I think one of the most important issues, especially of late, is the issue of transparency in financial reporting. Both the stock market and futures markets are highly transparent exchanges with well-documented recordkeeping and long-standing procedures in trading. There are well-established trading and clearing procedures in these two types of exchanges that have evolved over decades of trading and now function in nearly seamless fashion, despite the number of fiduciaries involved with each individual transaction. To be sure, the procedural methodology in stock trading and futures trading are well-established and well documented through legal precedent and published in a manner that each investor should have a firm understanding of the risks and procedures involved in these two investment classes.

But the question is a bit more complicated than simple standardized procedures, as some investments lend themselves to specific types of trading while other classes of investments are better suited for different types of investing. For example, the pure speculator will probably lean towards futures contracts in his investment portfolio because of the high level of leverage and volatility futures contracts inherently possess. On the other hand, a conservative investor with a longer-term investment horizon might favor a blue-chip stocks as his favorite investment class. While there are instances where stock investing can be quite volatile, by and large stock investing is a more stable investment than their volatile cousin, the futures contract. The important point here is for the average investor to match his investment goals with a class of investments that will meet his needs and expectations. For example, an investor who prefers very volatile investments in hopes of making a tidy profit in a relatively short period of time probably shouldn’t invest in blue chip stocks. While some erratic movement in blue-chip stocks is possible, they are generally fairly stodgy and methodical in price movement. On the other hand, another investor may truly enjoy the volatile price movement involved in trading oil futures, for example. Oil futures are often very volatile and it takes a steady and skilled hand to manage these investments profitably. Just the same, the potential for extraordinary profits over a short period of time is far more likely in oil futures than blue-chip stocks. I must add one caveat, though: the fact that volatility exists in a given investment class does not assure profit, it only assures movement and it is up to the individual investor to translate that movement into profit, as opposed to loss.

In recent years another investment class has appeared and it is called Forex. Opinions on the Forex market range from a wholehearted acceptance of the investment to some investors who are, to say the least, very wary of the Forex market. I trade the Forex market from time to time and have not encountered any of the alleged horror stories some investors claim occur. But I think it is important to note that the Forex market, as opposed to the stock and futures markets, has very little transparency. There is no exchange on which Forex pairs are essentially traded. The Forex market is a loose conglomeration of participating banks that clear Forex trades more or less independently. To date, the system has worked reasonably well and been free from any widespread accusations of fraud or wrongdoing. To my way of thinking though, the lack of transparency in the Forex market is something that needs to be rectified before I can wholeheartedly embrace the Forex trading system. Without standardized contracts, exchange oversight, and a centralized location the possibility for widespread problems simply outweighs the possible benefits the Forex system offers. I think at some point this need will be realized and the Forex system will develop a centralized exchange with standardized contracts as the public clamors for the uniformity common to all investment classes. But to date, the system is still a loose association of banks and financial institutions clearing the Forex trades.

To my way of thinking, I will stick with stocks and futures contracts and my trading until the Forex system advances to the point of uniformity. Of course, there are uniform currency futures available on the Chicago Mercantile exchange for those who are interested in trading currencies. On positive note, I have no doubt that the Forex markets will evolve into a more structured trading format in the near future.

The stock market is possibly the greatest competition in existence. Every dollar is in a contest where there is always a winner and always a loser. A giant game with trillions in currency floating as zeros and ones staged in a virtual playground filled with some of the most calculating, intelligent minds in the world. Exactly who is our competition in this tournament we’re drawn to by independence, the allure of riches, and self-indulgences beyond our imaginations? Many of us fail to consider this as we are pulled to this sport like moths to a flame.

Trouble is that like moths, if we get too close to that flame, we get scorched; blistered by something that never looked more beautiful, all the while being a very dangerous space. Have you considered the fact that we are in a playground filled with people who have been highly trained? Trading professionals have often had multi-million dollar corporations invest hundreds of thousands of dollars training them in the ways of the market; the rhythms, the secrets, the exploitation of inefficiencies, and a plethora we could never know unless someone from the inside told us. This is a sport full of exceptional players; often some of the most educated, the most driven, the most ambitious, the most well trained, and possibly, some of the most ruthless. Ponder this as you step out on the field at 9:30 eastern.

