are trading profitably.
I must apologize for being gone for the last couple weeks, as I have decided to compile an easy to use and effective e mini trading course. I have put a tremendous amount of time and work into making this book both usable and profitable for anyone who uses it. I have included all of my basic techniques for trading, and will have a daily video and advanced trading section posted every evening. I felt that is important for readers to have a comprehensive set of tools to trade e mini indexes. I still have a few days left to complete the course, but it should be ready by next week.
This course will encompass the core principles I use; the CCI, the Stochastic, the Average True Range, and the NYSE tick. I show my subscribers how to integrate these indicators in a coherent trading style. I will have more information available as I approached completion. Of course, I will continue to blog on pertinent topics related to e mini trading.
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