May, 2009

May 09

The Dow Now 6.1

indu daily chart

indu daily chart

Well looks like the range that the Dow Jones Industrials chart told us about in the previous post stayed intact.  It was posted here and I will reiterate it: 8200 area is an area of support.  That mean when price goes there, and becomes very sluggish, it is trying to say that it wants to be bought.  Resistance looks like 8500 area but it is much more defined at 8600.  Most importantly, the underlying momentum is up and now even more so.  From what I can tell, this index wants to go higher.  If I were holding long postions, I would give them a chance, still being cautious though.  Another thing I am looking to do in this area is take some long call option positions, preferably on an intraday pullback.  We will be talking alot about this in the chat room so now is a good time to get in and learn.

Our website is now going into its beta test and you will begin to see changes as we collect feedback from members. You will notice I changed the name if this blog in order to better reflect what it covers.  Another new feature that you will soon see is an additional blog category by Pat which will specifically cover the forex market.  So check it out.

I was recently speaking to someone who asked me where to begin as a trader.  That is a question that I specifically address in an upcoming webinar (see the home page for date and time).  I just wanted to say a little about that here as well.  The first thing you want to do as a new trader is define your expectations.  This is very important.  Your expectations need to be very realisitc, otherwise when your emotions take over, you will throw money out the window very quickly.  What are realistic expectations? That you will not make money at something like this right away.  A very common mistake is new traders coming into this with high expectations of making large amounts of money in a few weeks.  They say things like, “I will just get a feel for this by playing with a practice account for a little while.  I’m good at math so this shouldn’t be that hard. I have an economics degree and I’m smart so I should be fine.”  Trading is not a game of intelligence.  It is a game of managing risk, controlling emotions, patience and learning to listen.  So as a beginner you want to start off by respecting the market and allowing yourself a realistic amount of time to learn this game.  Want to know more?  Come to my webinar and I will explain.

In terms of news, we saw some mixed reports that were more toward the bearish side, but market sentiment is still higher. Many times the market will ignore news and do what is wants to do anyway. This is why you only want to be aware of news and not trade on it. So what is coming out this week worth mentioning? Monday we have ISM manufacturing and construction spending. Tuesday is pending home sales and motor vehicle sales. Wednesday is the ADP employment and Bernanke is testifying before the House budget committee (financial drama alert!). Thursday we have jobless claims and nonfarm productivity. Friday is the employment report also known as nonfarm payrolls (NFP). Also Geithner is going to China and alot of talk may be coming out of there during the week so keep one an eye on this for any pointless talk that moves markets. See the details here.

And that is just US news. Eurzone and UK will have a lot to talk about next week. Very important to be aware of if you are trading currencies. The most important events are the policy meetings from European Central Bank (ECB), Bank of England (BOE), Royal Bank of Australia (RBA) and Bank of Canada(BoC). Policy meetings are like the FOMC in the US. If they say something unexpected, markets will move. Especially currency markets. Check the following calendar for more details here.

So remember, keep an eye on those support and resistance levels on the Dow. The market will tell you where it wants to go, you just have to have the patience to listen. Come into our chat room and we will show you how this works. See you there!

May 09

The Dow Now 5.25

indu daily chart

indu daily chart

The Dow Jones Industrials Index has given us a defined trading range this week. And we are presently at the lower part of the range which is the 8200 area. If you notice, we bounced in this area before and at this point we are looking for signs of another bounce.  Keep in mind, we are in a support area and the price can break through the support at 8200, going only a little lower and then reverse right back up.  That would be a false break, or a fake out.  Be ready for that scenario. If you watch the market intraday, watch for signs of sluggishness on the short side.  If price falls right through without a problem, then this is confirmed weakness which means time to look for short positions.  The positive momentum is still present, so I wouldn’t be too aggressive on the short side just yet.  At the present rate, it will take at least a week to see a change in market momentum so stay tuned.

In this type of environment, it really helps to be patient and wait for prices to reach significant levels before taking a position.  And even when prices are there, you want to wait and see what is does.  Wait for a confirmation.  Patience in trading is an acquired skill.  It is especially challenging within the context of the immensely impulsive world that we are exposed to every day.  One helpful solution is when the product you are trading is not showing any opportunities, you move on and find something that is showing signs of an opportunity.  This lesson took me a couple of years to realize thanks to my stubborn nature.  What does a sign of an opportunity look like you ask?  Well come to our trading chat room and find out.  It is much easier to show on a real time chart than it is on this blog.