I’ve been coaching for a while, and I notice this common thread among traders who reach out to me for support. When I ask them how much they have spent on education, the answers come in two forms: None, or not much. Yet, their perception is somehow they can just “pick it up.” When I remind folks about who they have chosen as their competitors, the silence is often uncomfortable. Only after extremely painful losses do some traders accept the fact that to play with professionals and come out without our skin being peeled, we need to learn to be real students of the market; and that takes personal investment of our time, resources, and energy. In our microwave society, we expect results now, without realizing that excellence is cultivated, not borrowed or bought. There is no shortcut to excellence, and sadly, some of us who venture to attain success in this arena never realize this.

See, we don’t learn how to trade by osmosis; we don’t learn by simply following someone; we don’t learn to trade by losing or winning; we don’t learn to trade by doing the opposite of the last failed trade. We learn to trade by choosing a system, creating a trading plan around that system, and executing that plan as synchronously as possible; then doing it over, and over, and over, and over again until you build competence.

A good coach will tell you things that make you uncomfortable; and that discomfort should cause you to change. So I’d like to offer you some personal discomfort in an effort to assist in your trading development. Without a systematic, proven, and disciplined approach to your trading, you will continue to fail. If you don’t have one, you shouldn’t be trading until you do.

Shake yourself up and ask the hard questions. Am I training like a world-class athlete or something bush league? Someone once said if you keep doing what you’ve been doing, you’re going to keep getting what you’ve got. If you don’t study the market, you should. If you don’t know how to, you should find someone willing to teach you. If you are undisciplined, or lack dedication, work on sticking to routines. If you don’t know how to, you should find someone willing to help you. If you feel yourself frozen by fear, find a way to learn to trust yourself. If you don’t know how to, you should find someone willing to show you.

Do the things you know you probably should. Stretch yourself. Consider ideas that you never would have before. Reach for the next rung. Make yourself more of the ideal you desire to be. Take charge of your decisions. But whatever it is, get out of your comfort zone this year. Your comfort zone might be just the thing making your trading account dwindle, keeping you in the same trading rut, not growing, not really learning, and certainly not developing into that great trader you hope to see one day when you look in the mirror.

I endorse a state of the art trading program for beginners at Trading Concepts, Inc It’s an awesome product that will have you well on your way to trading success. Plus, it has a money back guarantee…you have nothing to lose and thousands to gain.

It is a fair question.

In some of the postings on this blog you will see an important admonition:  Day trade  one contract with consistent success before you start trading with real money.  I think that is an important consideration when learning the emini contracts.

I am intimately familiar with these two stock market indexes, as they have been an important part of my life for quite a while, and I am very comfortable with the price action in these two contracts.  I might add, as an aside, that the NQ contract is a wonderful contract to learn.

That being said,  I feel most comfortable with the ES and YM contracts because I am familiar with them.  The ES in particular, because of the heavy volume (which results in wonderful liquidity) is a favorite of mine.

I have yet to experience slippage in the YM, though, when trading less than ten contracts and I feel confident in saying the YM is an easier contract to trade than the ES.  I’ve had numerous novice traders tackle the ES from the onset and had less-than-satisfactory results.   But when they switched to the YM, their luck changed along with the results.  I just think the YM is far better starting point than the ES.

There are all sorts of anecdotal theories on why the YM is easier to trade, and none are definitive.  Suffice it say it is simply easier and less subject to unusual movement at the odd moment, which is not to say that you don’t have to trade a YM chart, you had best pay close attention.  But once you have found your groove on the YM, it will produce.

Fed and Agency Announcements

International Trade
8:30 AM ET

Import and Export Prices
8:30 AM ET

Consumer Sentiment
9:55 AM ET

EIA Natural Gas Report
10:30 AM ET

Charles Evans Speaks
10:30 AM ET

The question in my mind is where this market is headed.  How long can this gravity defying stock market rally continue?  I know, I know, I thought you were a scalper?  In my trading life I am a scalper, but spending so much time day trading makes you like an intimate friend of this rally.  Just when you think the market could not go higher, it seems to find a way…

And that would be typical.

Individual investors tend to exit the market during a prolonged downturn toward the end of the cycle, especially the one last year. That is baffling to me, too. Once you have lost 50% of your money, really, what do you have to lose? Selling only locks in the loss. But that is a typical investing pattern when small investors are run out of the market, and, they fail to jump in when the market trends upward.

If I were a long term investor, this market is a little scary, and Nouriel Roubini is once again issuing warnings about our economy.

The latest run up has made me grateful I am a day trader and scalper, because being in this market more than 15 minutes just plain scares me. The government has, as usual, pursued a policy of accommodation for the big investment banks, including giving them all billions of dollars to stay afloat. Whenever Wall Street bankers get their firms in trouble, be it junk bonds, credit default swaps, the leaders of our country are quick to dole out cash to bail them out. It’s always been that way, and keeping the Fed Funds interest rate at zero has been a boon to the investment banks community. I would also note that it has done absolutely nothing for Main Street citizens of our country.

Okay, I’ll get off the soap box. Here is the problem, though…

The market has gone up 50%+ since March, and the primary reason for this run up has been a policy of economic accommodation for Wall Street. I see nothing in the economy that is noticeably better since the most recent recession started. Unemployment is at an all time high, foreclosure rates continue to sky-rocket and the consumer has, by most measures, kept his credit card in his/her wallet.

The stock market, though, has continued it’s climb while Main Street suffers through the doldrums of the recession. Now you could argue that the market is pre-cursor of better times, that the market is a leading indicator, so to speak. Then again, you can also make a cogent argument that this run up is nothing more than a bubble of artificial origin. Unfortunately, Nouriel Roubini has made the latter argument, and he had a handle on the original problems last year. I hope he is wrong.

I would feel much better, though, if our government gave up it’s love affair with the banking community and investment bankers in general. These buffoons have a penchant for loading risk on their dinner plate and then come asking for an antacid when they get a stomach ache. If, or when this market collapses, at least the smaller investor won’t be effected so directly. There is some comfort in that.

I would point out that collapse is not imminent, but at some juncture the disconnect between Wall Street and Main St. will bear noxious fruit.

The five ETFs that we are referring to are going to play a major role in the future and you need to know about them today.

In this short video I show you the overriding trend and potential for each of these markets in the future.

As always our videos are free to watch and there is no need for registration.

CLICK HERE- Watch the ETF Video from INO

Trading slowdown steepest in decades

I don’t usually concern myself with broad economic themes but this graph intrigued me.   The number of shares traded on the major exchanges has begun to slow to a trickle, when compared with past years.  It is not unusual for trading to slow in the summer.  In fact, the volume and number of shares traded generally is less in the summer, as opposed to the beginning of the year.  But this year the trading has been especially slow.

What exactly, then, does this portend?

I suppose you could surmise that we will stay in a tight range of trading for the rest of the summer.  Volume is essential for any move, up or down.   For whatever reason, the general public doesn’t have much of an appetite for the stock market, and this understandable after the last year.  Many people lost large portions of their stock-based assets in the decline late last year and early this year, and there is a general mistrust of the regulation and operations of the equity markets.

Potential investors have also parted with goodly portions of their real estate equity as home prices continue to take a pounding.  Many experts continue to predict continued declines in upper end housing as the housing bubble unwinds the bloated prices of housing.

So maybe the current rally, which has been robust in terms of price gains, is about to take a breather and wait for new money to enter the market.  On the other hand, there are probably large stock gains waiting for profit taking activity.  I don’t make predictions on the direction of the market but some caution for longer term investors would certainly seem to be the order of the day.