One thing you may hear often when learning how to trade is learning to anticipate where price is going next. It sounds almost like a chess game, where you are always trying to anticipate your opponents moves two or three moves ahead of where you are now.  This is a very important trading concept.  It helps to protect you from being impulsive and chasing seemingly runaway prices.  We illustrate this often in our webinars and in the trading room.

As far as upcoming news to watch for this week we have: Case-Schiller home price index on Tuesday along with consumer confidence, not exactly huge market movers. Existing home sales on Wednesday while Thursday we have durable goods, new home sales, crude oil inventories and initial jobless claims.  The home sales numbers and oil inventories are possible catalysts for market momentum so be awake when these reports come out. Friday has Chicago PMI and Q1 GDP revision. Be awake for these also because the media likes to create a lot of drama around these numbers. The eurozone, Japan and pacific rim have many similar types of reports coming out and if you are active in the currency market, you should at east take a look.

Click here for market events calendar.

So enjoy your holiday and come back all ready to be patient! This is a great time to learn how to trade because  you don’t have to worry about missing alot of market moves.  Join us in the chat room we will show you how it all works. See you there!

May 09

Market Log May 18th 2009

indu daily chart

indu daily chart

Are you watching this Dow Jones Industrials Index?  Nice pull back that has been over due for about 2 weeks now.  Why didn’t we short this?  The answer is simple: the market momentum is still up.  I have no problem shorting something intraday, but I will not take anything overnight when overall bias is still to the upside.  The Dow Jones Industrials Index has pulled into the 8200 minor support area.  This is where bullish traders can look for reversal patterns to go long.  We will be looking at some long option plays to take advantage of this particular situation.  Come into our chat room for specifics on how we are managing our trades.

I have spoken to some newer traders who get confused as to why we would not try to take advantage of this market weakness when we know that the market is in pullback mode.  It is important to understand that we have particular strategies for a variety of scenarios.  When I write this blog,  and I mention what we are looking for, and what we plan to do, it is within the context of a swing trading strategy.  Swing Trading is when you take a trade with a 2 day to 2 week time horizon generally.  This type of strategy contains certain risk/reward parameters in addition to other characterisitcs that separate it from our day trading strategies.  Remember don’t mix strategies. 

As a newer trader, you want to choose one strategy that fits your risk tolerance, daily schedule, and amount of capital in your trading account.  One of the most common mistakes I encounter is a new trader has absolutely no structure to apply to trading decisions.  The decisions are usually impulses or reactions to market movement that is happening in the present.  By being impulsive, you are always chasing the market.  You need to learn a way to anticipate the next move.  This is what trading sytems and trading plans are all about.  And this is what we can help you develop for yourself.

Anticipating the market should not be confused with predicting the market. Anticipating the market in my opinion is when you understand what the possibilities and risks of the next move are and taking a predefined risk to try and capitalize.  When you anticipate you say, “There is a high probability of a reversal here, and if I’m wrong, I have no problem losing a hundred dollars.  But if I’m right, it is possible to make 200 dollars.”     Predicting the market comes with the added pressure of having to be right.  Your ego gets involved.  There is no room in the market for egos.  This is why doctors, lawyers and other know-it-alls who attempt to trade run into a lot of problems generally. These people say things like, “This market is definitely going up because it has to!”.  They are used to being right all the time.  Some even make money being right.  Note to people with big egos : the market is a place of uncertainty and this fact must be respected.  The market knows more than you and everyone else participating. 

For those who respect the market it will tell you what it wants to do, but you must develop the ability to listen. Part of that ability is coming into this without your ego getting in the way.  Being wrong is part of the deal so get used to it.  The trick here is to recognize quickly when you are wrong and take the appropriate action.

So what do we have to look forward to this week in terms of economic events?  It looks like a quiet week overall.  We have homebuilder sentiment on Monday and housing starts on Tuesday.  Wednesday we have Geitner testifying,  FOMC minutes and oil inventories.  So alot of potential for jumpiness that day. 
Thursday and Friday we have leading indicators and Philly Fed manufacturing index which are basically non events. Eurozone, Canada, Australia and New Zealand are generally quiet in terms of reports.  Japan has Consumer Confidence, GDP,  even a BOJ rate annoucement.  Check the forex calendar here for specifics.

So thats all for now.  If you are new in the trading world, or not so new but confused, join us because we are here to help. Just make sure to leave the ego at the door. ;)  See you in the chat room!

May 09

Market Log for May 11, 2009

indu daily chart

indu daily chart

The positive momentum continues. Sentiment is on the positive side and long positions taken over this period have done well. As you can see on the Dow Jones Industrials, the 8200 minor resitance level was clearly broken and 8400 major resistance has been broken as well. Remember old resistance becomes new support and now you will notice the 8400 area being slightly supportive.

Momentum indicators still point to the upside but prices don’t go up in a straight line. As prices become over extended, risk to the long side increases dramatically. This is an area where we are taking profits on long option positions that we have taken in the previous 2 weeks. If I were going to take any new option longs at these levels, they had better perform within a day or two, otherwise I’m out.

This market in terms of scalping is hard. This is a choppy market with occasional spurts of momentum. If you are new to this type of trading strategy, then this is a great time to educate yourself further and trade a litte less. You can do this by taking advantage of our free instruction, paper trading and doing your homework on the tons of learning resources on the net. What do I do during this environment with my scalping? The first thing I do is adjust my time frame higher. I pay more attention to support and resistance levels within the bigger picture. If you join our chatroom, you will see first hand how we navigate in this environment. You must learn to be flexible.

Some news items to keep an eye out for next week include: Bernanke talking on Monday about the over dramatized “strees tests”. The rest of the week contains things like retail sales and producer price index numbers. If something comes in unexpected, we can see volatility enter the market very quickly. Also there is alot of news coming out of the Eurozone, UK and Japan. It is good to be aware so that you can take it into account when trading, especially in the currency market. Remember we trade momentum and don’t make decisions based on any news related items. News is there to sell advertising, not help you make money.

Check out the Forex Factory calendar here it shows all news pertaining to all markets.

See Barrons economic calendar here for US reports and explanations here.

Overall, I am very cautious at these levels and looking to go where the ever prices decide to go.  It is possible for this to go higher, but I am now thinking very short term.  This means my time horizon for non scalping trades is 1-2 days.  Need further explanation?  Come to the room!

May 09

Market Log Monday May 4th

indu daily chart

indu daily chart

In the previous post, I wrote that we were in a range and that momentum to the upside was pretty clear. Establishing new long postions in strong stocks during the week was not a bad idea.

We are now trading around the 8200 resistance area. There was even a candle stick sell signal on Thursday which the market ignored Friday resulting in a green candle. If the Dow Jones Industrials Index was going to dump, it would have done so as soon as it touched this resistance level. Notice the price is holding. To me this indicates strength and fearless buyers. Thinking of shorting? Not yet. This type of market will experience relatively small dips and we are looking to buy them. As long as the market keeps shrugging off negative news, I am looking for the Dow Jones Industrials to continue higher for now.  8400 is the next big resistance. Just be aware that there is alot of upcoming news this week and if there are any surprises, the technical picture can change fast. Be flexible.

From an intraday perspective, the market has been choppy. It is hard to scalp stocks, futures and forex when there is little momentum. During this lack of volility, the best thing to do is be very selective, adjust your profit expectations and employ a strategy that works on larger time frames. This is where you have to be more aware of the big picture. What does this mean exactly? Come to the chatroom we will show you.

In the chat room, one of the strategies that we employ is directional options trading. We talk about how and why we are trading a particular option.So if you are looking for a strategy to help you in this environment, come to the room. This is also very good for people who don’t have time to trade during the day as well.

As far as upcoming market events that the media will place too much importance on, we have a busy week. We have housing numbers, nonfarm payrolls and even some talk from fed chairman Bernanke. Remember we do not like to trade news, but you should be aware of it. Here is a link to the Barrons online economic calendar here. Check it each week to see what reports are coming up in the US as well as other countries. We have interest rate announcements coming out of the Eurozone(Thursday) and Australia (Tuesday). This moves markets so pay attention.

So that is all for now. Remember having the patience and ability to adjust to the ever changing market volatility is what makes a trader a trader.  Join us and we will share with you various methods that we use to adjust. See you in the chat room.